Collect 9.8% Yield on Eli Lilly Stock, Own It 30% Cheaper If It Dips

An analysis by Trefis outlines an investment strategy that allows investors to earn an annual yield of up to 9.8% from Eli Lilly and Company (LLY) stock while setting a price 30% below current levels to buy if the stock dips.

Strategy Details

The strategy involves selling put options on LLY stock. By selling a put option with a strike price 30% below the current stock price, the investor receives an immediate premium that yields an annualized return of 9.8%. If the stock falls to that strike price, the investor is obligated to buy the stock at the discounted price, effectively owning it 30% cheaper.

Advantages of the Strategy

• Immediate Income: The investor collects the option premium upfront, regardless of stock movements.
• Discount on Purchase: If the stock declines, it is bought at a 30% lower price, providing a margin of safety.
• Keep the Stock: If the stock does not fall, the investor keeps the premium without buying the stock.

Context

This analysis comes at a time when Eli Lilly's stock is trading at relatively high levels, prompting some investors to seek better entry points. The strategy suits long-term investors who want to own the stock but improve their cost basis.

What This Means for Investors

This strategy offers a way to enhance yield from Eli Lilly stock while mitigating the risk of buying at the peak. However, investors must be prepared to buy the stock if it declines and recognize that the high yield comes with the risk of a price drop.