YieldBoost Baltic Trading From 2.5% To 24.4% Using Options
January 28, 2015 at 11:35 AM EST
Shareholders of Baltic Trading Ltd (BALT) looking to boost their income beyond the stock's 2.5% annualized dividend yield can sell the March covered call at the $2.50 strike and collect the premium based on the 5 cents bid, which annualizes to an additional 22% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 24.4% annualized rate in the scenario where the stock is not called away. Any upside above $2.50 would be lost if the stock rises there and is called away, but BALT shares would have to climb 53.4% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 56.4% return from this trading level, in addition to any dividends collected before the stock was called.