Investors using the iShares Biotechnology ETF (Symbol: IBB) have new trading options available as of today, set for expiration in February 2025. With 94 days until these contracts expire, they offer a chance for sellers of puts or calls to potentially earn a higher premium compared to contracts that expire sooner.
Our YieldBoost formula at Stock Options Channel has examined the IBB options chain and pinpointed a notable put and a call contract worth considering.
The put contract at the $131.00 strike price currently holds a bid of $3.10. When an investor sells this put contract, they agree to buy the stock at $131.00 while collecting the premium, effectively reducing their total cost basis of the shares to $127.90 (excluding broker fees). For those already looking to buy shares of IBB, this could be a more appealing option than purchasing directly at the current price of $132.51/share.
The $131.00 strike price indicates approximately a 1% discount from the stock’s current trading price, rendering it slightly out-of-the-money. Based on current analytical data, the chances of this put expiring worthless stand at 59%. Stock Options Channel will monitor these odds over time and provide updates on our website. If the contract does expire worthless, the premium could represent a return of 2.37% on the cash commitment, equating to 9.19% annualized—terms we refer to as the YieldBoost.
Below is a chart showing the past twelve months of trading history for iShares Trust – iShares Biotechnology ETF, with the $131.00 strike indicated in green:
Exploring Call Options: Opportunities and Risks
When we look at the calls in the option chain, there’s a call contract at the $134.00 strike price, currently valued at $3.60. If an investor buys IBB stock now at $132.51/share and sells this call as a “covered call,” they agree to sell the shares at $134.00. Including the premium, this would result in a total return of 3.84% if the stock is called away at the February 2025 expiration (before additional fees). However, there is the potential for significant gains if IBB prices rise considerably. Thus, analyzing both the recent trading history and fundamental business aspects is crucial.
Below is a chart displaying the trailing twelve-month trading history of IBB, with the $134.00 strike highlighted in red:
At $134.00, this strike price reflects a 1% premium over the current trading price, meaning the possibility exists for the covered call to expire worthless. Should this occur, the investor keeps both the shares of stock and the collected premium. Current data suggests the odds of this happening are about 50%. We will track these statistics and provide ongoing updates on our website. If the covered call ends up expiring worthless, the premium could enhance returns by 2.72%, translating to an annualized 10.55%—again, part of our YieldBoost.
The implied volatility for the put contract is 22%, while the call contract shows 20% implied volatility. Our analysis of the last 251 trading days, along with today’s price of $132.51, indicates an actual trailing twelve-month volatility of 18%. For further options contract ideas worth exploring, please visit StockOptionsChannel.com.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
