Investors deliberating a buy of Installed Building Products Inc (Symbol: IBP) stock at the current market price of $212.50/share may consider an alternative strategy – selling puts. The April put at the $210 strike is a compelling option, with a bid of $11.10, reflecting a 5.3% return against the $210 commitment or a striking 30.2% annualized rate of return. This is what Stock Options Channel terms the YieldBoost.

However, selling a put does not entail the same upside potential as owning shares. It only leads to ownership if the contract is exercised. The upside for the put seller lies in collecting the premium for the 30.2% annualized rate of return, unless Installed Building Products Inc experiences a share decline of 0.3% and the contract is exercised. In this scenario, the cost basis would be $198.90 per share before broker commissions, deducting $11.10 from $210.

Interestingly, the annualized 30.2% figure exceeds the 0.6% annualized dividend paid by Installed Building Products Inc by a whopping 29.6%, based on the current share price of $212.50. Despite this, buying the stock at market price for the dividend presents greater downside, as the stock would need to dip by 0.28% to reach the $210 strike price.

When discussing dividends, it’s crucial to note that the amounts are not always predictable, and they tend to mirror a company’s profitability fluctuations. Taking a look at Installed Building Products Inc’s dividend history can help judge the likelihood of the most recent dividend continuing, and consequently, whether a 0.6% annualized dividend yield is a reasonable expectation.

The trailing twelve month trading history chart for Installed Building Products Inc below highlights where the $210 strike is positioned relative to that history:

The chart and the stock’s historical volatility, coupled with fundamental analysis, can help assess if selling the April put at the $210 strike for the 30.2% annualized rate of return presents a favorable risk-reward balance. The trailing twelve month volatility for Installed Building Products Inc is calculated to be 38% considering the last 251 trading day closing values and today’s price of $212.50. For more put options contract ideas at different available expirations, interested parties can visit the IBP Stock Options page of StockOptionsChannel.com.

During mid-afternoon trading on Thursday, the put volume among S&P 500 components stood at 2.37M contracts, with call volume also at 2.37M. This led to a put:call ratio of 0.74 for the day, exceeding the long-term median put:call ratio of .65. Thus, more put buyers than expected are active in options trading today, compared to the long-term median projection based on the number of 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.