Strategy To YieldBoost NWSA To 4.4%
May 30, 2013 at 14:46 PM EDT
Shareholders of News Corp (NWSA) looking to boost their income beyond the stock's 0.5% annualized dividend yield can sell the January 2015 covered call at the $40 strike and collect the premium based on the $2.10 bid, which annualizes to an additional 3.9% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 4.4% 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 NWSA shares would have to climb 22.2% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 28.6% return from this trading level, in addition to any dividends collected before the stock was called.