Shareholders of Hewlett-Packard (HPQ) looking to boost their income beyond the stock's 2% annualized dividend yield can sell the January 2016 covered call at the $40 strike and collect the premium based on the $1.63 bid, which annualizes to an additional 2.9% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 4.9% annualized rate in the scenario where the stock is not called away. Any upside above $40 would be lost if the stock rises there and is called away, but HPQ shares would have to climb 35% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 40.5% return from this trading level, in addition to any dividends collected before the stock was called.
Strategy To YieldBoost Hewlett-Packard To 4.9% 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
More than 30 investing pros with skin in the game give you actionable insight and investment ideas.