Strategy To YieldBoost CPSI To 21.1% Using Options
December 15, 2017 at 11:42 AM EST
Shareholders of Computer Programs & Systems Inc (CPSI) looking to boost their income beyond the stock's 1.4% annualized dividend yield can sell the March 2018 covered call at the $30 strike and collect the premium based on the $1.45 bid, which annualizes to an additional 19.7% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 21.1% annualized rate in the scenario where the stock is not called away. Any upside above $30 would be lost if the stock rises there and is called away, but CPSI shares would have to advance 1.8% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 6.7% return from this trading level, in addition to any dividends collected before the stock was called.