Shareholders of T. Rowe Price Group (TROW) looking to boost their income beyond the stock's 1.8% annualized dividend yield can sell the April 2014 covered call at the $85 strike and collect the premium based on the $2.50 bid, which annualizes to an additional 9.6% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 11.4% annualized rate in the scenario where the stock is not called away. Any upside above $85 would be lost if the stock rises there and is called away, but TROW shares would have to climb 1.7% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 4.7% return from this trading level, in addition to any dividends collected before the stock was called.
Strategy To YieldBoost T. Rowe Price Group To 11.4% Using Options
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