New Options for iShares Biotechnology ETF Present Strategic Investment Opportunities

Investors in the iShares Trust – iShares Biotechnology ETF (Symbol: IBB) witnessed the introduction of new options today, set to expire on December 19th. With 262 days remaining until expiration, these freshly trading contracts offer a potential opportunity for sellers of puts and calls to secure higher premiums than those available for contracts with nearer expiration dates.

At Stock Options Channel, our YieldBoost formula has analyzed the IBB options chain and pinpointed one put and one call contract of significant interest. The put contract with a strike price of $124.00 currently has a bid of $5.80. If an investor opts to sell-to-open this put contract, they commit to buy the Stock at $124.00. By doing so, they would also collect the premium, resulting in a cost basis of $118.20 per share (excluding broker commissions). For investors looking to acquire shares of IBB, this could be an appealing alternative to purchasing at the current market price of $126.15 per share.

This $124.00 strike price represents about a 2% discount to the current trading price, indicating it is out-of-the-money by this percentage. Current analysis suggests a 64% probability that this put contract will expire worthless. Stock Options Channel will monitor these odds over time, publishing a chart detailing these fluctuations on our website under the contract detail page. Should the contract expire worthless, the premium would yield a 4.68% return on the cash commitment, which translates to a 6.52% annualized return—an opportunity we refer to as YieldBoost.

Below is a chart showcasing the trailing twelve-month trading history for iShares Trust – iShares Biotechnology ETF, with the $124.00 strike highlighted in green:

Now, shifting to the calls side of the option chain, the call contract at the $134.00 strike price has a current bid of $6.70. An investor purchasing shares of IBB at the current level of $126.15 per share, and subsequently selling-to-open this call contract as a “covered call,” commits to sell the Stock at $134.00. Considering the premium collected, this situation could yield a total return of 11.53%, provided the Stock is called away at expiration, again excluding broker commissions. However, significant upside potential could exist if IBB shares increase substantially, making it important to analyze both the trailing twelve-month trading history and the underlying business fundamentals.

Below is a chart illustrating IBB’s trailing twelve-month trading history, with the $134.00 strike highlighted in red:

The $134.00 strike reflects an approximate 6% premium over the current trading price, indicating that it is out-of-the-money by that percentage. There is a possibility that this covered call contract could expire worthless, allowing the investor to retain their shares and the premium collected. Current analytical data estimates a 52% chance that this will occur. Stock Options Channel will continue to track these odds and publish a chart depicting their changes over time. If the covered call contract expires worthless, the premium could add a 5.31% boost to the investor’s return, or 7.40% on an annualized basis, which we refer to as YieldBoost.

The implied volatility for the put contract stands at 24%, while the call contract shows an implied volatility of 22%. In comparison, our calculations indicate the actual trailing twelve-month volatility, based on the past 251 trading days, is 18%. For more options contract ideas, both put and call, visit StockOptionsChannel.com.

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• Technical Analysis Channel
• FSL Videos
• Institutional Holders of XLEC

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