How To YieldBoost Microsoft To 4.1% Using Options

Shareholders of Microsoft Corporation (MSFT) looking to boost their income beyond the stock's 2.5% annualized dividend yield can sell the January 2016 covered call at the $55 strike and collect the premium based on the $1.06 bid, which annualizes to an additional 1.6% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 4.1% annualized rate in the scenario where the stock is not called away. Any upside above $55 would be lost if the stock rises there and is called away, but MSFT shares would have to advance 23.1% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 25.5% return from this trading level, in addition to any dividends collected before the stock was called.