YieldBoost MCD To 4.6% Using Options
November 23, 2015 at 11:34 AM EST
Shareholders of McDonald's Corp (MCD) looking to boost their income beyond the stock's 3.1% annualized dividend yield can sell the January 2018 covered call at the $135 strike and collect the premium based on the $3.60 bid, which annualizes to an additional 1.4% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 4.6% 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 MCD shares would have to advance 17.8% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 20.9% return from this trading level, in addition to any dividends collected before the stock was called.