YieldBoost American Electric Power To 7.5% Using Options
June 25, 2024 at 11:37 AM EDT
Shareholders of American Electric Power Co Inc (AEP) looking to boost their income beyond the stock's 4% annualized dividend yield can sell the January 2026 covered call at the $97.50 strike and collect the premium based on the $4.80 bid, which annualizes to an additional 3.5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 7.5% annualized rate in the scenario where the stock is not called away. Any upside above $97.50 would be lost if the stock rises there and is called away, but AEP shares would have to climb 11.4% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 16.8% return from this trading level, in addition to any dividends collected before the stock was called.