Investors Explore Selling Puts on Semtech Corp. as Alternative Strategy
Investors considering a stake in Semtech Corp. (Symbol: SMTC) may look to the current market price of $27.40 per share and find it unappealing. An alternative strategy worth exploring is selling put options. One notable option is the January 2027 put with a $15 strike price, currently bid at $2.50. By selling this put, investors can collect a premium that represents a 16.7% return based on the $15 commitment, translating to a 9.6% annualized rate of return.
Understanding the Risks and Rewards of Selling Puts
By selling a put, investors do not gain the same potential upside as they would by owning shares. The put seller only acquires shares if the contract is exercised. The counterparty benefits from exercising the put only if it provides a better financial outcome than selling shares at the current market price. Therefore, if Semtech Corp.’s shares were to drop 45.1%, leading to contract execution, the effective cost basis would be $12.50 per share (after accounting for the $2.50 premium taken from the strike price of $15). Hence, the primary advantage for the put seller lies in collecting the premium for a 9.6% annualized return.
Twelve-Month Trading History for Semtech Corp.
Below is a chart that illustrates the trailing twelve-month trading history for Semtech Corp. The chart highlights the position of the $15 strike relative to the stock’s historical price movements:
Utilizing Volatility Analysis
The provided chart, combined with the historical volatility of Semtech Corp., aids in evaluating whether selling the January 2027 put at the $15 strike for a 9.6% annualized return justifies the associated risks. The trailing twelve-month volatility, based on the last 250 trading days and the current price of $27.40, is estimated at 88%. For additional put options and various expiration dates, investors can explore SMTC’s options on 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.
