YieldBoost CPLA To 15.1% Using Options
December 22, 2014 at 11:41 AM EST
Shareholders of Capella Education Company (CPLA) looking to boost their income beyond the stock's 2% annualized dividend yield can sell the June 2015 covered call at the $75 strike and collect the premium based on the $4.70 bid, which annualizes to an additional 13.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 15.1% annualized rate in the scenario where the stock is not called away. Any upside above $75 would be lost if the stock rises there and is called away, but CPLA shares would have to climb 2.7% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 9.1% return from this trading level, in addition to any dividends collected before the stock was called.