YieldBoost RAIL From 0.9% To 5.9% Using Options
February 28, 2014 at 11:58 AM EST
Shareholders of FreightCar America Inc (RAIL) looking to boost their income beyond the stock's 0.9% annualized dividend yield can sell the September covered call at the $30 strike and collect the premium based on the 70 cents bid, which annualizes to an additional 4.9% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 5.9% 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 RAIL shares would have to climb 18% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 20.7% return from this trading level, in addition to any dividends collected before the stock was called.