YieldBoost WTS To 6.7% Using Options

Shareholders of Watts Water Technologies Inc (WTS) looking to boost their income beyond the stock's 1.2% annualized dividend yield can sell the June 2016 covered call at the $60 strike and collect the premium based on the $1.85 bid, which annualizes to an additional 5.4% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 6.7% annualized rate in the scenario where the stock is not called away. Any upside above $60 would be lost if the stock rises there and is called away, but WTS shares would have to climb 11.5% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 14.9% return from this trading level, in addition to any dividends collected before the stock was called.