YieldBoost GMCR From 0.9% To 8.3% Using Options
April 03, 2014 at 11:34 AM EDT
Shareholders of Keurig Green Mountain (GMCR) looking to boost their income beyond the stock's 0.9% annualized dividend yield can sell the January 2016 covered call at the $175 strike and collect the premium based on the $14.20 bid, which annualizes to an additional 7.4% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 8.3% annualized rate in the scenario where the stock is not called away. Any upside above $175 would be lost if the stock rises there and is called away, but GMCR shares would have to advance 62.4% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 75.6% return from this trading level, in addition to any dividends collected before the stock was called.