IInvestors at Peloton Interactive Inc (Ticker: PTON) saw new options become available this week, for the October 21 expiry. One of the key data points that goes into the price an option buyer is willing to pay is time value, so with 182 days to expiration, newly available contracts represent a potential opportunity for traders. sellers of put or call options to obtain a higher premium than would be available for contracts with closer expiration. At Stock Options Channel, our YieldBoost formula scoured the PTON options channel for new contracts on October 21 and identified one particularly interesting put and call contract.
The put contract at the strike price of $19.00 has a current bid of $4.50. If an investor were to sell to open this put contract, they agree to buy the stock at $19.00, but will also collect the premium, placing the base cost of the stock at $14.50 (before brokerage commissions ). For an investor already interested in buying shares of PTON, this could represent an attractive alternative to paying $20.48/share today.
Since the $19.00 strike represents about a 7% discount to the current stock price (in other words, it’s out of the money by that percentage), it’s also possible that the sales contract expires worthless. Current analytical data (including Greeks and implied Greeks) suggests that the current chance of this happening is 67%. Stock Options Channel will track these odds over time to see how they change, by posting a table of these numbers on our website under the contract detail page for that contract. If the contract expires worthless, the premium would represent a return of 23.68% on the cash commitment, or 47.50% annualized – at Stock Options Channel, we call this the Yield increase.
Below is a chart showing Peloton Interactive Inc’s last twelve months trading history, and highlighting in green where the $19.00 strike falls in relation to that history:
On the call side of the options chain, the call contract at the strike price of $21.00 has a current bid of $5.20. If an investor were to buy PTON stock at the current price level of $20.48/share and then sell to open this call contract as a “covered call”, they are committing to sell the stock at 21 $.00. Since the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 27.93% if the stock is called at the October 21 expiry (before broker commissions ). Of course, a lot of upside could potentially be left on the table if PTON shares really soar, which is why it becomes important to look at Peloton Interactive Inc’s trading history for the past twelve months, as well as Study the fundamentals of business. Below is a chart showing PTON’s trading history over the last twelve months, with the $21.00 strike highlighted in red:
Considering that the strike price of $21.00 represents a premium of approximately 3% to the current stock price (in other words, it is out of the price by that percentage), it It is also possible for the covered call contract to expire worthless, in which case the investor would keep both his shares and the premium collected. Current analytical data (including Greeks and implied Greeks) suggests that the current chance of this happening is 38%. On our website, under the contract detail page for that contract, the Stock Options Channel will track those odds over time to see how they change and publish a table of those numbers (the option contract’s trading history will be also plotted). If the covered call contract expires worthless, the premium would represent a 25.39% incremental incremental return to the investor, or 50.92% annualized, what we call the Yield increase.
The implied volatility in the sample sell contract, as well as the sample buy contract, is approximately 100%.
Meanwhile, we calculate that the actual volatility for the last twelve months (considering the closing values of the last 253 trading days as well as the current price of $20.48) is 92%. For more put and call options contract ideas worth considering, visit StockOptionsChannel.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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