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September 01, 2020 1:29pm
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YieldBoost Prudential Financial To 12.1% Using Options

Shareholders of Prudential Financial Inc (PRU) looking to boost their income beyond the stock's 4.3% annualized dividend yield can sell the December 2025 covered call at the $125 strike and collect the premium based on the $9.40 bid, which annualizes to an additional 7.7% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 12.1% annualized rate in the scenario where the stock is not called away. Any upside above $125 would be lost if the stock rises there and is called away, but PRU shares would have to advance 3.7% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 11.5% return from this trading level, in addition to any dividends collected before the stock was called.
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