YieldBoost HWCC To 12.2% Using Options
February 28, 2014 at 11:55 AM EST
Shareholders of Houston Wire & Cable Co (HWCC) looking to boost their income beyond the stock's 3.2% annualized dividend yield can sell the September covered call at the $15 strike and collect the premium based on the 70 cents bid, which annualizes to an additional 9% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 12.2% annualized rate in the scenario where the stock is not called away. Any upside above $15 would be lost if the stock rises there and is called away, but HWCC shares would have to advance 7.9% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 12.9% return from this trading level, in addition to any dividends collected before the stock was called.