YieldBoost CPLA From 2.2% To 9.2% Using Options
March 23, 2015 at 11:35 AM EDT
Shareholders of Capella Education Company (CPLA) looking to boost their income beyond the stock's 2.2% annualized dividend yield can sell the September covered call at the $75 strike and collect the premium based on the $2.25 bid, which annualizes to an additional 6.9% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.2% 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 advance 13.5% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 16.9% return from this trading level, in addition to any dividends collected before the stock was called.