Exploring Put Options
In the world of investing, the arrival of new options for a company’s stock can be as exciting as a fresh coat of paint on a vintage car. This week, investors in EnLink Midstream LLC (Symbol: ENLC) witnessed the commencement of options trading for the May 17th expiration.
Peering through the lens of Stock Options Channel, we uncover an interesting development in the form of a put contract at the $12.00 strike price. This put contract, currently valued at 20 cents, presents an intriguing scenario for potential investors. By selling-to-open this put contract, one would commit to purchasing ENLC shares at $12.00, yet also pocket the premium, effectively reducing the cost basis to $11.80. For those eyeing ENLC shares already, this alternative may be akin to finding a hidden treasure trove beneath the surface.
Delving deeper, the $12.00 strike lies at a tempting 7% discount to the current trading price, hovering out-of-the-money by that percentage. As per the current data analytics, the odds of the put contract expiring worthless stand at 73%. Such insights, inclusive of greeks and implied greeks, will be scrutinized and charted by Stock Options Channel over time. A potential expiry of the contract sans value could yield a 1.67% return on the cash commitment, or a tantalizing 10.49% annualized return — an aspect we fondly refer to as the YieldBoost.
Visualizing this in a chart illustrating ENLC’s previous twelve months of trading history, it’s evident that the $12.00 strike sits distinctly in relation to that timeline:
Unveiling Call Options
Shifting attention to the calls side of the option chain, a call contract at the $13.00 strike price emerges with a current bid of 40 cents. For an investor acquiring ENLC stock at the prevailing price of $12.91 per share and subsequently entering into a “covered call” scenario by selling-to-open the $13.00 call contract, a commitment to vend the stock at $13.00 ensues. This maneuver, coupled with the premium retention, could culminate in a total return of 3.80% if the stock is called away come May 17th (excluding any dividends, if applicable). However, the allure of substantial gains if ENLC shares skyrocket necessitates a thorough examination of the company’s historical trading performance and underlying business fundamentals.
Reflected in a chart depicting ENLC’s trailing twelve months of trading history, the $13.00 strike beckons, distinguished in bold red hues:
Considering the $13.00 strike lingers at a slight 1% premium over the current trading price, essentially hanging out-of-the-money by that slim margin, the potential for the covered call contract to end fruitlessly looms at 48%. Our analytical team at Stock Options Channel will diligently monitor and graph these odds over time. Should the covered call contract face a fruitless finale, the premium harvested could translate into a 3.10% supplement to the investor’s return, or an appealing 19.50% annualized return, which we affectionately dub the YieldBoost.
Plumbing the depths of these options, the implied volatility in the put contract stands at 31%, contrasted with the 54% implied volatility in the call contract scenario.
At the same time, the actual trailing twelve month volatility rests at 27%, accounting for the last 251 trading day closures alongside today’s share price of $12.91. For additional insights into put and call options worthy of contemplation, a visit to StockOptionsChannel.com beckons.
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Opinions herein are those of the author and not necessarily reflective of Nasdaq, Inc.’s stance.
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