How To YieldBoost KBH To 3.6% Using Options

Shareholders of KB HOME (KBH) looking to boost their income beyond the stock's 0.7% annualized dividend yield can sell the January 2017 covered call at the $25 strike and collect the premium based on the $1.00 bid, which annualizes to an additional 2.9% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 3.6% annualized rate in the scenario where the stock is not called away. Any upside above $25 would be lost if the stock rises there and is called away, but KBH shares would have to climb 66.8% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 73.5% return from this trading level, in addition to any dividends collected before the stock was called.