Finding Value in Alphabet Inc Options
Today, investors in Alphabet Inc (Symbol: GOOGL) were presented with new options for the May 3rd expiration. At Stock Options Channel, our YieldBoost formula carefully scrutinized the GOOGL options chain for these fresh May 3rd contracts and singled out one put and one call contract that piqued particular interest.
Uncovering Hidden Opportunities
The put contract at the $147.00 strike price currently beckons with a bid of $4.80. By opting to sell-to-open that put contract, an investor would be agreeing to purchase the stock at $147.00. However, in doing so, they collect the premium, lowering the cost basis of the shares to $142.20 (before broker commissions). For those already eyeing GOOGL shares, this could prove to be a compelling alternative to the current market price of $148.16/share.
Given that the $147.00 strike lies approximately 1% below the current trading price of the stock (i.e., is out-of-the-money by that percentage), there is a chance the put contract may expire worthless. Present analytical data, including greeks and implied greeks, indicate a 58% likelihood of this outcome. Stock Options Channel will monitor these odds over time and provide a visual representation on our website. If the contract does expire worthless, the premium would deliver a 3.27% return on the cash commitment, or a 27.72% annualized return – our very own YieldBoost.
Analyzing the Calls Side
Looking at the calls side, the call contract at the $150.00 strike price shows a current bid of $5.80. Should an investor purchase GOOGL shares at the current rate of $148.16/share and then sell-to-open that call contract as a “covered call,” they commit to selling the stock at $150.00. This strategy could yield a total return (excluding dividends) of 5.16% if the stock is called away at the May 3rd expiration. However, there is the risk of missing out on potential gains if GOOGL shares experience a significant jump. Examining GOOGL’s trailing twelve month trading history and studying the business fundamentals can shed light on such possibilities. Below is a chart detailing this history, highlighting the $150.00 strike in red:
Considering that the $150.00 strike carries an approximate 1% premium over the current trading price of the stock (i.e., is out-of-the-money by that percentage), there is a chance the covered call contract might expire worthless. Current analytical data, including greeks and implied greeks, suggest a 50% likelihood of this occurrence. Stock Options Channel will keep a close eye on these probabilities over time and present them visually on our website. If the covered call contract does expire worthless, the premium would deliver an additional 3.91% return to the investor, or a 33.23% annualized return, referred to as the YieldBoost.
The implied volatility for both the put and call contract examples hovers around 32%, as we calculate the actual trailing twelve month volatility to be 28%. For more put and call options contract ideas worth delving into, visit StockOptionsChannel.com.
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Also see:
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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.
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