As of today, a new set of options for the August 16th expiration have become available for investors in Baidu Inc (Symbol: BIDU). With 182 days until expiration, these newly offered contracts offer a potential window for sellers of puts or calls to secure a higher premium compared to contracts with a closer expiration date, owing to the influence of time value on option prices.
Key Options Contracts
Within the new August 16th contracts, our YieldBoost formula has unearthed a put and call contract that stand out as particular points of interest.
Promising Put Option
The put contract at the $105.00 strike price currently boasts a bid of $8.15. For an investor opting to sell-to-open that put contract, they commit to purchasing the stock at $105.00, while also receiving the premium, effectively setting the cost basis of the shares at $96.85 (prior to broker commissions). This could potentially offer an attractive alternative to buying the shares at the current price of $108.52/share given the 3% discount represented by the $105.00 strike. With such a scenario, there is a 99% chance that the put contract might expire worthless, thus resulting in a 7.76% return on the cash commitment or a 15.57% annualized return – which we refer to as the YieldBoost.
Historical stock performance may suggest improved market outcome and may reflect augmenting shareholder value.
Chart Analysis
Meanwhile, observing the trailing twelve month trading history for Baidu Inc reveals the advantageous positioning of the $105.00 strike relative to this history (illustrated in the accompanying chart).
Promising Call Option
On the other hand, the call contract at the $110.00 strike price is currently listed with a bid of $13.15. By purchasing BIDU shares at the current price of $108.52/share and subsequently selling-to-open that call contract as a “covered call,” an investor would adhere to sell the stock at $110.00. This strategy could yield a total return of 13.48% at the August 16th expiration, excluding dividends, if the stock gets called away (prior to broker commissions). However, given the potential for BIDU shares to experience significant upward movement, analyzing the trailing twelve month trading history and studying business fundamentals becomes crucial in making an informed decision. An analysis of the historical trading performance of BIDU further accentuates the $110.00 strike in the corresponding chart.
By considering these covered call options, investors may ponder additional gains if the stock price outstrips the strike price.
Chart Analysis
As with the put option, the $110.00 strike is indicated as being approximately 1% higher than the current trading price, suggesting that the call contract might expire worthless, resulting in the investor retaining both their shares and the premium collected. The current odds of this happening are 99%, signifying a potential 12.12% additional return on the premium or a 24.31% annualized return — what we term as the YieldBoost.
Risk and Volatility Assessment
Further analysis indicates the actual trailing twelve month volatility to be 41%, a factor worth considering for investors. For more in-depth put and call options contract ideas, visit StockOptionsChannel.com.
Market Insights
The views and opinions expressed herein are those of the author and do not necessarily reflect the perspectives of Nasdaq, Inc.
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