YieldBoost EIX To 9.9% Using Options
June 18, 2018 at 11:09 AM EDT
Shareholders of Edison International (EIX) looking to boost their income beyond the stock's 4% annualized dividend yield can sell the January 2019 covered call at the $62.50 strike and collect the premium based on the $2.10 bid, which annualizes to an additional 5.9% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.9% annualized rate in the scenario where the stock is not called away. Any upside above $62.50 would be lost if the stock rises there and is called away, but EIX shares would have to advance 3.4% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 6.9% return from this trading level, in addition to any dividends collected before the stock was called.
