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YieldBoost Reliance Steel & Aluminum To 9.9% Using Options

Shareholders of Reliance Steel & Aluminum Co. (RS) looking to boost their income beyond the stock's 1.8% annualized dividend yield can sell the June 2014 covered call at the $80 strike and collect the premium based on the $3.60 bid, which annualizes to an additional 8.2% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.9% annualized rate in the scenario where the stock is not called away. Any upside above $80 would be lost if the stock rises there and is called away, but RS shares would have to climb 6.6% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 11.4% return from this trading level, in addition to any dividends collected before the stock was called.

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In general, dividend amounts are not always predictable and tend to follow the ups and downs of profitability at each company. In the case of Reliance Steel & Aluminum Co., looking at the dividend history chart for RS below can help in judging whether the most recent dividend is likely to continue, and in turn whether it is a reasonable expectation to expect a 1.8% annualized dividend yield.

RS+Dividend+History+Chart

Below is a chart showing RS's trailing twelve month trading history, with the $80 strike highlighted in red:

Loading+chart++2013+TickerTech.com

The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the June 2014 covered call at the $80 strike gives good reward for the risk of having given away the upside beyond $80. (Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve month volatility for Reliance Steel & Aluminum Co. (considering the last 252 trading day closing values as well as today's price of $74.99) to be 23%. For other call options contract ideas at the various different available expirations, visit the RS Stock Options page of StockOptionsChannel.com.

Stock quotes in this article: RS 
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