Strategy To YieldBoost Culp From 2.8% To 9.4% Using Options

Shareholders of Culp Inc (CULP) looking to boost their income beyond the stock's 2.8% annualized dividend yield can sell the July 2020 covered call at the $17.50 strike and collect the premium based on the 60 cents bid, which annualizes to an additional 6.6% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.4% annualized rate in the scenario where the stock is not called away. Any upside above $17.50 would be lost if the stock rises there and is called away, but CULP shares would have to climb 16.7% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 20.7% return from this trading level, in addition to any dividends collected before the stock was called.