UWM Holdings Corp (NYSE: UWMC) shareholders seeking additional income from their position can potentially boost their annualized yield to 47.3% by selling a covered call option with a January 2028 expiration and a $2 strike price, according to data from Stock Options Channel. The strategy combines the stock’s already substantial 27.4% annualized dividend yield with an additional 19.9% return from the option premium, based on the current bid of $0.40 per contract.
At a current share price of $1.46, the $2 strike represents a 39.9% upside from present levels. Should UWMC shares rise to $2 and be called away, the shareholder would realize a 67.8% return from the current trading level, in addition to any dividends collected before the call execution. However, the strategy caps the upside at the strike price, meaning any appreciation beyond $2 would be forfeited.
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Understanding the Covered Call Mechanics
The covered call strategy is a common income-generation technique where an investor who owns shares sells a call option on those shares. The seller collects a premium upfront, which provides immediate income and a modest downside buffer. In exchange, the seller agrees to sell the shares at the strike price if the option is exercised.
For UWMC, the January 2028 call at the $2 strike offers a substantial premium relative to the stock price, reflecting the stock’s high volatility. Stock Options Channel calculates the trailing twelve-month volatility for UWMC at 71%, based on the last 251 trading day closing values. This elevated volatility translates into higher option premiums, making the covered call strategy particularly attractive for income-focused investors.
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One key point is that dividend payments are not guaranteed and can fluctuate based on the company’s profitability. UWM Holdings has maintained its dividend, but investors should review the company’s dividend history and financial health before relying on the yield. The dividend history chart for UWMC, available on Stock Options Channel, can help assess the sustainability of the current 27.4% annualized yield.
Market Context and Options Activity
The covered call strategy comes amid notable options market activity. In mid-afternoon trading on Tuesday, put volume among S&P 500 components stood at 1.47 million contracts, with call volume at 2.90 million, resulting in a put:call ratio of 0.51. This compares to the long-term median put:call ratio of 0.65, indicating that call buying is outpacing put buying, a sign of bullish sentiment in the broader market.
For UWM Holdings specifically, the stock’s high volatility and low price point make it a candidate for options strategies. The company, a major player in the mortgage lending sector, has seen its share price fluctuate significantly, creating opportunities for options traders.
Investors considering this strategy should weigh the potential income against the risk of capping upside. The $2 strike requires a nearly 40% rally for the stock to be called away, which may be an acceptable trade-off for those seeking high current income. However, if UWMC’s dividend is cut or the stock price declines further, the covered call premium may not fully offset the losses.
As with any options strategy, there are risks involved. Selling covered calls limits upside potential and does not protect against significant downside moves. Investors should conduct their own research and consider their risk tolerance before implementing this approach.
This article is for informational purposes only and does not constitute financial advice. Options trading involves risk and may not be suitable for all investors. Market conditions are volatile and subject to change.
