Strategy To YieldBoost KBR To 16.9% Using Options
July 24, 2015 at 11:35 AM EDT
Shareholders of KBR Inc (KBR) looking to boost their income beyond the stock's 1.9% annualized dividend yield can sell the December covered call at the $18 strike and collect the premium based on the $1.05 bid, which annualizes to an additional 15% 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 $18 would be lost if the stock rises there and is called away, but KBR shares would have to climb 3.8% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 9.8% return from this trading level, in addition to any dividends collected before the stock was called.