New Options Introduced for iShares Biotechnology ETF Ahead of August Expiration

Investors in the iShares Trust – iShares Biotechnology ETF (Symbol: IBB) now have access to new options set to expire on August 15th. With 100 days until this expiration, these contracts may provide significant opportunities for sellers of puts and calls to command higher premiums than those available for shorter-term contracts.

Our YieldBoost formula has examined the IBB options chain to identify a put and a call contract of interest. The put contract at the $118.00 strike price currently carries a bid of $4.30. If an investor sells-to-open this put, they would be agreeing to purchase the stock at $118.00, while also collecting the premium. This results in a reduced cost basis of $113.70 per share (excluding broker commissions). For investors looking to buy IBB shares, this option represents a more attractive alternative compared to the current price of $118.60 per share.

The $118.00 strike price is approximately 1% below the current trading price, indicating that the put contract is out-of-the-money by this margin. Current analytical data suggests there’s a 58% chance that the put option will expire worthless. We will monitor these odds over time and provide updates on our website, including a chart showing this data on the contract detail page. If it does expire worthless, the premium yields a 3.64% return on the cash commitment or 13.30% annualized — a metric we refer to as the YieldBoost.

Below is a chart that shows the trailing twelve-month trading history for the iShares Trust – iShares Biotechnology ETF, with the $118.00 strike highlighted in green:

Call Option Opportunities

Shifting focus to the call side of the options chain, the call contract at the $124.00 strike price has a bid of $4.90. If an investor buys shares of IBB at the current price of $118.60 per share and sells this call as a “covered call,” they commit to selling the stock at $124.00. Together with the premium collected, this would result in an 8.68% total return (excluding dividends) if the stock is called away at expiration on August 15th. However, substantial upside might remain if IBB shares rise significantly, underscoring the importance of analyzing both historical trading data and business fundamentals.

Below is a chart illustrating IBB’s trailing twelve-month trading history, with the $124.00 strike marked in red:

The $124.00 strike price is approximately 5% above the stock’s current trading price, indicating it is out-of-the-money by that percentage. There’s a 55% chance that the covered call will expire worthless, allowing the investor to retain both their shares and the collected premium. Should this occur, the premium would represent a 4.13% additional return, or 15.08% annualized — another example of the YieldBoost.

The implied volatility for the put contract stands at 30%, while the call contract reflects an implied volatility of 28%. In contrast, we calculate the actual trailing twelve-month volatility, based on the last 250 trading day closing values and today’s price of $118.60, at 22%. For more insights on put and call options worth considering, please visit StockOptionsChannel.com.

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