January 29, 2019 8:15AM /Sponsored Post/Content & Image by Paige
New options for Herbalife (HLF) Nutrition began trading this week. These options have an expiration timeline set for August 2019. One of the most prominent factors influencing the price that an option buyer is willing to pay in this case is the time value.
With only around 220 days remaining till the expiration of these new options, sellers are likely to get a higher premium now. Contracts closer to their expiration are very unlikely to attract the same high premiums. Stock Options Channel has been utilizing its famous YieldBoost formula to go through the HLF options chain. Through this formula, they have been able to identify a call contract of particular interest. This is the one put and one call contract.
Let's Get into the Numbers
In a put contract, a stock has a strike price of $57.50 at a $4.60 current bid. For any investor looking to sell-to-open a put contract, they will be committing to purchasing the particular stock at $57.50. Additionally, they will be subject to collecting a premium in line with the cost basis of the shares before broker commissions at $52.90. To the investor who had an immediate interest in purchasing these shares, these numbers represent a lucrative alternative of $58.56 per share.
Given that the $57.50 is about 2% discount from the current stock trading price, there is quite some possibility that put contract would expire worthless. The current analytics on the out-of-the-money by that percentage data including greeks and implied greeks suggest that there is a 59% chance of this happening at the current odds.
The Stock Options Channels said that as more developments continue to unfold on this matter with time, they will publish the new numbers under the contract detail page on their website. On top of that, in the event that the contracts expire worthless, there would be an 8.00% return on the cash committed. In an annual basis, the return on cash committed to the Herbalife stocks would be 12.81%.
More Options for the Investor
For the investors looking for the call contract, the strike price is $60.00 at a $5.15 current bid. An investor purchasing HFL stock at this moment, they can get to enjoy an attractive price of $58.56 per share. They can later opt to sell-to-open their call contract as a 'cover call.' At this stage, they will be committing to taking $60.00 for every share they own. This price can easily be achieved by keeping in mind that the seller will also collect a premium. Excluding dividends, the premium collected would drive the total by 11.25%. This will only be possible if before the August 2019 expiration the stock gets called away before broker commissions
Allthough the upside to this occurrence is likely to be left untouched in the event that the HLF stocks soar. This is why experts believe that analyzing the previous twelve month's trading history of this company. Additionally, having a look at the fundamentals of this business will be very important.
The Measure of Volatility
If a $60.00 strike price represents about 2% of the current premium trading price for the stock, covered call contracts also have a chance of expiring worthless. In this case, the investor will walk away with both the premium collected and his share of stock. There is a 50% chance of these happening according to the current greeks and implied greeks included data available. Under the implied volatility the risk chance of a call contract from Herbalife expiring worthless is 32%. 34% is the risk chance of implied volatility of a put contract under the same conditions.
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