This week marked the commencement of options trading for H World Group Ltd (HTHT) investors, with the introduction of new contracts set to expire on April 19th. Stock Options Channel applied its YieldBoost formula, scrutinizing the HTHT options chain to pinpoint a put and a call contract that stand out among the rest.
One intriguing find was the put contract at the $35.00 strike price, currently boasting a bid of $1.45. For investors looking to acquire HTHT shares, selling-to-open this put contract at $35.00 would set the cost basis of the shares at $33.55, factoring in the premium collection. This represents a 5% discount to the current trading price, potentially appealing to those eyeing HTHT shares at $36.96 each today.
If one were to bet on the $35.00 strike, where it currently sits relative to the stock’s historical trading pattern, there’s a 67% chance the put contract would expire worthless. Nevertheless, if this transpired, the premium would yield a 4.14% return on the cash commitment or a 24.02% annualized return – an outcome we endearingly label the YieldBoost.
On the other hand, exploring the calls side, a call contract at the $40.00 strike price comes with a $1.25 bid. In a scenario where an investor purchases HTHT shares at the current price and then sells-to-open this call contract as a “covered call,” they commit to selling the stock at $40.00. Should the stock get called away at the April 19th expiration, this strategy could yield a total return of 11.61% (excluding dividends), introducing potential upside but also demanding a closer look at HTHT’s trading history and business fundamentals.
The $40.00 strike, reflecting an approximate 8% premium to the current trading price, holds a 63% chance of the covered call contract expiring worthless. If this turns out to be the case, the investor retains both their stock shares and the premium collected. This could represent a 3.38% boost of additional return or a 19.61% annualized return, what we fondly refer to as the YieldBoost.
While the implied volatility in the put contract example is 46%, it stands at 42% for the call contract. Contrastingly, the actual trailing twelve-month volatility, inclusive of the last 251 trading day closing values and today’s price, stands at 40%. For further put and call options contract insights, a visit to StockOptionsChannel.com is worth the while.
Turning to the broader market, the S&P 500 also offers a selection of top YieldBoost calls, providing a broader perspective beyond HTHT. Investors can also explore other topics of interest including the Best Dividend Stocks, Monolithic Power Systems MACD, and Institutional Holders of DGLD.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
