For investors cautious about acquiring Gulfport Energy Corp. (Symbol: GPOR) shares at the current market price of $135.21/share, engaging in the sale of puts presents an intriguing prospect. One option worth examining is the October put with a $130 strike, currently bidding at $12.00. Garnering this bid as the premium constitutes a 9.2% return against the $130 commitment, equivalent to a 13.7% annualized rate of return (termed the YieldBoost at Stock Options Channel).
Unlike owning shares, selling a put does not afford an investor access to GPOR’s upward potential, as the put seller only assumes ownership if the contract is exercised. The individual on the opposite end of the contract would stand to gain from exercising at the $130 strike only if doing so yields a better outcome than selling at the prevailing market price. (Are options fraught with counterparty risk? See our debunking of this and six other common options myths). Hence, unless Gulfport Energy Corp. witnesses a 3.2% share decline and the contract is exercised (resulting in a cost basis of $118.00 per share before broker commissions, deducting the $12.00 from $130), the sole benefit to the put seller lies in collecting the premium for the 13.7% annualized rate of return.
The chart below displays the twelve-month trading history for Gulfport Energy Corp., highlighting in green the position of the $130 strike in relation to that history:
This chart, combined with the stock’s historical volatility, can serve as a useful tool alongside fundamental analysis in assessing whether vending the October put at the $130 strike for the 13.7% annualized rate of return represents a commensurate reward for the associated risks. We compute the trailing twelve-month volatility for Gulfport Energy Corp. (taking into account the last 251 trading day closing values in addition to today’s price of $135.21) as 38%. For additional put options contracts at different available expirations, visit the GPOR Stock Options page on StockOptionsChannel.com.
During mid-afternoon trading on Thursday, put volume among S&P 500 components stood at 2.37M contracts, with a matching call volume, yielding a put:call ratio of 0.74 for the day – surpassing the long-term median put:call ratio of .65. In simple terms, when evaluating the number of call buyers and leveraging the long-term median to project the anticipated number of put buyers, today’s options trading encompasses a higher occurrence of put buyers than anticipated.
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The expressed views and opinions herein belong to the author and do not necessarily mirror those of Nasdaq, Inc.
