62% vs. 13% Annualized Yield: Robinhood or Apple?

user
OptionsBB
07-07

Robinhood's stock price hit a record high last week. Should we continue chasing it?

Recent positive news for the company: Robinhood has introduced tokenized stocks using cryptocurrency technology, allowing European customers to trade U.S. stocks and rapidly expand into the European market.

This means the online brokerage has bypassed the lengthy process of obtaining traditional broker licenses and enabled Europeans to trade U.S. stocks directly.

However, Robinhood's stock price fell 3.65% on July 3rd for two reasons:

  1. The company failed to gain inclusion in the S&P 500 index.

  2. OpenAI denied that its equity could be traded as tokenized shares on Robinhood.

This pullback represents both risk and opportunity. Robinhood will release its Q2 earnings report on July 30th. Its Q2 performance has been mixed. April was a strong month with net deposits hitting the second-highest level, reflecting active user deposits and strong trading demand.

Compared to April, stock and options trading volumes declined in May by 15% and 8%, respectively, according to analysts' estimates. By June, the company actively expanded into the European market using tokenized stocks, which undoubtedly raised expectations.

A stock price that rises too much before earnings isn't always a good sign. When higher valuations fail to match higher expectations, the stock could face a correction.

A comparable case is Micron Technology’s earnings report on June 25th and the subsequent price movement of $Micron Technology (MU)$.

Options volatility also hints at unique expectations for the week of July 30th. Comparing the two weeks before and after earnings, options expiring on August 1st are notably more expensive.

Options expiring on July 25th suggest a 13% stock price movement, while those expiring on August 1st suggest an 18% movement!

Higher volatility means higher option prices, which also implies that selling options can generate higher returns.

For example, if Robinhood's stock price remains above 85 before August 1st, selling the July 25th 85 put option $HOOD 20250725 85.0 PUT$  offers an annualized yield of 45%, earning $230. Selling the August 1st 85 put option $HOOD 20250801 85.0 PUT$  offers an even higher annualized yield of 62%, earning $425!

Since selling put options is a bullish strategy, for those optimistic about Robinhood but reluctant to chase the stock at current highs, the premium for the August 1st put option is very tempting.

But don’t rush—high option prices during earnings season aren’t unique to Robinhood. The same phenomenon can be observed with Apple stock.

For instance, if Apple’s stock price stays above 200 before August 1st, selling the July 25th 200 put option $AAPL 20250725 200.0 PUT$  yields an annualized return of 7.9%, earning $95. Selling the August 1st 200 put option $AAPL 20250801 200.0 PUT$  yields a higher annualized return of 13%, earning $208!

Compared to Robinhood, Apple offers lower annualized yields and requires higher margin requirements, but its current stock price is at a lower level, presenting less risk than Robinhood, which is trading near its highs.

Personally, I prefer to start by selling Apple’s August 1st 200 put option $AAPL 20250801 200.0 PUT$  and then watch for a potential pullback in Robinhood’s stock price.

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Comments

  • wavyloo
    07-07
    wavyloo
    Interesting perspective
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