Strategy To YieldBoost HD To 4.1% Using Options

Shareholders of Home Depot Inc (HD) looking to boost their income beyond the stock's 2% annualized dividend yield can sell the January 2017 covered call at the $135 strike and collect the premium based on the $3.60 bid, which annualizes to an additional 2.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 4.1% annualized rate in the scenario where the stock is not called away. Any upside above $135 would be lost if the stock rises there and is called away, but HD shares would have to advance 16.1% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 19.1% return from this trading level, in addition to any dividends collected before the stock was called.