Exploring Strategic Alternatives for Investing in Invitation Homes
Investors eyeing shares of Invitation Homes Inc (Symbol: INVH) may find the current market price of $33.93/share a bit steep. One alternative strategy they might consider is selling put options. A notable option is the October put at the $30 strike, which is currently bidding at 90 cents. Collecting this bid as premium equates to a 3% return against the $30 commitment, translating to a 6.4% annualized rate of return (a measure referred to as YieldBoost).
It’s important to note that selling a put option does not grant investors the same upside potential as holding shares. A put seller only acquires shares if the contract is exercised. In such a case, the option holder would benefit from exercising the option only if it is more favorable than selling at the current market price. Should the shares of Invitation Homes decline by 11.6%, it would lead to a cost basis of $29.10 per share (factoring in the 90 cents from the $30 strike). Hence, the only potential upside for the put seller is the premium collected, giving them a 6.4% annualized return.
Interestingly, this annualized return of 6.4% surpasses the 3.4% annualized dividend yield paid by Invitation Homes by 3%, based on the market price. Conversely, purchasing shares solely for the dividend means facing greater downside risk, as the stock would need to drop 11.56% to hit the $30 strike price.
When discussing dividends, it is crucial to recognize that dividend amounts can be unpredictable and typically vary with the profitability of the company. Examining the dividend history of Invitation Homes, as displayed in the chart below, can assist investors in determining if the most recent dividend is likely to continue, thereby setting reasonable expectations for the 3.4% annualized yield.
Additionally, the following chart illustrates the trailing twelve months of trading history for Invitation Homes Inc, highlighting the $30 strike relative to that history:
The above chart, along with the stock’s historical volatility, can serve as a valuable tool when combined with fundamental analysis. This approach helps assess whether selling the October put at the $30 strike, yielding a 6.4% annualized return, presents an appropriate reward relative to the risks. The trailing twelve-month volatility for Invitation Homes Inc—calculated considering the last 249 trading days and the current price of $33.93—stands at 22%. For various put options contract ideas across different expirations, consult the INVH Stock Options page.
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Also see:
- Top Stocks Held By Ken Griffin
- Top Ten Hedge Funds Holding FDTB
- Institutional Holders of JAH
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
