Shopify saw strong performance in the last six months, rising over 73% in that time. Shopify stock is also above the 21-, 50- and 200-day moving averages.
Investors who think Shopify might trade sideways for a few months could look at selling covered calls on their underlying stock position. This strategy lets you increase your income while you hold on to shares that aren't moving.
Make Your Own Dividend
Shopify is a Canadian e-commerce company that provides a platform for small- and medium-size businesses to establish online stores, integrating various sales channels including online, mobile, social media, and physical retail locations.
The company has diversified its offerings with services like Shop Payments and Shopify Shipping.
In the fourth quarter of 2024, Shopify reported a 29% increase in earnings per share to 44 cents and a 31% rise in revenue to $2.81 billion, surpassing analyst expectations.
According to the IBD Stock Checkup, Shopify ranks No. 1 in its industry group. It has a Composite Rating of 99, an EPS Rating of 97 and a Relative Strength Rating of 95.
Shopify does not pay a dividend, but savvy investors can create their own yield from their Shopify shares using covered calls.
A covered call involves buying 100 shares of the underlying stock and simultaneously selling a call option against those shares.
Selling the calls limits the upside but increases the yield from the investment in the form of option premium.
The investor keeps the premium generated from selling calls no matter what happens with the stock.
Long-Term Covered Call on Shopify Stock
When trading covered calls, most investors sell monthly calls against their stock to make the most of the effects of time decay. As an option buyer, time decay works against you. But since you are selling calls, time decay works in your favor.
Time decay accelerates in the last month of expiration so an expiration a month out makes a lot of sense. But it also requires a lot of active management.
What if we sold longer-term covered calls against Shopify stock? Here's how that would look.
A Jan. 16, 2026, call option with a strike price of 140 can currently be sold for around $20. That generates a healthy $2,000 in premium per contract.
Purchasing 100 shares of Shopify cost around $12,600 as it traded around 126 this morning. The $2000 option premium helps offset some of that outlay and puts your net cost at around 106.
Risks And Rewards
What's the risk? Let's say you held all the way through expiration. If Shopify declines, you will take a hit on your stock position. However, it will be partially offset by the option premium received that would be yours to keep. In the unlikely event that Shopify went to zero, instead of losing $12,600, the net loss would be $10,600.
Let's say Shopify ends up at roughly the same price at expiration. That would provide a nice 19% return ($2,000 option received / $10,600 net cost of trade). And you still own the stock.
If Shopify increases in price, you have the potential for an extra $1,400 of capital appreciation (up to the 140 strike price). If the shares get called away, that puts the return at 32%.
But don't forget there is a risk that is often not considered. You're not going to participate in any move above 140. So there is a potential opportunity cost.
Covered calls are a fantastic way to generate extra income from a stock while also providing some downside protection.
Investors would need to weigh the pros and cons of the stock before initiating a bullish trade like a covered call.
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.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on X/Twitter at @OptiontradinIQ
