Home Most Popular Unveiling a Crafty 11.57% “Dividend” Tactic with AMZN Stock

Unveiling a Crafty 11.57% “Dividend” Tactic with AMZN Stock

0

Amazon (AMZN) stock remains a beloved choice for option traders, with a stellar performance streak dating back to last October.

At present, the stock comfortably sits above the 20, 50, and 200-day moving averages, a reassuring signal to many investors.

Manufacturing a Dividend with Amazon Stock

While Amazon’s refusal to pay out dividends may disappoint income-seeking investors, there is a clever workaround using options to create a quasi-dividend.

Consider this: with $18,000 earmarked for investment in AMZN, instead of simply purchasing shares and hoping for appreciation, a more conservative approach involves selling a March 21, 2025 put with a strike price of $180.

By depositing the $18,000 as collateral in case of assignment on the short put, the $180-strike put can yield approximately $1,820 in option premium over twelve months.

As a result, the $18,000 investment unlocks an impressive 11.57% annualized “dividend,” a creative financial maneuver indeed.

Navigating the Risks

Just like holding AMZN shares, the strategy is not without risks, particularly in the short term if the stock value dips.

If AMZN falls below $180 by March 2025, the investor is obligated to purchase 100 shares at $180.

Essentially, the breakeven point for the trade is $161.80, factoring in the received option premium.

However, if AMZN remains above $180, the investor garners an attractive 11% return annually when the put expires as worthless.

Although cash-secured puts convey a bullish sentiment, the potential gains are capped by the premium received, making it a slightly less bullish strategy compared to direct stock ownership.

Exploring Advanced Strategies

The addition of a $130-strike put can transform the initial trade into a bull put spread, significantly curtailing the risk from $18,000 to roughly $5,000.

This strategic adjustment leverages the dynamic nature of options, offering a glimpse into the multitude of scenarios that can be crafted to navigate market conditions effectively.

Get to Know Amazon

Amazon.com stands as a behemoth in the e-commerce landscape, boasting an extensive global footprint.

The company’s online retail dominance is anchored by the Prime program, reinforced by a robust distribution network.

Further diversification into physical retail was catalyzed by the Whole Foods Market acquisition, solidifying Amazon’s presence in the grocery segment.

Notably, Amazon’s cloud-computing juggernaut, Amazon Web Services, is a lucrative high-margin business, fortifying its position within the Infrastructure as a Service sector.

The ubiquitous Alexa-powered Echo devices epitomize Amazon’s foray into artificial intelligence, driving product sales and services.

Revenue streams emanate from three primary segments – North America, International, and AWS – underscoring the company’s multifaceted business approach catering to consumers, sellers, and website developers.

It is crucial to remember that options carry inherent risks, and investments can potentially result in total loss. This article is meant for educational purposes only and should not be construed as a trade recommendation.

As of the publication date, Gavin McMaster did not hold any positions (directly or indirectly) in the securities mentioned in this article. All the information provided here is intended solely for informational purposes. For additional details, please refer to the Barchart Disclosure Policy.

The opinions articulated here are those of the author and do not necessarily mirror the views of Nasdaq, Inc.