New Options Open Up for Sprouts Farmers Market Investors
Investors in Sprouts Farmers Market Inc (Symbol: SFM) have new options available this week, scheduled to expire on December 19th. One important factor that influences an option buyer’s price willingness is the time value. With 241 days remaining until expiration, these new contracts provide an opportunity for sellers of puts or calls to secure higher premiums compared to contracts with nearer expirations. At Stock Options Channel, our YieldBoost formula has analyzed the SFM options chain and pinpointed one put and one call contract of particular interest.
Examining the Put Option
The put contract at the $155.00 strike price is currently priced at a bid of $20.30. If an investor decides to sell-to-open that put contract, they would be agreeing to purchase the Stock at $155.00 while also collecting the premium. This effectively lowers the cost basis of the shares to $134.70 (before broker commissions). For investors planning to buy shares of SFM, this could be an appealing alternative to the current market price of $162.25/share.
The $155.00 strike represents an approximate 4% discount to the current price of the Stock, indicating it is out-of-the-money by that percentage. Current data suggests that there is a 63% chance the put contract may expire worthless. We will monitor these odds and update them over time, providing a chart on our website under the contract detail page. If the contract does expire worthless, the premium would yield a 13.10% return on the cash commitment, or an annualized return of 19.83%, which we refer to as the YieldBoost.
Visualizing Trading History
Below is a chart illustrating the trailing twelve-month trading history for Sprouts Farmers Market Inc, highlighting the $155.00 strike location:
Analyzing the Call Option
On the call side, the contract at the $165.00 strike price has a prevailing bid of $22.90. An investor purchasing shares of SFM at the current price of $162.25/share and selling-to-open that call contract as a “covered call” would commit to selling the Stock at $165.00. When factoring in the premium collected, this scenario could yield a total return of 15.81% if the Stock is called away by the December 19th expiration (excluding dividends and broker commissions). However, potential gains may be limited if SFM shares increase significantly, making it vital to examine the trailing twelve-month trading history and business fundamentals. The following chart displays SFM’s trading history with the $165.00 strike highlighted:
The $165.00 strike represents around a 2% premium over the current trading price, indicating it is out-of-the-money by the same percentage. This presents the possibility that the covered call contract may also expire worthless, allowing the investor to retain both their shares of Stock and the premium collected. Current analytical data suggests there is a 44% chance of this outcome occurring. Stock Options Channel will track these odds over time and provide insights on our website. Should the contract expire worthless, the premium would equate to a 14.11% extra return, or 21.37% annualized, known as the YieldBoost.
Volatility Insights
The implied volatility for the put contract example is 49%, while the call contract implies a volatility of 47%. In contrast, we calculate the actual trailing twelve-month volatility, based on the last 250 trading days and today’s price of $162.25, to be 39%. For additional options contract ideas worth exploring, please visit 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.
