Traders tracking Vanguard Short-term Inflation-protected Securities (Symbol: VTIP) witnessed the introduction of new options this week, set to expire on April 19th. At Stock Options Channel, our YieldBoost formula delved into the VTIP options chain for the fresh April 19th contracts and pinpointed one put and one call contract of special interest.

Exploring Put Options

The put contract at the $47.00 strike price is currently bid at 5 cents. If an investor chooses to sell-to-open that put contract, they are committing to purchase the stock at $47.00 and will also amass the premium. This action would peg the cost basis of the shares at $46.95 (before broker commissions), providing an attractive alternative to paying $47.49/share today for someone keen on acquiring VTIP shares.

Notably, the $47.00 strike represents an approximate 1% discount to the current trading price of the stock, indicating the possibility of the put contract expiring worthless. Current analytical data, including greeks and implied greeks, imply a 77% chance of that occurring. Stock Options Channel intends to monitor these odds over time and will publish a chart of those numbers on their website under the contract detail page for this contract. Should the contract expire worthless, the premium would represent a 0.11% return on the cash commitment, or 0.62% annualized—what we at Stock Options Channel call the YieldBoost.

Visualizing the Options

Here’s a visual representation of VTIP’s trailing twelve-month trading history, showing the location of the $47.00 strike relative to that history.

Delving into Call Options

On the calls side of the option chain, the call contract at the $48.00 strike price is currently bid at 15 cents. If an investor owns VTIP stock at the current price level of $47.49/share and chooses to sell-to-open that call contract as a “covered call,” they are committing to sell the stock at $48.00. This would drive a total return (excluding dividends, if any) of 1.39% if the stock gets called away at the April 19th expiration (before broker commissions). However, a substantial upside could potentially be left on the table if VTIP shares soar. Therefore, examining the trailing twelve-month trading history and studying the business fundamentals becomes essential. Below is a chart showing VTIP’s trailing twelve-month trading history, with the $48.00 strike highlighted in red.

Given that the $48.00 strike represents an approximate 1% premium to the current trading price of the stock, there is a chance that the covered call contract would expire worthless. The current odds of that happening are 76%, as indicated by analytical data. Stock Options Channel will track these odds over time and publish a chart of those numbers. Should the covered call contract expire worthless, the premium would represent a 0.32% boost of extra return to the investor, or 1.83% annualized, which we refer to as the YieldBoost.

The implied volatility in the put contract example is 6%, while the implied volatility in the call contract example is 4%. In contrast, we calculate the actual trailing twelve-month volatility to be 4%. For more put and call options contract ideas worth looking at, visit StockOptionsChannel.com.