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Strategy To YieldBoost Penske Automotive Group To 11.5% Using Options

Shareholders of Penske Automotive Group Inc (PAG) looking to boost their income beyond the stock's 3.2% annualized dividend yield can sell the May 2020 covered call at the $55 strike and collect the premium based on the $2.05 bid, which annualizes to an additional 8.3% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 11.5% annualized rate in the scenario where the stock is not called away. Any upside above $55 would be lost if the stock rises there and is called away, but PAG shares would have to climb 8.2% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 12.3% return from this trading level, in addition to any dividends collected before the stock was called.
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