UDR Shareholders Can Boost Income with Covered Calls

Investors in UDR Inc may enhance returns through a covered call strategy, potentially achieving a 5.1% annualized rate. This approach balances the risk of capping profit against dividends.

Date: 16-01-2025

AI Rating: 7

Dividend Yield and Trading Strategy
UDR Inc currently offers a 4.1% annualized dividend yield, which is an enticing factor for investors seeking stable income.

By selling a July covered call at the $42.50 strike price, shareholders can collect a premium worth 1% annualized, leading to a combined annualized return of 5.1%. However, if UDR's stock rises above $42.50, investors risk losing upside potential beyond this level. For the stock to be called away, it would need to increase by 3.5% from its current price of $41.21, translating to a 4% return in addition to any dividends before the call option is executed.

It's important to note that dividends are not guaranteed as they depend on the company's profitability. UDR's historical volatility is also relevant here, calculated at 19%. This volatility should be factored into any decision regarding options trading, especially concerning potential reward versus risk of losing upward movement.

Options Market Sentiment
The options trading landscape for S&P 500 components reflects high call volume, with a put:call ratio of 0.56, indicating that more traders are favoring calls in their strategies. This trend highlights a bullish market sentiment among investors, which could positively affect stock prices of those companies, including UDR, as a heightened demand for calls usually implies expectations for price appreciation.

Stocks: UDR