How To YieldBoost FF From 2.3% To 13.3% Using Options
March 18, 2014 at 11:41 AM EDT
Shareholders of FutureFuel Corp (FF) looking to boost their income beyond the stock's 2.3% annualized dividend yield can sell the April covered call at the $22.50 strike and collect the premium based on the 20 cents bid, which annualizes to an additional 11% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 13.3% annualized rate in the scenario where the stock is not called away. Any upside above $22.50 would be lost if the stock rises there and is called away, but FF shares would have to advance 8.5% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 9.5% return from this trading level, in addition to any dividends collected before the stock was called.