YieldBoost Theravance From 5.2% To 23.6% Using Options
June 23, 2015 at 11:42 AM EDT
Shareholders of Theravance Inc (THRX) looking to boost their income beyond the stock's 5.2% annualized dividend yield can sell the December covered call at the $20 strike and collect the premium based on the $1.75 bid, which annualizes to an additional 18.4% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 23.6% 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 THRX shares would have to advance 2.8% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 11.8% return from this trading level, in addition to any dividends collected before the stock was called.
