Strategy To YieldBoost TerraForm Power From 3.9% To 25.1% Using Options
July 24, 2020 at 11:19 AM EDT
Shareholders of TerraForm Power Inc (TERP) looking to boost their income beyond the stock's 3.9% annualized dividend yield can sell the December covered call at the $22.50 strike and collect the premium based on the $1.75 bid, which annualizes to an additional 21.2% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 25.1% annualized rate in the scenario where the stock is not called away. Any upside above $22.50 would be lost if the stock rises there and is called away, but TERP shares would have to advance 9.7% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 18.2% return from this trading level, in addition to any dividends collected before the stock was called.
