How To YieldBoost EQR To 10.4% Using Options
July 17, 2024 at 12:16 PM EDT
Shareholders of Equity Residential (EQR) looking to boost their income beyond the stock's 3.9% annualized dividend yield can sell the June 2025 covered call at the $72.50 strike and collect the premium based on the $4.20 bid, which annualizes to an additional 6.5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 10.4% annualized rate in the scenario where the stock is not called away. Any upside above $72.50 would be lost if the stock rises there and is called away, but EQR shares would have to climb 4.4% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 10.5% return from this trading level, in addition to any dividends collected before the stock was called.
