Commit To Purchase Assurant At $185, Earn 6.4% Annualized Using Options

Selling a put option on Assurant Inc (AIZ) at a strike price of $185 expiring in December yields a 6.4% annualized return, exceeding AIZ's 1.6% dividend yield; however, this strategy only provides upside if the option is exercised, requiring a 6.8% share price decline from the current price of $198.56. The article suggests investors weigh the 6.4% annualized return against the risk, considering AIZ's 25% trailing twelve-month volatility and dividend predictability.

Analysis

The article outlines a specific options strategy for Assurant Inc. (AIZ): selling a December put option with a $185 strike price, which, based on AIZ's current share price of $198.56 and an implied $6.00 premium per share, offers a 6.4% annualized return. This yield significantly outpaces AIZ's 1.6% annualized dividend. However, the strategy's upside is confined to the premium collected unless AIZ shares decline by over 6.8% from the current price to fall below the $185 strike. In that scenario, the put seller would acquire shares at an effective cost basis of $179.00 (a 9.85% discount to the current market price, before commissions). The article contrasts this with direct equity ownership for dividend income, where investors bear full initial downside risk from the current price. Key considerations for evaluating this strategy include AIZ's 25% trailing twelve-month volatility and the historical predictability of its dividend payments, which informs the relative attractiveness of the option yield versus the dividend yield.

Key Decisions for Investors

• Evaluate selling the AIZ $185 December put to generate a 6.4% annualized yield, if comfortable with the potential obligation to acquire AIZ shares at an effective cost of $179.00 and view this as a suitable entry point should the stock decline.
• Assess whether the 6.4% annualized return adequately compensates for capping upside potential at the premium received and the risk of assignment, especially considering AIZ's 25% trailing twelve-month volatility and the 6.8% share price decline needed to reach the strike.
• Compare this options strategy against direct stock ownership by scrutinizing Assurant's dividend history for stability and growth to gauge the reliability of its 1.6% yield as an alternative income source.