YieldBoost OB To 21.1% Using Options
April 08, 2015 at 11:31 AM EDT
Shareholders of OneBeacon Insurance Group Ltd (OB) looking to boost their income beyond the stock's 5.3% annualized dividend yield can sell the May covered call at the $17.50 strike and collect the premium based on the 25 cents bid, which annualizes to an additional 15.7% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 21.1% annualized rate in the scenario where the stock is not called away. Any upside above $17.50 would be lost if the stock rises there and is called away, but OB shares would have to advance 11.5% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 13.1% return from this trading level, in addition to any dividends collected before the stock was called.