Shareholders of Northeast Utilities (NU) looking to boost their income beyond the stock's 3.5% annualized dividend yield can sell the January 2014 covered call at the $45 strike and collect the premium based on the 5 cents bid, which annualizes to an additional 1.7% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 5.2% annualized rate in the scenario where the stock is not called away. Any upside above $45 would be lost if the stock rises there and is called away, but NU shares would have to advance 6.3% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 6.4% return from this trading level, in addition to any dividends collected before the stock was called.
YieldBoost Northeast Utilities To 5.2% Using Options
Check Out Our Best Services for Investors
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Model portfolio
- Stocks trading below $10
- Intraday trade alerts