Shareholders of Rockwood Holdings Inc (ROC) looking to boost their income beyond the stock's 2.5% annualized dividend yield can sell the August 2014 covered call at the $75 strike and collect the premium based on the $4.30 bid, which annualizes to an additional 9.5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 12% annualized rate in the scenario where the stock is not called away. Any upside above $75 would be lost if the stock rises there and is called away, but ROC shares would have to advance 4.8% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 10.8% return from this trading level, in addition to any dividends collected before the stock was called.
Strategy To YieldBoost Rockwood Holdings To 12% Using Options
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