Shareholders of ADT Corp (ADT) looking to boost their income beyond the stock's 2.5% annualized dividend yield can sell the January 2015 covered call at the $35 strike and collect the premium based on the $2.00 bid, which annualizes to an additional 6.9% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.4% annualized rate in the scenario where the stock is not called away. Any upside above $35 would be lost if the stock rises there and is called away, but ADT shares would have to advance 9.5% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 15.8% return from this trading level, in addition to any dividends collected before the stock was called.
How To YieldBoost ADT From 2.5% To 9.4% Using Options
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