Strategy To YieldBoost Farmers & Merchants Bancorp From 4.2% To 16.3% Using Options

Shareholders of Farmers & Merchants Bancorp Inc (FMAO) looking to boost their income beyond the stock's 4.2% annualized dividend yield can sell the December covered call at the $25 strike and collect the premium based on the $1.40 bid, which annualizes to an additional 12.2% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 16.3% 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 FMAO shares would have to advance 18% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 24.6% return from this trading level, in addition to any dividends collected before the stock was called.