Strategy To YieldBoost Pennymac Mortgage Investment Trust From 11.5% To 27% Using Options
May 22, 2024 at 11:40 AM EDT
Shareholders of Pennymac Mortgage Investment Trust (PMT) looking to boost their income beyond the stock's 11.5% annualized dividend yield can sell the December covered call at the $20 strike and collect the premium based on the $1.25 bid, which annualizes to an additional 15.5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 27% annualized rate in the scenario where the stock is not called away. Any upside above $20 would be lost if the stock rises there and is called away, but PMT shares would have to advance 44.2% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 53.2% return from this trading level, in addition to any dividends collected before the stock was called.