Creating a 65% “Dividend” on RKLB Stock Using Options

Rocket Lab Corp (RKLB) stock has pulled back in recent days in the lead up to the SpaceX IPO.

One bad thing about RKLB stock is that it currently doesn't pay a dividend.

But what if we could use options to manufacture our own dividend?

Does RKLB Pay a Dividend?

Let's say I have $11,000 to invest into RKLB 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 put with a strike price of $110 and set aside the $11,000 in case I am assigned on the short put.

That $110-strike put generates around $2,825 in option premium in around six months.

So, my $11,000 investment into RKLB is giving me a 65% annualized "dividend".

Risks of the Trade:

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

If RKLB is below $110 in September, then I will be forced to buy 100 shares at $110.

The breakeven price is equal to the strike price less the premium received, which in this case would be $81.75, which is a 28.07% discount on the current stock price.

So if RKLB is below $81.75, at expiration the trade loses money.

But, if RKLB stays above $110 then I achieve a 65% per annum return when the put expires worthless.

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

The second risk with the trade is that if RKLB stock goes on a huge rally, we miss out on any upside. The most we can make is the $2,825 from the option premium.

Greeks and Equivalent Exposure Level

The $110-strike put currently has a delta of 33, so selling this put gives an exposure roughly equivalent to owning 33 shares of RKLB stock, although this will change as the stock moves up and down.

It also means the put has a roughly 67% 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 $11,000 to around $2,000.

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

Company Details

Rocket Lab Corporation is a space company which provides launch services and space systems solutions principally in the United States, Canada, Japan and internationally. Rocket Lab Corporation, formerly known as ROCKET LAB USA, is based in Long Beach, California.

Implied volatility is currently 103.79% compared to a twelve month low of 67.98% and a twelve month high of 115.64%.

Of the 18 analysts covering RKLB, 12 have a Strong Buy rating, 1 has a Moderate Buy rating and 5 have a Hold 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.