YieldBoost NN To 16.9% Using Options
September 03, 2014 at 11:35 AM EDT
Shareholders of NN, Inc (NNBR) looking to boost their income beyond the stock's 1% annualized dividend yield can sell the March 2015 covered call at the $30 strike and collect the premium based on the $2.50 bid, which annualizes to an additional 15.9% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 16.9% annualized rate in the scenario where the stock is not called away. Any upside above $30 would be lost if the stock rises there and is called away, but NNBR shares would have to advance 3.7% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 12.4% return from this trading level, in addition to any dividends collected before the stock was called.