With markets becoming more volatile, investors might be more interested in generating income rather than capital gains.
Omega Healthcare Investors (OHI) is a healthcare REIT that pays a dividend of 6.69%.
Using options we can supercharge the yield on our OHI shares by using a covered call strategy.
A covered call involves selling call options against a stock position.
OHI Covered Call Example
Buying 100 shares of OHI would cost $3,950. The March 21, 2025 call option with a strike price of $40 was trading around $1.75 yesterday, generating $175 in premium per contract for covered call sellers.
Selling the call option generates an income of 4.58% in 123 days, equalling around 13.58% annualized.
Covered call traders also receive the yearly dividend of $2.68 which is a yield of 6.69%.
The covered call option premium brings the total yield up from 6.69% to 20.27%.
That’s a pretty attractive yield for a low volatility stock and triple what regular shareholders receive.
That assumes the stock stays exactly where it is. What if the stock rises above the strike price of $40?
If OHI closes above $40 on the expiration date, the shares will be called away at $40, leaving the trader with a total profit of $224 (gain on the shares plus the $175 option premium received). That equates to a 5.93% return, which is 17.60% on an annualized basis, not including any dividends.
Of course, the risk with the trade is that the OHI might drop, which could wipe out any gains made from selling the call.
Company Details
Omega Healthcare Investors, Inc. was incorporated in the State of Maryland.
It is a self-administered real estate investment trust, investing in income producing healthcare facilities, principally long-term care facilities located in the United States and the United Kingdom.
The Company provide lease or mortgage financing to qualified operators of skilled nursing facilities and, to a lesser extent, assisted living facilities, independent living facilities and rehabilitation and acute care facilities.
It has historically financed investments through borrowings under its revolving credit facilities, private placements or public offerings of its debt and equity securities, the assumption of secured indebtedness, retention of cash flow, or a combination of these methods.
Barchart Technical Opinion
The Barchart Technical Opinion rating is a 56% Buy with a Weakest short term outlook on maintaining the current direction.
Long term indicators fully support a continuation of the trend.
Implied volatility is at 19.98% compared to a 12-month low of 13.76% and a 12-month high of 31.21%.
Omega Healthcare rates as a Strong Buy according to 5 analysts with 1 Moderate Buy and 11 Hold ratings.
REITs such as Omega Healthcare are a common component of most investment portfolios and now you know how to generate an extra income from your OHI position.
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.
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