Before you punch the proverbial ticket to gain ownership of News Corp (Symbol: NWS) at the current market share price of $27.81, let’s explore another potential avenue to gain a stake. By casting aside caution and considering the sale of puts among the bevy of investment tactics at your disposal, an intriguing put contract emerges: the October put at the $25 strike, beckoning with a 40-cent bid at the time of this article’s drafting. Snagging that bid as the premium translates to a 1.6% return against the $25 commitment, constituting a 2.4% annualized rate of return (dubbed the YieldBoost by Stock Options Channel).
Conversely, harnessing the put method doesn’t grant an investor the liberty to partake in NWS’s potential for upward mobility in the same manner as owning shares does, for the put seller’s shares only materialize if the contract is executed. Additionally, the individual on the opposite side of the contract reaps the spoils of exercising at the $25 strike, should that course of action yield a more desirable outcome than vending at the prevailing market rate. (Do options entail counterparty risk? We debunk this myth and six others). In the event that News Corp witnesses a 10.2% nosedive and the contract is executed (culminating in a cost basis of $24.60 per share, after deducting the 40 cents from the $25, not including broker commissions), the sole upside for the put seller is derived from pocketing the premium, clocking in at a 2.4% annualized rate of return.
Ironically, this annualized 2.4% figure actually exceeds News Corp’s 0.7% annualized dividend, delineating a 1.7% overrun, based on the present share price of $27.81. However, if an investor were to procure the stock at the current market price to capitalize on the dividend, the downside is grander since the stock would need to plummet by 10.23% to reach the $25 strike price.
It’s critical to bear in mind that, generally, dividend figures aren’t always foreseeable and tend to mirror the ebbs and flows of a company’s profitability. Scrutinizing the dividend history chart for NWS below can provide insight into the likelihood of the latest dividend persisting, and subsequently whether an anticipated 0.7% annualized dividend yield is realistic for News Corp.
Below is a snapshot illustrating the past twelve months’ trading trajectory for News Corp, spotlighting where the $25 strike is located in relation to that history.
The graph above, coupled with the stock’s historical volatility, can be an invaluable tool, when paired with fundamental analysis, to adjudge if vending the October put at the $25 strike for the 2.4% annualized rate of return offers a judicious trade-off for the risks. We compute the trailing twelve-month volatility for News Corp (taking into account the most recent 251 trading day closing values and the current price of $27.81) at a robust 25%. For other prospective put options contracts at the numerous available expirations, delve into the NWS Stock Options page of StockOptionsChannel.com.
In the mid-afternoon trading session on Thursday, the put volume for S&P 500 components stood at 2.37M contracts, with call volume matching that figure. This equates to a put:call ratio of 0.74 so far for the day, eclipsing the customary quotient in comparison to the extended median put:call ratio of 0.65. In simple terms, examining the number of call buyers, and adhering to the long-term median to forecast the number of put buyers one would anticipate encountering, reveals that we are, in fact, witnessing a greater presence of put buyers than initially projected in the options trading realm today.
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The author’s viewpoints and opinions do not necessarily mirror those of Nasdaq, Inc.
