New Options Trading Launches for ADP with December Expiration

Automatic Data Processing Inc. (Symbol: ADP) has initiated trading for options expiring on December 19th. With 205 days until expiration, these new contracts may allow sellers of puts or calls to achieve higher premiums compared to shorter-term contracts.

Among the options, a notable put contract at the $320.00 strike price currently has a bid of $14.00. Selling this put obligates the investor to buy ADP shares at $320.00, while also receiving the premium. This would effectively lower the cost basis to $306.00, an attractive alternative compared to the current market price of $325.81/share.

The $320.00 strike represents approximately a 2% discount from the current trading price, placing it out-of-the-money by that percentage. Analytical data indicates a 61% likelihood that the put contract may expire worthless. Should that occur, the premium would yield a 4.38% return on the cash commitment, or an annualized return of 7.79%, a metric referred to as the YieldBoost.

A chart below displays ADP’s trailing twelve-month trading history, identifying the $320.00 strike relative to this history:

On the call side, a $330.00 strike contract currently carries a bid of $18.30. An investor purchasing ADP shares at $325.81/share and selling this call as a covered call would commit to selling at $330.00. This strategy could yield a total return of 6.90% if the stock is called away at expiration, not accounting for dividends or broker commissions.

This $330.00 strike shows about a 1% premium compared to the current trading price, meaning it is also out-of-the-money by that amount. There is a chance the covered call contract could expire worthless, allowing the investor to keep both the shares and the premium collected. Current odds for this scenario are estimated at 46%. If it expires worthless, the premium would add a 5.62% extra return, equating to 10.00% annualized, also termed as YieldBoost.

The implied volatility for the put contract is 22%, while it is 21% for the call contract. The actual trailing twelve-month volatility, based on the last 250 trading days and the price of $325.81, is calculated at 19%. For additional options insights, 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.