How To YieldBoost QEP To 4.1% Using Options
September 15, 2014 at 11:26 AM EDT
Shareholders of QEP Resources Inc (QEP) looking to boost their income beyond the stock's 0.3% annualized dividend yield can sell the January 2016 covered call at the $37 strike and collect the premium based on the $1.65 bid, which annualizes to an additional 3.9% 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 $37 would be lost if the stock rises there and is called away, but QEP shares would have to climb 15.8% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 20.9% return from this trading level, in addition to any dividends collected before the stock was called.