Strategy To YieldBoost Aon To 9.9% Using Options

Shareholders of Aon plc (AON) looking to boost their income beyond the stock's 1.2% annualized dividend yield can sell the April 2017 covered call at the $115 strike and collect the premium based on the $3.80 bid, which annualizes to an additional 8.7% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.9% annualized rate in the scenario where the stock is not called away. Any upside above $115 would be lost if the stock rises there and is called away, but AON shares would have to advance 2.1% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 5.5% return from this trading level, in addition to any dividends collected before the stock was called.