How To YieldBoost HOT To 16.4% Using Options

Shareholders of Starwood Hotels & Resorts Worldwide Inc (HOT) looking to boost their income beyond the stock's 1.8% annualized dividend yield can sell the November covered call at the $87.50 strike and collect the premium based on the $4.20 bid, which annualizes to an additional 14.7% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 16.4% annualized rate in the scenario where the stock is not called away. Any upside above $87.50 would be lost if the stock rises there and is called away, but HOT shares would have to climb 2.9% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 7.9% return from this trading level, in addition to any dividends collected before the stock was called.