Exploring Alternative Investment Strategies with Monolithic Power Systems

Investors interested in purchasing shares of Monolithic Power Systems Inc (Symbol: MPWR), currently priced at $585.87 per share, might find it worthwhile to consider selling put options as an alternative investment strategy. Notably, the January 2027 put option with a $390 strike price is currently bid at $50.00. By selling this put and collecting the premium, investors could achieve a 12.8% return on the $390 commitment, translating to a 6.9% annualized rate of return, referred to as YieldBoost in stock options trading.

However, selling a put option does not afford the investor the same upside potential that owning shares would. The put seller only acquires shares if the contract is exercised, which would only be beneficial if the shares fall below the $390 strike price. In such a scenario, the cost basis would effectively decrease to $340.00 per share when accounting for the premium received. Therefore, unless Monolithic Power Systems’ stock declines by 33.2% to trigger the option, the put seller’s only gain lies in the collected premium, which offers a limited 6.9% annualized return.

It’s important to note that this annualized figure exceeds the company’s dividend yield of 1.1% based on the same share price. If an investor were to buy MPWR shares at the current market price for the dividend, they would face greater risk, as the stock would need to decline by 33.24% to hit the $390 strike price.

Dividend amounts can fluctuate based on a company’s profitability; thus, they are not always reliable. Examining the dividend history of Monolithic Power Systems, as illustrated in the chart below, can help investors gauge the likelihood of maintaining the current 1.1% annual dividend yield.

The following chart outlines the trailing twelve months of trading history for Monolithic Power Systems, particularly emphasizing the position of the $390 strike price:

Analyzing this chart alongside the historical volatility of MPWR can aid investors in assessing whether selling the January 2027 put option at the $390 strike price for a 6.9% annualized return presents an acceptable risk-reward scenario. The trailing twelve-month volatility for Monolithic Power Systems, based on the last 249 trading day closing values and the current price of $585.87, stands at 57%. For additional put option ideas with varying expiration dates, visit the MPWR options page at StockOptionsChannel.com.

During mid-afternoon trading on Monday, put volume among S&P 500 components reached 2.40 million contracts, while call volume stood at 2.73 million, resulting in a put:call ratio of 0.88 for the day. This figure indicates a higher-than-normal interest in puts relative to calls, as the long-term median put:call ratio is 0.65. Consequently, there has been a significant number of put buyers within options trading today compared to call buyers.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.