Investors considering the purchase of Upbound Group Inc (Symbol: UPBD) shares may be hesitant about the current market price of $32.90 per share. However, they should take note of an intriguing alternative strategy: selling put options. Specifically, the September put at the $25 strike, which presents a bid of $1.00 at the moment. The premium collected from this bid equates to a 4% return against the $25 commitment or a 6.7% annualized rate of return. (At Stock Options Channel, we refer to this as the YieldBoost).
Understanding the Potential Upside
When an investor sells a put, it doesn’t offer the same access to the upside potential of UPBD’s shares as owning the stock outright. This is because the put seller only ends up owning shares if the contract is exercised. Furthermore, the counterparty will only benefit from exercising at the $25 strike if doing so results in a superior outcome compared to selling at the current market price. Hence, unless Upbound Group Inc experiences a 23.5% decline and the contract is exercised, the only upside to the put seller stems from collecting the premium for the 6.7% annualized rate of return.
A Surprise Surpassing Dividends
Notably, the annualized 6.7% figure exceeds the 4.5% annualized dividend paid by Upbound Group Inc by 2.2%, based on the current share price of $32.90. Even if an investor were to buy the stock at the prevailing market price to capitalize on the dividend, the downside risk would be greater, as the stock would need to experience a 23.48% decline to reach the $25 strike price.
The Unpredictability of Dividends
It’s crucial to recognize that dividend amounts are not always predictable and are typically influenced by the fluctuating profitability of each company. For Upbound Group Inc, consulting the dividend history chart for UPBD below can provide insight into the likelihood of the continuation of the most recent dividend and, consequently, whether it is reasonable to expect a 4.5% annualized dividend yield.
Below, you’ll find a chart illustrating the trailing twelve-month trading history for Upbound Group Inc, with the $25 strike highlighted in green relative to that history.
This chart, along with the stock’s historical volatility, can serve as a valuable guide, in conjunction with fundamental analysis, to assess whether selling the September put at the $25 strike for the 6.7% annualized rate of return represents a favorable reward for the associated risks. Trailing twelve-month volatility for Upbound Group Inc (taking into account the last 251 trading day closing values, as well as today’s price of $32.90) is calculated to be 35%. For further put options contract ideas at different available expirations, visit the UPBD Stock Options page at StockOptionsChannel.com.
Insight into Trading Activity
In the mid-afternoon trading on Wednesday, put volume among S&P 500 components stood at 1.94M contracts, while call volume was at 1.94M. This results in a put:call ratio of 0.70 for the day, exceeding the long-term median put:call ratio of 0.65. In essence, the current options trading is witnessing more put buyers than anticipated, based on the number of call buyers and the long-term median put:call ratio.
Also see:
CPTK Average Annual Return
NP market cap history
PK Dividend Growth Rate
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
