How To YieldBoost SPW To 9.8% Using Options

Shareholders of SPX Corp. (SPW) looking to boost their income beyond the stock's 1.4% annualized dividend yield can sell the September covered call at the $110 strike and collect the premium based on the $4.50 bid, which annualizes to an additional 8.3% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.8% annualized rate in the scenario where the stock is not called away. Any upside above $110 would be lost if the stock rises there and is called away, but SPW shares would have to advance 6.9% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 11.2% return from this trading level, in addition to any dividends collected before the stock was called.

START SLIDESHOW:
Top YieldBoost Calls of Stocks Conducting Buybacks »

In general, dividend amounts are not always predictable and tend to follow the ups and downs of profitability at each company. In the case of SPX Corp., looking at the dividend history chart for SPW below can help in judging whether the most recent dividend is likely to continue, and in turn whether it is a reasonable expectation to expect a 1.4% annualized dividend yield.

SPW+Dividend+History+Chart

Below is a chart showing SPW's trailing twelve month trading history, with the $110 strike highlighted in red:

Loading+chart++2014+TickerTech.com

The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the September covered call at the $110 strike gives good reward for the risk of having given away the upside beyond $110. ( Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve month volatility for SPX Corp. (considering the last 252 trading day closing values as well as today's price of $103.89) to be 23%. For other call options contract ideas at the various different available expirations, visit the SPW Stock Options page of StockOptionsChannel.com.

More from Stocks

Stocks End Close to Home

Stocks End Close to Home

General Electric CFO to TheStreet: In 'Wait and See' Mode When It Comes to Trade

General Electric CFO to TheStreet: In 'Wait and See' Mode When It Comes to Trade

Bonds vs. Stocks: What's the Difference?

Bonds vs. Stocks: What's the Difference?

Jim Cramer on Bank of America, Tariffs and the Goldman Sachs CEO Change

Jim Cramer on Bank of America, Tariffs and the Goldman Sachs CEO Change

Nvidia Is Taking Over the Autonomous Driving Industry -- Here's How

Nvidia Is Taking Over the Autonomous Driving Industry -- Here's How