How To YieldBoost CATY To 21.9% Using Options

Shareholders of Cathay General Bancorp (CATY) looking to boost their income beyond the stock's 3.6% annualized dividend yield can sell the May covered call at the $60 strike and collect the premium based on the 15 cents bid, which annualizes to an additional 18.3% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 21.9% annualized rate in the scenario where the stock is not called away. Any upside above $60 would be lost if the stock rises there and is called away, but CATY shares would have to advance 60.4% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 60.8% return from this trading level, in addition to any dividends collected before the stock was called.