How To YieldBoost KNL From 2.3% To 9.5% Using Options
March 05, 2015 at 11:48 AM EST
Shareholders of Knoll Inc (KNL) looking to boost their income beyond the stock's 2.3% annualized dividend yield can sell the September covered call at the $22.50 strike and collect the premium based on the 80 cents bid, which annualizes to an additional 7.2% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.5% annualized rate in the scenario where the stock is not called away. Any upside above $22.50 would be lost if the stock rises there and is called away, but KNL shares would have to advance 9.3% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 13.2% return from this trading level, in addition to any dividends collected before the stock was called.