Investing in NovaGold Resources: The Appeal of Selling Puts
Investors eyeing NovaGold Resources Inc. (Symbol: NG) may hesitate at the current market price of $4.59 per share. One alternative strategy worth considering is selling put options. Among the various options available, the December put at the $4 strike stands out, currently offering a bid of 45 cents. By selling this option, investors can capture a premium that translates into an 11.2% return based on the $4 commitment, or an annualized rate of 17.1%—what Stock Options Channel refers to as YieldBoost.
However, selling a put means an investor does not gain access to the potential for upside that owning shares provides. The put seller only acquires shares if the contract is exercised. For the counterparty to choose this option, exercising at the $4 strike must yield a better outcome than selling at the prevailing market price. Unless NovaGold’s shares drop by 11.9%, leading to the contract being exercised (resulting in an effective cost basis of $3.55 per share after accounting for the 45 cents premium), the only benefit for the put seller comes from the collected premium, reflecting the 17.1% annualized return.
The chart below illustrates the trailing twelve-month trading history for NovaGold Resources Inc., highlighting the position of the $4 strike within that context:
This historical chart, combined with NovaGold’s volatility, assists in evaluating whether selling the December put at the $4 strike for a 17.1% annualized return offers a favorable risk-reward balance. We determined the trailing twelve-month volatility for NovaGold, using the last 250 trading days and the current price of $4.59, to be 66%. For more options contract ideas with various expiration dates, visit the NG Stock Options page of StockOptionsChannel.com.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
