Shareholders of Timken Co. (TKR) looking to boost their income beyond the stock's 1.8% annualized dividend yield can sell the June 2014 covered call at the $57.50 strike and collect the premium based on the $2.85 bid, which annualizes to an additional 8.5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 10.2% annualized rate in the scenario where the stock is not called away. Any upside above $57.50 would be lost if the stock rises there and is called away, but TKR shares would have to climb 8.6% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 14% return from this trading level, in addition to any dividends collected before the stock was called.
YieldBoost Timken From 1.8% To 10.2% Using Options
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