YieldBoost Host Hotels & Resorts From 2.8% To 7.1% Using Options

Shareholders of Host Hotels & Resorts (NYSE: HST) looking to boost their income beyond the stock's 2.8% annualized dividend yield can sell the January 2015 covered call at the $23 strike and collect the premium based on the 60 cents bid, which annualizes to an additional 4.3% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 7.1% annualized rate in the scenario where the stock is not called away. Any upside above $23 would be lost if the stock rises there and is called away, but HST shares would have to climb 6.1% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 8.9% return from this trading level, in addition to any dividends collected before the stock was called.

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In general, dividend amounts are not always predictable and tend to follow the ups and downs of profitability at each company. In the case of Host Hotels & Resorts, looking at the dividend history chart for HST below can help in judging whether the most recent dividend is likely to continue, and in turn whether it is a reasonable expectation to expect a 2.8% annualized dividend yield.

Below is a chart showing HST's trailing twelve month trading history, with the $23 strike highlighted in red:

The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the January 2015 covered call at the $23 strike gives good reward for the risk of having given away the upside beyond $23. (Do most options expire worthless? This and six other common options myths debunked). We calculate the trailing twelve month volatility for Host Hotels & Resorts Inc (considering the last 251 trading day closing values as well as today's price of $21.70) to be 20%. For other call options contract ideas at the various different available expirations, visit the HST Stock Options page of StockOptionsChannel.com.

In mid-afternoon trading on Tuesday, the put volume among S&P 500 components was 587,833 contracts, with call volume at 1.14M, for a put:call ratio of 0.52 so far for the day. Compared to the long-term median put:call ratio of .65, that represents very high call volume relative to puts; in other words, buyers are preferring calls in options trading so far today.

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