YieldBoost DuPont To 4.8% Using Options
July 21, 2016 at 12:04 PM EDT
Shareholders of DuPont (DD) looking to boost their income beyond the stock's 2.2% annualized dividend yield can sell the January 2018 covered call at the $77.50 strike and collect the premium based on the $2.60 bid, which annualizes to an additional 2.6% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 4.8% annualized rate in the scenario where the stock is not called away. Any upside above $77.50 would be lost if the stock rises there and is called away, but DD shares would have to climb 14.4% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 18.2% return from this trading level, in addition to any dividends collected before the stock was called.