YieldBoost Best Buy To 7.3% Using Options
August 13, 2014 at 11:26 AM EDT
Shareholders of Best Buy Inc (BBY) looking to boost their income beyond the stock's 2.6% annualized dividend yield can sell the January 2016 covered call at the $38 strike and collect the premium based on the $1.96 bid, which annualizes to an additional 4.7% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 7.3% annualized rate in the scenario where the stock is not called away. Any upside above $38 would be lost if the stock rises there and is called away, but BBY shares would have to advance 29.5% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 36.2% return from this trading level, in addition to any dividends collected before the stock was called.