How To Bank 8.8% A Year On IBM Stock Before Buying A Single Share

Get paid a healthy income upfront for simply agreeing to buy this tech stalwart at a deep discount, an income you keep even if the stock never drops to your price.

International Business Machines (IBM) has been a tough holding recently, with the stock trading about 30% below its 52-week high after a second-quarter performance that management admitted “fell short of expectations.” That kind of drop spooks the market, but it also creates the exact setup for a strong income trade. For investors willing to look past the quarterly noise, there is a way to get paid a significant yield now for simply naming a price, well below today’s level, at which you would be happy to become a long-term owner.

8.8% total annualized yield at a 30% margin of safety, by combining put options with Treasury bills

• Sell a put option on IBM expiring 9/17/2027, with a strike price of $165.
• Collect roughly $843 in premium per contract (each contract covers 100 shares).
• That works out to about 4.9% annualized on the $16,500 of cash you set aside to secure the trade.
• Park that cash in Treasury bills or a Treasury money-market fund yielding roughly 3.9%, and your total yield climbs to about 8.8%.
• And if IBM falls below $165, you buy it at $165, an effective entry near $157 a share after the premium, about a 33% discount to today’s $231.

Two Ways This Plays Out, Both Pay You

If IBM stays above $165 through 9/17/2027, the put expires worthless and you simply keep the full $843 premium. That is about 4.9% annualized on the $16,500 you set aside over 382 days, while that same collateral keeps earning the ~3.9% T-bill yield on top, for the ~8.8% total above. You never buy the stock and keep the income, free to do it again.

If IBM closes below $165, you are assigned and buy 100 shares at $165. The $843 premium you already pocketed lowers your effective cost to about $157 a share, roughly a 33% discount to today’s price, though if the stock has fallen further by then you would be holding a paper loss.

So what happens if IBM really does close below $165, and you are the one buying? Then the trade shifts from earning yield to owning the stock.

What Would You Actually Be Buying?

Because this trade could end with you owning the shares, the decision really comes down to one question: how comfortable are you owning IBM? The bull case is that the recent stumble was a temporary speed bump, not a structural breakdown. Management points to the software business, with recurring contracts driving roughly 80% of annual revenue, as a source of stability. That segment’s annualized recurring revenue base is a massive $24.6 billion, up 8% from last year. And the company’s iconic mainframe business is far from obsolete; the current z17 is having the “best refresh cycle in reported history,” running at nearly 130% program to program compared to its predecessor.

The counterargument, and the risk that could push the stock below your entry point, is that the second quarter miss signals a real shift in customer priorities. Management explained that clients redirected spending to other infrastructure, causing IBM’s transaction processing revenue to decline 9%. The central debate, as one analyst framed it on the call, is whether that demand is merely “deferred or destroyed.” If enterprises are permanently shifting their budgets away from IBM’s core offerings toward other vendors’ AI-related gear, it could represent a longer-term headwind. For a deeper look into the potential downside, it is worth considering how wide the risk band on IBM stock is.

Ultimately, the trade pays you to take a side in that debate, with a considerable margin of safety. If the recent weakness was just a blip and the company’s durable franchises win out, the stock will likely stay above your price, and you simply pocket the income. If the bears are right and spending priorities have shifted, you become an owner at a discounted price. The key thing to watch is the software business. Seeing those large, delayed deals close and transactional revenue stabilize would be the clearest sign that the second-quarter shortfall was a timing issue, not a trend.

Wondering whether another stock offers a better yield, or what this same trade would pay on a name you already like? You can screen the latest cash-secured put yields across the market for yourself. And if it is exposure to technology as a whole you want rather than this one name, a technology ETF like XLK covers that single sector. Going broader than any one sector, to a quality-first mix across the whole market, is where the portfolio below comes in.

Income Trades Work Best On A Solid Base

The appeal here is real: you get paid now, and you only buy the stock if it comes to you at a discount. But the income from one put is still tied to the fate of one company, and a single bad outcome can swamp several good ones. The trade is the spice, not the meal.

The Trefis High Quality (HQ) Portfolio is built to be the meal: roughly 30 high-quality, cash-generative names, judged on the full picture of their fundamentals rather than one options setup, and re-balanced as conditions change. It carries a track record of outpacing a benchmark that combines the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000. Keep collecting premium on the side, with a diversified core doing the heavy lifting.