UDR Inc Shareholders Consider Covered Calls for Enhanced Income

Shareholders of UDR Inc (Symbol: UDR) have an opportunity to increase their income beyond the stock’s current 4.3% annualized dividend yield. By selling the October covered call at the $45 strike, investors can collect a premium currently bid at 45 cents. This translates to an additional 2.8% return when annualized against the existing stock price. If the stock is not called away, this strategy could yield a total of 7% on an annualized basis.

It’s worth noting that if the stock price exceeds $45, the upside potential is lost since the shares would be called away. However, such a situation would require a 12% increase from current levels. If the stock is called, shareholders would have achieved a total return of 13.1%, which includes dividends collected before the call.

Dividend Stability and Historical Performance

While dividends can fluctuate based on a company’s profitability, an examination of UDR’s dividend history can provide insight into the likelihood of sustaining the current yield. This analysis is crucial for shareholders considering whether a 4.3% annual yield is realistic moving forward.

Trading History Overview

Below is UDR’s trailing twelve-month trading history, marked with the $45 strike in red:

The charts above, combined with the stock’s historical volatility, can help investors assess whether selling the covered call at the $45 strike is a prudent strategy. Currently, the trailing twelve-month volatility for UDR is calculated at 23%, using the last 250 trading day closing values alongside today’s price of $40.22. For alternative call option strategies across different expirations, investors can explore the UDR Stock Options page.

Market Activity Update

During mid-afternoon trading on Thursday, put volume among S&P 500 components reached 765,270 contracts, while call volume hit 1.62 million contracts. This results in a put-to-call ratio of 0.47 for the day. This ratio indicates a significantly higher preference for calls compared to puts, as the long-term median is 0.65. Essentially, buyers are favoring call options in today’s trading.

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Data for Further Analysis:

• Top 10 Hedge Funds Holding YUM
• OCUL YTD Return
• NXP Semiconductors NV MACD

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