How To YieldBoost CVI From 8.3% To 55.8% Using Options
January 16, 2020 at 12:45 PM EST
Shareholders of CVR Energy Inc (CVI) looking to boost their income beyond the stock's 8.3% annualized dividend yield can sell the January covered call at the $40 strike and collect the premium based on the 5 cents bid, which annualizes to an additional 47.5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 55.8% annualized rate in the scenario where the stock is not called away. Any upside above $40 would be lost if the stock rises there and is called away, but CVI shares would have to advance 4% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 4.1% return from this trading level, in addition to any dividends collected before the stock was called.