How To YieldBoost Zoetis From 0.8% To 6.3% Using Options
July 21, 2016 at 12:09 PM EDT
Shareholders of Zoetis Inc (ZTS) looking to boost their income beyond the stock's 0.8% annualized dividend yield can sell the January 2017 covered call at the $55 strike and collect the premium based on the $1.40 bid, which annualizes to an additional 5.5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 6.3% annualized rate in the scenario where the stock is not called away. Any upside above $55 would be lost if the stock rises there and is called away, but ZTS shares would have to climb 9.3% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 12.1% return from this trading level, in addition to any dividends collected before the stock was called.