Investors in Walmart Inc. (symbol: WMT) found out today that new options will become available with an expiration date of December 8th. In the stock options channel, the Yield Boost formula examined his WMT options chain for new contracts on December 8th and he identified one put and call contract of particular interest.
The current bid price for a put contract with a strike price of $155.00 is $1.84. If the investor opens that put contract from short, they are committing to buy the stock for his $155.00, but they will also collect a premium, and the cost basis of the stock will be $153.16 (plus broker commissions). before). For investors already interested in purchasing WMT stock, this could be an attractive alternative to paying $163.23 per share today.
Because the $155.00 strike price represents approximately a 5% 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. Current analytical data (including Greek and implied Greek) suggests that the current probability of such happening is 99%. 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 1.19% on the cash commitment, or 10.07% per annum. 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 $155.00 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 $4.05. If an investor buys his WMT stock at the current price level, which is his $163.23 per share, and offers the call contract openly as a “covered call,” the investor sells the stock at his $163.23 per share. You are committed to selling it for $165.00. Considering that the call seller also collects a premium, his total return (excluding dividends, if any) if the stock goes call-away on his December 8 expiration (before broker fees) is his 3.57 %. 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 1% to the stock’s current trading price (in other words, it is out of the money by that percentage), the covered 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 represents his 2.48% increase in additional return to the investor, or 21.04% annualized. yield boost.
On the other hand, the actual volatility over the last 12 months (considering the last 251 business days’ closing price and today’s price of $163.23) is calculated to be 15%. Visit StockOptionsChannel.com for ideas on noteworthy put and call option contracts.
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See also:
• Major stocks owned by David Einhorn
• Top 10 Hedge Funds Holding TDSE
• FLTX option chain
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.