Strategy To YieldBoost FF To 11.2% Using Options

Shareholders of FutureFuel Corp (FF) looking to boost their income beyond the stock's 3.8% annualized dividend yield can sell the February 2015 covered call at the $15 strike and collect the premium based on the 40 cents 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 11.2% annualized rate in the scenario where the stock is not called away. Any upside above $15 would be lost if the stock rises there and is called away, but FF shares would have to advance 18.5% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 21.6% return from this trading level, in addition to any dividends collected before the stock was called.