Exploring Options for Investing in Williams Sonoma Stock

Investors looking to buy Williams Sonoma Inc (Symbol: WSM) at the current market price of $158.97 per share may find selling put options to be a viable alternative strategy. Notably, the January 2027 put option with a $90 strike price offers a bid of $7.50. Accepting this premium yields an 8.3% return based on the $90 commitment, translating to a 4.9% annualized rate of return, a term referred to as YieldBoost.

While selling a put does not allow investors to share in WSM’s upside potential like owning shares would, it offers a way to earn income. The put seller takes ownership of the shares only if the contract is exercised. This occurs if the stock price drops to $90 or lower, yielding a cost basis of $82.50 per share when factoring in the premium received. Unless WSM’s stock declines by 43.5%, the only gain for the put seller is the premium collected, which yields a 4.9% annualized return.

Comparative Yield Analysis

Interestingly, the 4.9% annualized return from selling the put option exceeds the 1.7% annualized dividend yield offered by Williams Sonoma, representing a 3.2% differential based on the share price of $158.97. Conversely, purchasing shares to collect dividends exposes investors to greater downside risk, as the stock would need to fall 43.52% to hit the $90 strike price.

Dividend Uncertainties

When discussing dividends, it’s crucial to understand that amounts can fluctuate based on the company’s profitability. Examining Williams Sonoma’s dividend history chart, shown below, can provide insights into the likelihood of sustaining the current 1.7% yield.

Stock Price History

The following chart illustrates the trailing twelve months of trading history for Williams Sonoma, indicating where the $90 strike price aligns within that range:

This chart, combined with Williams Sonoma’s historical volatility, can assist investors in evaluating whether selling the January 2027 put option at the $90 strike price is worthwhile in terms of risk and reward. Currently, the trailing twelve months’ volatility for Williams Sonoma stands at 54%, based on recent trading values and the current price of $158.97.

Market Trends

During mid-afternoon trading on Monday, the put volume among S&P 500 components reached 810,250 contracts, matching the call volume for the day. This results in a put-to-call ratio of 0.72, indicating higher put buying activity than anticipated when compared to the long-term median ratio of 0.65. Thus, there are more investors purchasing puts than expected, reflecting market sentiment.

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