How To YieldBoost Lowe's Companies To 5.8% Using Options
May 25, 2016 at 11:41 AM EDT
Shareholders of Lowe's Companies Inc (LOW) looking to boost their income beyond the stock's 1.4% annualized dividend yield can sell the January 2018 covered call at the $87.50 strike and collect the premium based on the $5.90 bid, which annualizes to an additional 4.4% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 5.8% 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 LOW shares would have to climb 8.9% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 16.2% return from this trading level, in addition to any dividends collected before the stock was called.