Shareholders of HCP (HCP) looking to boost their income beyond the stock's 5.7% annualized dividend yield can sell the July covered call at the $40 strike and collect the premium based on the 95 cents bid, which annualizes to an additional 6% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 11.7% 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 HCP shares would have to advance 4.3% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 6.8% return from this trading level, in addition to any dividends collected before the stock was called.
YieldBoost HCP To 11.7% Using Options
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