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The Intriguing World of Options Trading: A Look at the First Week of May 17th Options Trading for Brookfield Asset Management (BAM)

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Delving Into New Options For Brookfield Asset Management (BAM)

Investors witnessed the unveiling of fresh options this week for Brookfield Asset Management Ltd (Symbol: BAM), as the May 17th expiration drew near. At the Stock Options Channel, our YieldBoost formula meticulously scrutinized the BAM options chain for these new May 17th contracts, singling out one put and one call contract deserving of attention.

For those eyeing the put contract at the $40.00 strike price, the current bid rests at $1.10. By opting to sell-to-open that put contract, an investor commits to acquiring the stock at $40.00 while pocketing the premium, effectively setting the cost basis of the shares at $38.90 (before any broker commissions). For an investor keen on acquiring BAM shares, this could present a compelling alternative to the current market price of $41.10 per share.

The Dynamic World of Out-of-the-Money Options

The $40.00 strike mirrors an approximate 3% discount to the present trading price of the stock, positioning it as an out-of-the-money contract by that percentage. Consequently, there arises the possibility of the put contract expiring worthless, with current analytical data indicating a 62% chance of occurrence. Stock Options Channel will monitor these probabilities over time, displaying a chart of these figures on our website. In the event of an expiration with no value, the premium translates to a 2.75% return on the cash commitment or 15.93% annualized – in our domain, we fondly dub this the YieldBoost.

Below you will find a chart illustrating the trailing twelve-month trading history of Brookfield Asset Management Ltd, with the $40.00 strike visually plotted in green to contextualize its positioning along that historical trajectory.

Shifting focus to the realm of calls within the option chain, the call contract at the $45.00 strike price carries a current bid of 35 cents. In a scenario where an investor procures BAM shares at the present $41.10/share rate and executes a β€œcovered call” by selling-to-open that call contract, they lock in a pledge to vend the stock at $45.00. This strategic move entails that the call seller also nets the premium, manifesting a total return (excluding dividends, if any) of 10.34% should the stock be called away upon the May 17th expiration (before broker commissions). Naturally, there exists potential upside that could be forfeited if BAM shares exhibit significant growth, underscoring the importance of delving into BAM’s trailing twelve-month trading history and comprehending its business fundamentals. A chart below lays out BAM’s trading history, with the $45.00 strike illustrated in red.

Given that the $45.00 strike signifies an estimated 9% premium to the current trading price of the stock, implying that it is out-of-the-money by that percentage, there is a likelihood that the covered call contract may expire worthless. Current analytical data suggests a 71% chance of this outcome. Stock Options Channel will monitor these probabilities over time and chart the numbers on our website, alongside the historical trading profile of the option contract. If the covered call contract lapses sans value, the premium equates to a 0.85% supplemental return for the investor or 4.93% annualized – a phenomenon we affectionately refer to as the YieldBoost.

The put contract example sees an implied volatility of 39%, while the call contract illustrates an implied volatility of 32%. Moreover, we ascertain the actual trailing twelve-month volatility (having considered the last 251 trading day closing values in conjunction with today’s share price of $41.10) to be 26%. For additional insights on put and call options contract considerations, StockOptionsChannel.com serves as a valuable resource.

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Author viewpoints and opinions expressed herein are solely those of the author and do not necessarily align with those of Nasdaq, Inc.

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