How To YieldBoost NRG To 14.7% Using Options
March 20, 2017 at 11:38 AM EDT
Shareholders of NRG Energy Inc (NRG) looking to boost their income beyond the stock's 0.7% annualized dividend yield can sell the September covered call at the $20 strike and collect the premium based on the $1.25 bid, which annualizes to an additional 14% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 14.7% annualized rate in the scenario where the stock is not called away. Any upside above $20 would be lost if the stock rises there and is called away, but NRG shares would have to advance 10% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 16.9% return from this trading level, in addition to any dividends collected before the stock was called.