November 15, 2013 at 12:47 PM EST
Strategy To YieldBoost AYI From 0.5% To 10.5% Using Options
Shareholders of Acuity Brands Inc (AYI) looking to boost their income beyond the stock's 0.5% annualized dividend yield can sell the May 2014 covered call at the $110 strike and collect the premium based on the $5.30 bid, which annualizes to an additional 10% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 10.5% annualized rate in the scenario where the stock is not called away. Any upside above $110 would be lost if the stock rises there and is called away, but AYI shares would have to advance 4.5% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 9.5% return from this trading level, in addition to any dividends collected before the stock was called.
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