Strategy To YieldBoost FITB To 5.1% Using Options

Shareholders of Fifth Third Bancorp (FITB) looking to boost their income beyond the stock's 2.7% annualized dividend yield can sell the January 2017 covered call at the $22 strike and collect the premium based on the 84 cents bid, which annualizes to an additional 2.5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 5.1% annualized rate in the scenario where the stock is not called away. Any upside above $22 would be lost if the stock rises there and is called away, but FITB shares would have to advance 12.5% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 16.8% return from this trading level, in addition to any dividends collected before the stock was called.