Investors interested in Fifth Third Bancorp (Symbol: FITB) may find themselves hesitant about the current share price of $43.05. One alternative strategy worth considering is to sell put options. A notable example is the January 2027 put option with a $33 strike price, which is currently priced at $2.55. This premium offers a potential return of 7.7% against a $33 commitment, translating to an annualized rate of return of 3.5%, a figure we refer to as YieldBoost at Stock Options Channel.
Selling a put option means the investor does not participate in the price appreciation of FITB shares in the same way that owning the shares outright would. The put seller will acquire the shares only if the option is exercised, which happens if it benefits the buyer to sell at the $33 strike price instead of the market price. There is a notable risk here; if Fifth Third Bancorp experiences a 23.3% drop in stock price leading to the option being exercised, the effective cost basis would be $30.45 per share, after accounting for the $2.55 premium. The only guaranteed profit for the put seller comes from the premium collected, resulting in an annualized return of 3.5% under these conditions.
Interestingly, this 3.5% annualized return surpasses the 3.4% dividend yield offered by Fifth Third Bancorp at the current stock price of $43.05. However, buying the shares directly for the dividend comes with its own risks. The stock would need to decrease by 23.26% to hit the $33 strike price.
It’s important to remember that dividends are not always reliable and can fluctuate with company profits. For Fifth Third Bancorp, reviewing their dividend history can provide insight into the sustainability of the current yield and help set expectations for future dividends.
The accompanying chart displays the recent trading history for Fifth Third Bancorp, with the $33 strike price highlighted for context:
These visualizations, alongside an assessment of Fifth Third Bancorp’s historical volatility and fundamental data, can assist in evaluating whether selling the January 2027 put option at the $33 strike is a worthwhile risk-return tradeoff. We estimate the trailing twelve-month volatility for Fifth Third Bancorp (using the last 250 trading day closing prices and today’s price of $43.05) to be 27%. For further put option strategies with varying expirations, interested investors can check out the FITB Stock Options page at StockOptionsChannel.com.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
