For investors weighing the purchase of Red Rock Resorts Inc (RRR) stock at the current market price of $57.92/share, the hesitancy to pay this price may lead them to examine alternative strategies. One notable approach to consider is the sale of put options, with the October put at the $54 strike standing out as an intriguing choice. At the time of writing, this put option has a bid of $3.70, presenting an opportunity to collect this bid as a premium, equating to a 6.8% return against the $54 commitment or a 10.4% annualized rate of return. This annualized return, termed the YieldBoost at Stock Options Channel, may entice investors looking for enhanced returns.

Exploring the Potential of Selling Puts

It is important to note that selling a put option does not grant an investor the same access to RRR’s potential upside as owning shares. The put seller would only own shares if the contract is exercised, and the counterparty would only exercise the $54 strike if it resulted in a better outcome than selling at the current market price. Therefore, unless RRR’s shares decrease by 6.6% and the contract is exercised, the sole upside for the put seller is in collecting the premium for the 10.4% annualized return.

Interestingly, the annualized 10.4% figure exceeds the 1.7% annualized dividend paid by Red Rock Resorts Inc, based on the current share price. Furthermore, purchasing the stock at the market price to collect the dividend carries greater downside risk, as the stock would have to decline by 6.56% to reach the $54 strike price.

Weighing the Dividend Consideration

When discussing dividends, it is crucial to acknowledge that these amounts are not always predictable and are contingent on a company’s profitability. Reviewing the dividend history chart for RRR can assist in evaluating the likelihood of the recent dividend continuing and whether a 1.7% annualized dividend yield is a reasonable expectation.

Below is the chart exhibiting the trailing twelve-month trading history for Red Rock Resorts Inc, outlining the position of the $54 strike in relation to this historical data:

The historical volatility of the stock, combined with fundamental analysis, can aid in assessing whether selling the October put at the $54 strike for the potential 10.4% annualized rate of return offers an attractive risk-reward ratio. The trailing twelve-month volatility for Red Rock Resorts Inc is calculated at 31%, considering the last 251 trading day closing values alongside the current price of $57.92.

Market Insights and Put-Call Ratio

In the mid-afternoon trading on Wednesday, the put volume among S&P 500 components reached 1.90 million contracts, with call volume at 2.47 million. Consequently, this resulted in a put:call ratio of 0.77 so far for the day, notably higher than the long-term median put:call ratio of 0.65. These statistics indicate an unusual prevalence of put buyers in options trading today compared to call buyers.

Reviewing market dynamics, particularly the put-call ratio, provides valuable insights into current sentiment and investor positioning within the options market.

Also see:

• ALXN Videos

• Funds Holding TTC

• Institutional Holders of GDXJ

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.