Investors in Ferrari (NYSE:RACE) saw new options become available today, for the April 24th expiration.
Looking up and down the RACE options chain for the new April 24th contracts and identified 1 put and 1 call contract of particular interest.
The put contract at the 155.00 strike price has a current bid of 5.80. If an investor was to sell-to-open that put contract, they are committing to purchase the stock at 155.00, but will also collect the premium, putting the cost basis of the shares at 149.20 before broker commissions. To an investor already interested in purchasing shares of RACE, that could represent an attractive alternative to paying 156.25/share today.
Because the 155.00 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 57%.
Should the contract expire worthless, the premium would represent a 3.74% return on the cash commitment, or 27.34% annualized.
Below is a chart showing the trailing twelve month trading history for Ferrari, and highlighted where the 155.00 strike is located relative to that history.
Turning to the calls side of the option chain, the call contract at the 157.50 strike price has a current bid of 5.20.
If an investor was to purchase shares of RACE stock at the current price level of 156.25/share, and then sell-to-open that call contract as a “covered call,” they are committing to sell the stock at 157.50. Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 4.13% if the stock gets called away at the April 24th expiration before broker commissions.
Of course, a lot of Northside could potentially be left on the table if RACE shares really soar, which is why looking at the trailing twelve month trading history for Ferrari , as well as studying the business fundamentals becomes important.
Below is a chart showing RACE’s trailing 12 month trading history, with the 157.50 strike highlighted :
Should the covered call contract expire worthless, the premium would represent a 3.33% boost of extra return to the investor, or 24.31% annualized.
The implied volatility in the put contract example is 49%, while the implied volatility in the call contract example is 43%.
The actual trailing 12 month volatility to be 22%.
Have a terrific weekend