Strategy To YieldBoost Scotts Miracle-Gro To 9.5% Using Options
June 21, 2024 at 14:03 PM EDT
Shareholders of Scotts Miracle-Gro Co (SMG) looking to boost their income beyond the stock's 4% annualized dividend yield can sell the January 2026 covered call at the $90 strike and collect the premium based on the $5.70 bid, which annualizes to an additional 5.5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.5% annualized rate in the scenario where the stock is not called away. Any upside above $90 would be lost if the stock rises there and is called away, but SMG shares would have to advance 37% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 45.6% return from this trading level, in addition to any dividends collected before the stock was called.