New Options Trading for The Materials Select Sector SPDR Fund: Opportunities Ahead
Investors in The Materials Select Sector SPDR Fund (Symbol: XLRE) have new options available this week, with contracts set to expire in August 2025. The time value is a crucial factor in pricing options, and with 238 days until expiration, these new contracts may allow sellers of puts or calls to secure a higher premium than those with nearer expiration dates. Stock Options Channel has analyzed the XLRE options chain, highlighting one put and one call contract of particular interest.
Exploring the Put Option
The put contract at the $40.00 strike price currently has a bid of $2.05. An investor who sells this put contract would agree to buy the stock at $40.00 while collecting the premium, effectively lowering their cost basis to $37.95 per share (not including broker commissions). This presents an appealing option for those considering buying XLRE shares, as it is currently priced at $40.46 per share.
This $40.00 strike is around a 1% discount from the current trading price, meaning the contract is slightly out-of-the-money. There’s a chance that the put contract may expire worthless, with current analysis indicating a 59% probability of this outcome. Stock Options Channel will monitor these odds over time and provide updated charts on our website. If the put expires worthless, the premium would yield a 5.12% return on the cash commitment, equivalent to a 7.86% annualized return, which we term the YieldBoost.
Analyzing the Call Option
On the other side of the options market, the call contract at the $41.00 strike price also carries a bid of $2.05. If an investor purchases XLRE shares at $40.46 and sells this call as a “covered call,” they would agree to sell their stock at $41.00. Collecting the premium raises the return to a total of 6.40% if the stock is called away at the August 2025 expiration (before broker fees). However, investors might miss out on potential significant upside if XLRE shares appreciate substantially, making it essential to review both the recent trading history and company fundamentals.
The chart below presents XLRE’s trailing twelve-month trading history with the $41.00 strike marked in red:
Considering that the $41.00 strike price is about a 1% premium over the current stock price, there’s also a possibility that the call contract could expire worthless, allowing the investor to retain both their shares and the premium earned. Current data shows a 48% chance of this happening. Stock Options Channel will track these odds and provide updates on our website. If the covered call does expire worthless, the premium could give a 5.07% boost in return, or 7.77% annualized, also referred to as YieldBoost.
Volatility Insights
The put example shows implied volatility at 20%, while the call example has implied volatility at 17%. In contrast, we calculate the actual trailing twelve-month volatility—factoring in the last 251 trading days and the current stock price of $40.46—at 16%. Investors seeking additional contract ideas can visit StockOptionsChannel.com.
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- Top Ten Hedge Funds Holding VCIG
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
