Strategy To YieldBoost SWBI To 28.8% Using Options

Shareholders of Smith & Wesson Brands Inc (SWBI) looking to boost their income beyond the stock's 3.5% annualized dividend yield can sell the December covered call at the $16 strike and collect the premium based on the $1.35 bid, which annualizes to an additional 25.4% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 28.8% annualized rate in the scenario where the stock is not called away. Any upside above $16 would be lost if the stock rises there and is called away, but SWBI shares would have to climb 7% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 16% return from this trading level, in addition to any dividends collected before the stock was called.