Creating a 22% “Dividend” on SHOP Stock Using Options

Shopify (SHOP) stock has long been a favorite of option traders and is up 87% in the last six months.

However, one bad thing about SHOP stock is that it doesn't pay a dividend. But what if we could use options to manufacture our own dividend?

Does SHOP Pay a Dividend?

Let's say I have $11,500 to invest into SHOP stock, I could simply buy 100 shares and hope the stock rises.

But, if I want a more conservative play, I could sell a December 18, 2025 put with a strike price of $115 and set aside the $11,500 in case I am assigned on the short put.

That $115-strike put generates around $2,490 in option premium in 12 months.

So, my $11,500 investment into SHOP is giving me a 21.65% annualized "dividend".

Risks of the Trade:

Much like owning SHOP shares, if the stock drops, I'm going to lose money in the short-term.

If SHOP is below $115 in December 2025, then I will be forced to buy 100 shares at $115.

The breakeven price is equal to the strike price less the premium received, which in this case would be $90.10 

So if SHOP is below $90.10, at expiration the trade loses money. 

But, if SHOP stays above $115 then I achieve an 21.65% per annum return when the put expires worthless.

Cash secured puts are a bullish strategy but are considered slightly less bullish than owning Shopify stock because the potential gains are limited to the premium received.

The second risk with the trade is that if SHOP stock goes on a huge rally, we miss out on any upside. The most we can make is the $2,490 from the option premium.

Greeks and Equivalent Exposure Level

The $115-strike put currently has a delta of 34, so selling this put gives an exposure roughly equivalent to owning 34 shares of SHOP stock, although this will change as the stock moves up and down.

It also means the put has a roughly 66% chance of expiring worthless.

One method which can help cut the risk is to turn the trade into a spread and buy a $90-strike put. This turns the trade into a bull put spread and cuts the risk from $11,500 to around $2,500.

There are lots of interesting scenarios you can create with options.

Company Details

Shopify Inc. provides a multi-tenant, cloud-based, multi-channel commerce platform for small and medium-sized businesses.

Merchants use the company's software to run business across various sales channels, including web and mobile storefronts, physical retail locations, social media storefronts, and marketplaces.

Shopify's platform enables merchants to manage products and inventory, process orders and payments, ship orders, build customer relationships and leverage analytics along with reporting from one integrated back office.

Moreover, Shopify hosts a huge database of merchant and customer interactions.

Merchants leverage this transactional dataset to get meaningful insight into the sales channel growth prospects and consumer behavioral aspects.

This improves their ability to target prospective customers more easily, which drives sales growth.

Of the 43 analysts covering SHOP, 25 have a Strong Buy rating, 1 has a Moderate Buy rating, 16 have a Hold rating and 1 has a Strong Sell rating.

Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.