One Put, One Call Option To Know About For Bank Of America
Selling a put does not give an investor access to BAC's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. So unless Bank of America Corp. sees its shares fall 30% and the contract is exercised (resulting in a cost basis of $9.70 per share before broker commissions, subtracting the 30 cents from $10), the only upside to the put seller is from collecting that premium for the 2.5% annualized rate of return.
Interestingly, that annualized 2.5% figure actually exceeds the 0.3% annualized dividend paid by Bank of America Corp. by 2.2%, based on the current share price of $14.29. And yet, if an investor was to buy the stock at the going market price in order to collect the dividend, there is greater downside because the stock would have to lose 30.02% to reach the $10 strike price.