YieldBoost Essex Property Trust To 5% Using Options
April 26, 2017 at 11:54 AM EDT
Shareholders of Essex Property Trust Inc (ESS) looking to boost their income beyond the stock's 2.9% annualized dividend yield can sell the October covered call at the $260 strike and collect the premium based on the $2.40 bid, which annualizes to an additional 2.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 5% annualized rate in the scenario where the stock is not called away. Any upside above $260 would be lost if the stock rises there and is called away, but ESS shares would have to advance 8.2% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 9.2% return from this trading level, in addition to any dividends collected before the stock was called.