IBM Offers 8.8% Yield Through Put Option Trade

Investors can earn an annualized yield of 8.8% on IBM stock without actually buying a share. This is possible through a cash-secured put option trade, which involves selling a put option with a strike price of $165 expiring in September 2027 and collecting the premium.

The premium collected per contract is around $843, which works out to about 4.9% annualized on the $16,500 set aside to secure the trade. By parking this cash in Treasury bills or a money-market fund yielding roughly 3.9%, the total yield climbs to approximately 8.8%.

If IBM stays above the strike price of $165 through September 2027, the put option expires worthless and the investor keeps the premium as income. However, if the stock falls below $165, the investor is assigned and buys 100 shares at $165, with the premium lowering their effective cost to around $157 a share, about a 33% discount to today's price.

The key consideration for this trade is whether IBM's recent weakness was a temporary blip or a sign of structural issues. The company's software business has shown stability, but its transaction processing revenue declined in the second quarter due to clients redirecting spending towards other infrastructure vendors.