Strategy To YieldBoost RMAX To 6.3% Using Options
September 16, 2014 at 11:56 AM EDT
Shareholders of Re/Max Holdings Inc (RMAX) looking to boost their income beyond the stock's 0.8% annualized dividend yield can sell the March 2015 covered call at the $35 strike and collect the premium based on the 85 cents bid, which annualizes to an additional 5.5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 6.3% annualized rate in the scenario where the stock is not called away. Any upside above $35 would be lost if the stock rises there and is called away, but RMAX shares would have to advance 14% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 16.8% return from this trading level, in addition to any dividends collected before the stock was called.