YieldBoost PepsiCo To 4.1% Using Options

Shareholders of PepsiCo Inc. ( PEP) looking to boost their income beyond the stock's 3% annualized dividend yield can sell the January 2016 covered call at the $100 strike and collect the premium based on the $1.50 bid, which annualizes to an additional 1.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 4.1% annualized rate in the scenario where the stock is not called away. Any upside above $100 would be lost if the stock rises there and is called away, but PEP shares would have to climb 15.2% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 16.9% return from this trading level, in addition to any dividends collected before the stock was called.

START SLIDESHOW:
Top YieldBoost Calls of S.A.F.E. Dividend Stocks »

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 PepsiCo Inc., looking at the dividend history chart for PEP 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 3% annualized dividend yield.

PEP+Dividend+History+Chart

Below is a chart showing PEP's trailing twelve month trading history, with the $100 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 January 2016 covered call at the $100 strike gives good reward for the risk of having given away the upside beyond $100. ( Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve month volatility for PepsiCo Inc. (considering the last 252 trading day closing values as well as today's price of $86.89) to be 13%. For other call options contract ideas at the various different available expirations, visit the PEP Stock Options page of StockOptionsChannel.com.

In mid-afternoon trading on Wednesday, the put volume among S&P 500 components was 550,892 contracts, with call volume at 920,701, for a put:call ratio of 0.60 so far for the day. Compared to the long-term median put:call ratio of .65, that represents high call volume relative to puts; in other words, buyers are showing a preference for calls in options trading so far today. Find out which 15 call and put options traders are talking about today.

If you liked this article you might like

Natural Alternatives to Sports Drinks - Buying Guide

Uber's New Brand Chief Says the iPhone X Costs Too Much Money

Uber's New Brand Chief: Why I Took the Job and What I'm Going to Do Now

Coca-Cola Is Inching Closer to Monster Beverage Takeover

Hurricane Irma Sends People Panicking to Buy Bottled Water