How To Earn 8.1% Yield While Waiting to Buy ADBE 30% Cheaper
At about $290.37 a share, Adobe (ADBE) is trading about 37% below its 52W high.
Do you think ADBE stock is a good long-term bet at current levels? What about at a 30% discount at about $200 per share? If you think that is a steal, and have some cash ready to go, here is a trade.
8.1% annualized yield at 30% margin of safety, by selling Put Options.
- Sell a long-dated Put option expiring 1/15/2027, with a strike price of $200
- Collect roughly $814 in premium per contract (each contract represents 100 shares)
- That’s about 4.1% annualized yield on the $20,000 you’re setting aside for the possibility of buying the stock
- This cash parked in a savings or money market account will earn an extra 4.0%, taking total yield to 8.1%
- And you give yourself a chance to buy ADBE stock at deep discounted price of $200
However, this is not the only stock strategy in town. Trefis High Quality Portfolio is a sophisticated framework designed to reduce stock-specific risk while giving upside exposure.
Possible Trade Outcomes: You Win Either Way
| Stock Price Outcome | What It Means For You |
|---|---|
| ADBE stays above $200 | You keep the full $814 premium – 4.1% extra income over the next 360 days on cash that might otherwise earn you 4.0% or less. You never buy the stock and simply walk away with the cash. |
| ADBE closes below $200 | You’ll be obligated to buy 100 shares at $200. But thanks to $814 premium, your effective cost basis is just $191.86 per share – a roughly 34% from current level. |
But to hold this trade with conviction, you want to see long term upside in the stock. Because if it comes to it, you want to be excited about buying the stock cheap.
First, you want fundamentals to check out. For details, see Buy or Sell ADBE Stock or check Adobe Investment Highlights
Second, you want to better understand competitive advantage and industry tailwinds. Below is what specifically gives us the conviction.
Why Hold ADBE Stock Long-Term
Adobe’s entrenched position in the creative professional market and the durable moat from switching costs make it a compelling long-term holding, even with emerging AI competition.
Competitive Advantage
We classify ADBE’s economic moat as WIDE, with the primary source being Switching Costs
- Implemented price increases for Creative Cloud with no significant customer churn, demonstrating pricing power.
- Deep integration of its software suite into professional and enterprise workflows creates high switching costs.
See Adobe Full Analysis.
Industry Tailwind
The industry tailwind is STRONG, with CAGR projection of 13.7% (Grand View Research)
Secular Trend: Digital Transformation
Key Risks: Competition from AI-powered content creation tools and potential regulatory scrutiny.
Financial Guardrails
Cash Generation: Positive Free Cash Flow
Balance Sheet: Minimal net debt position of $471.0 million poses no bankruptcy risk.
Not comfortable with options or stock-specific trades? PORTFOLIOS are even better.
Stock Picking Falls Short Against Multi Asset Portfolios
Stocks can jump or crash but different assets move on different cycles. A multi asset portfolio helps you stay invested while cushioning swings in equities.
The asset allocation framework of Trefis’ Boston-based, wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’ strategy now includes Trefis High Quality Portfolio, which has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices