Investors in Walmart Inc. (symbol: WMT) today saw new options begin trading for a January 2024 expiration. In the Stock Options Channel, Yield Boost Formula looked at his WMT options chain for his January 2024 new contracts and identified his one put contract and his one call contract of particular interest.
The current bid for a put contract with a strike price of $150.00 is $1.00. If an investor sells that put contract to open, they commit to buying the stock for his $150.00, but they also collect a premium, reducing the cost basis of the stock to his $149.00 (before broker commissions). )will do. For investors already interested in purchasing WMT stock, this could be an attractive alternative to paying $155.09 per share today.
Because the $150.00 strike price represents approximately a 3% discount to the stock’s current trading price (i.e., it is out of the money by that percentage), it is also possible that the put contract will expire worthless. According to current analytical data (including Greek and implied Greek), the probability of such happening is currently 76%. The Stock Option Channel will track these odds over time to see how they change and will publish a graph of those numbers on the contract details page for this contract on its website. If the contract expires worthless, the premium equates to a return of 0.67% on the cash commitment, or an annualized return of 5.66%. The stock options channel calls this “ yield boost.
The chart below shows Walmart Inc.’s trading history over the past 12 months and highlights in green where the $150.00 strike is located relative to that history.
Turning to the call side of the option chain, the current bid for a call contract with a strike price of $165.00 is 30 cents. If an investor buys his WMT stock at the current price level of $155.09 per share, and offers the call contract openly as a “covered call,” the investor sells the stock at his $155.09 per share. You are committed to selling it for $165.00. Considering that the seller of the call also collects a premium, his total return (excluding dividends, if any) if the stock goes call-away on his January 2024 expiration (before broker fees) is his 6.58 %. Of course, if WMT stock really soars, there could be plenty of upside potential. So in addition to studying the business fundamentals, it is important to take a look at Walmart’s trading history over the past 12 months. Below is a chart showing WMT’s trading history over the past 12 months, with the $165.00 strike highlighted in red.
Given the fact that the $165.00 strike price represents a premium of approximately 6% to the stock’s current trading price (in other words, it is out of the money by that percentage), It is also possible that the call contract will be invalidated. If it expires worthless, the investor will retain both the stock and the premium collected. Current analytical data (including Greek and implied Greek) suggests that the current probability of such happening is 99%. The Stock Options Channel on the contract details page for this contract on our website will track these odds over time to see how they change and publish charts of those numbers (The trading history of option contracts is also charted). If the covered call contract expires worthless, the premium would represent an increase of his 0.19% in additional return to the investor, or 1.64% annualized. yield boost.
The implied volatility in the put contract example above is 17%.
Meanwhile, the actual volatility over the past 12 months (considering the last 251 business days’ closing price and today’s price of $155.09) is calculated to be 16%. Visit StockOptionsChannel.com for ideas on noteworthy put and call option contracts.
See also:
• Funds that hold ABEO
• IPV stock issuance history
• ETFs holding CHFC
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.