New Options for October 18th Expiration

Today, investors exploring Cabot Corp (Symbol: CBT) witnessed the debut of new options for the October 18th expiration date. With 246 days until expiration, these freshly available contracts present a potential opportunity for puts or calls sellers to garner a higher premium than contracts with a nearer expiration.

Potential for Sellers

At Stock Options Channel, our YieldBoost formula panned through the CBT options chain for these contracts and pinpointed one put and one call contract of particular interest.

Potential for Sellers of Put Contracts

The put contract at the $80.00 strike price flaunts a current bid of $3.50. If an investor opts to sell-to-open the put contract, they commit to purchasing the stock at $80.00 but will also pocket the premium, thereby lowering the cost basis of the shares to $76.50. For an investor eyeing to purchase CBT shares, this alternative presents an alluring prospect compared to the prevailing price of $81.83 per share.

Reflections on the Put Contract

With the $80.00 strike standing as an approximately 2% discount to the current trading price of the stock (i.e., out-of-the-money by that margin), there is a chance that the put contract could expire worthless. Analytical data suggests the current odds of that happening are 99%, a facet we will monitor over time. If the contract expires worthless, the premium would yield a 4.38% return on the cash commitment, or 6.49% annualized, providing the basis for what we term as the “YieldBoost”.

Spotlight on the Call Contract

Flipping to the calls segment of the option chain, the call contract at the $85.00 strike price boasts a current bid of $4.20. For an investor purchasing shares of CBT at the current price level of $81.83/share and engaging in a “covered call” by sell-to-open, they commit to selling the stock at $85.00. This maneuver could drive a total return of 9.01% (excluding dividends, if any) if the stock gets called away at the October 18th expiration.

Considering the Upside Potential

Nonetheless, there exists the risk of potential upside being left on the table if CBT shares take a major upturn. Considering the trailing twelve month trading history for Cabot Corp. becomes an important factor. The chart shows CBT’s trailing twelve month trading history, with the $85.00 strike highlighted in red.

Reflections on the Covered Call Contract

As the $85.00 strike reflects an approximate 4% premium to the current trading price of the stock (i.e., out-of-the-money by that percentage), there is a possibility that the covered call contract would expire worthless. The current analytical data indicates the current odds of that happening are 99%, something we will track over time. If the covered call contract expires in such a manner, the premium would yield a 5.13% boost of extra return to the investor, or 7.62% annualized, known as the “YieldBoost”.

Market Volatility and More

As with any investment, it’s crucial to consider the market volatility. In this case, the actual trailing twelve month volatility (based on the last 251 trading day closing values and today’s price of $81.83) is 30%. For further put and call options contract suggestions, feel free to explore StockOptionsChannel.com.

Also see:

• Communications Services Dividend Stocks
• API Average Annual Return
• SYPR Historical Stock Prices

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.