In a high-volatility environment, REITs can offer an attractive investment option due to their ability to generate consistent income and provide portfolio diversification.
Unlike equities that may experience sharp price swings, many REITs benefit from long-term lease agreements that deliver stable cash flows, making them resilient during market turbulence.
Additionally, with interest rates expected to moderate, the pressure on real estate valuations may ease, potentially driving capital appreciation.
Sectors such as industrial, healthcare, and residential REITs, which are supported by strong demand trends, can offer a hedge against economic uncertainty.
For income-focused investors, REITs' reliable dividend payouts provide a compelling alternative to traditional fixed-income assets, while strategic use of covered calls can further enhance returns in volatile markets.
Let’s use Realty Income (O) as an example.
Realty Income Covered Call Example
When running the Covered Call Screener for Realty Income, we find the following results:
Let’s evaluate the first Realty Income covered call example. Buying 100 shares of Realty Income would cost $5,712. The May 16, $60 strike call option was trading yesterday for around $0.45, generating $45 in premium per contract for covered call sellers.
Selling the call option generates an income of 0.8% in 44 days, equalling around 6.59% annualized. That assumes the stock stays exactly where it is. What if the stock rises above the strike price of $60?
If Realty Income closes above $60 on the expiration date, the shares will be called away at $60, leaving the trader with a total profit of $333 (gain on the shares plus the $45 option premium received). That equates to a 5.9% return, which is 48.7% on an annualized basis.
Let’s look at another example, this time using a longer dated call.
Instead of the May $60 call, let’s look at the June $60 call. Selling the June $60 call option for $0.80 generates an income of 1.40%, in 79 days, equalling around 6.56% annualized.
If Realty Income closes above $60 on the expiration date, the shares will be called away at $60, leaving the trader with a total profit of $368 (gain on the shares plus the $80 option premium received).
That equates to a 6.5% return, which is 30.2% on an annualized basis.
Of course, the risk with the trade is that the Realty Income might drop, which could wipe out any gains made from selling the call. Traders that think bond yields will continue to rise (and prices drop) would not enter this trade.
Barchart Technical Opinion
The Barchart Technical Opinion rating is an 8% Buy with a weakest short term outlook on maintaining the current direction.
Implied volatility is at 19.26% compared to a 12-month low of 13.43% and a 12-month high of 24.16%.
The implied volatility rank is 54.34% and the IV percentile is 82%.
Realty Income currently yields around 5.54% annually.
Profile
Realty Income is a real estate investment trust (REIT) specializing in high-quality, income-generating commercial properties across the U.S. and Europe.
The company primarily leases retail and industrial properties to tenants in essential industries under long-term, triple-net leases, ensuring stable cash flow.
Known as "The Monthly Dividend Company," Realty Income has paid uninterrupted dividends since its founding in 1969, with a strong history of dividend growth.
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.
