Investors in Ferrari’s stock (NYSE:RACE) saw new options begin trading on 4 February, for the September 20th expiration.
A Key input that goes into the price an option buyer is willing to pay, is the time value, so with 225 days until expiration the newly trading contracts represent a possible opportunity for sellers of Puts or Calls to achieve a higher premium than would be available for the contracts with a closer expiration.
At Stock Options Channel , the YieldBoost formula has looked up and down the RACE options chain for the new 20 September contracts and identified 1 Put and 1 Call contract of particular interest.
The Put contract at the $125.00 strike price has a current bid of $9.60. If an investor was to sell-to-open that Put contract, they are committing to purchase the stock at $125.00, but will also collect the premium, putting the cost basis of the shares at $115.40, before broker commission). To an investor already interested in purchasing shares of RACE, that could represent an attractive alternative to paying $126.96/share today.
Because the $125.00 strike represents an approximate 1% discount to the current trading price of the stock, in other words it is out-of-the-money by that percentage, there is also the possibility that the Put contract would expire worthless.
The current analytical data suggest the current odds of that happening are 58%.
Should the contract expire worthless, the premium would represent a 7.68% return on the cash commitment, or 12.30% annualized, this is called YieldBoost .
Below is a chart showing the trailing 12 month trading history for Ferrari, and highlighting where the $125.00 strike is located relative to that history:
Turning to the Calls side of the option chain, the call contract at the $130.00 strike price has a current bid of $9.40.
If an investor was to purchase shares of RACE at the current price price of $126.96/share, and then sell-to-open that Call contract as a “covered call,” they are committing to sell the stock at $130.00.
Considering the Call seller will also collect the premium, that would drive a total return excluding dividends of 10.53% if the stock gets Called away at the 20 September expiration before broker commissions.
A lot of upside could potentially be left on the table if RACE shares continue to rally past the near term resistance of $140.26, which is why looking at the trailing 12 month trading history for Ferrari, as well as studying the business fundamentals becomes very important.
Below is a chart showing RACE’s trailing 12 month trading history, with the $130.00 strike highlighted in Red:
Considering the fact that the $130.00 strike represents an approximate 3% premium to the current trading price of the stock, in other words it is out-of-the-money by that percentage, there is also the possibility that the covered Call contract would expire worthless, in which case the investor would keep both their shares of stock and the premium collected.
The current analytical data suggest the current odds of that happening are 47%. On the Stock Options Channel’s website under the contract detail page for this contract will track those odds over time to see how they change and publish a chart of those numbers, also the trading history of the option contract will be charted.
Should the covered Call contract expire worthless, the premium would represent a 7.45% boost of extra return to the investor, or 11.93% annualized, aka the YieldBoost.
The implied volatility in the put contract example is 39%, while the implied volatility in the Call contract example is 34%.
Meanwhile, the tracker calculates the actual trailing 12 month volatility considering the last 250 trading day closing values as well as today’s price of $126.96 to be 34%.
For more put and call options contract ideas worth looking at, visit StockOptionsChannel.com.
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