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September 01, 2020 1:43pm
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YieldBoost Archrock To 12% Using Options

Shareholders of Archrock Inc (AROC) looking to boost their income beyond the stock's 2.7% annualized dividend yield can sell the May 2025 covered call at the $30 strike and collect the premium based on the $1.15 bid, which annualizes to an additional 9.3% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 12% annualized rate in the scenario where the stock is not called away. Any upside above $30 would be lost if the stock rises there and is called away, but AROC shares would have to advance 15.9% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 20.3% return from this trading level, in addition to any dividends collected before the stock was called.
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