Strategy To YieldBoost Monolithic Power Systems To 10% Using Options
August 17, 2015 at 11:39 AM EDT
Shareholders of Monolithic Power Systems Inc (MPWR) looking to boost their income beyond the stock's 1.6% annualized dividend yield can sell the March 2016 covered call at the $55 strike and collect the premium based on the $2.50 bid, which annualizes to an additional 8.4% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 10% annualized rate in the scenario where the stock is not called away. Any upside above $55 would be lost if the stock rises there and is called away, but MPWR shares would have to climb 8.2% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 13.2% return from this trading level, in addition to any dividends collected before the stock was called.