YieldBoost PRA From 0.9% To 11.2% Using Options
October 15, 2021 at 11:44 AM EDT
Shareholders of ProAssurance Corp (PRA) looking to boost their income beyond the stock's 0.9% annualized dividend yield can sell the May 2022 covered call at the $25 strike and collect the premium based on the $1.40 bid, which annualizes to an additional 10.3% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 11.2% annualized rate in the scenario where the stock is not called away. Any upside above $25 would be lost if the stock rises there and is called away, but PRA shares would have to advance 9.2% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 15.3% return from this trading level, in addition to any dividends collected before the stock was called.
