YieldBoost PriceSmart To 8% Using Options
June 07, 2018 at 11:50 AM EDT
Shareholders of PriceSmart Inc (PSMT) looking to boost their income beyond the stock's 0.8% annualized dividend yield can sell the January 2019 covered call at the $95 strike and collect the premium based on the $3.90 bid, which annualizes to an additional 7.2% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 8% annualized rate in the scenario where the stock is not called away. Any upside above $95 would be lost if the stock rises there and is called away, but PSMT shares would have to climb 8.7% from current levels for that to happen, 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.