Agree To Buy Exelon At $37, Earn 4.3% Using Options

Selling a June 2026 put option for Exelon Corp (EXC) with a $37 strike price offers a 4% annualized return, exceeding EXC's 3.7% dividend yield based on its current $43.20 share price; however, this strategy only provides upside if the option is exercised, requiring a 14.3% price decline. While buying EXC shares for the dividend exposes investors to similar downside risk, the predictability of EXC's dividend, coupled with its 20% trailing twelve-month volatility, should be considered when evaluating the risk-reward profile of selling the put.

Analysis

The analysis focuses on an options strategy for Exelon Corp (EXC), specifically selling a June 2026 put option with a $37 strike price. This strategy offers an annualized return of 4%, derived from the $1.60 premium received, which notably exceeds Exelon's current 3.7% annualized dividend yield, based on its share price of $43.20. However, the put seller only participates in EXC's upside by acquiring shares if the stock price declines by 14.3% to the $37 strike price, leading to an effective cost basis of $35.40 per share before commissions. While purchasing shares directly at $43.20 to capture the dividend exposes investors to a similar downside threshold (a 14.29% drop to reach $37), it allows for participation in any share price appreciation. The article highlights Exelon's trailing twelve-month volatility of 20%, a crucial factor when assessing the probability of the stock reaching the strike price. Furthermore, it underscores the importance of evaluating the sustainability of Exelon's dividend, as dividend payments are generally tied to company profitability and are not guaranteed.

Key Decisions for Investors

• Investors should weigh the 4% annualized yield from selling the June 2026 $37 strike put on Exelon against the risk of share assignment if EXC's price falls by 14.3%, and acknowledge that this strategy caps upside at the premium collected unless the option is exercised.
• Consider the 20% trailing twelve-month volatility of Exelon Corp, as this level of price fluctuation could increase the likelihood of the stock price reaching the $37 strike, leading to an obligation to purchase shares at an effective cost of $35.40.
• Before committing to this options strategy or buying EXC shares for its 3.7% dividend yield, thoroughly examine Exelon's dividend history and financial health to assess the sustainability of its distributions.