Investing Insight: Exploring Put Selling with Cadence Design Systems

Investors eyeing Cadence Design Systems Inc (Symbol: CDNS) stock may find the current market price of $265.87/share to be a concern. However, an alternative to outright purchasing shares is selling put options, specifically the January 2027 put at the $210 strike, which has a bid of $16.20. Accepting this bid as premium offers a 7.7% return based on the $210 commitment, translating to an annualized rate of 4.3%. We refer to this as the YieldBoost at the Stock Options Channel.

Selling a put option differs from owning shares since the put seller does not capture the company’s upside potential. The seller only acquires shares if the option is exercised, which occurs if doing so is more advantageous than selling at the market price. In essence, unless Cadence Design Systems Inc’s shares decrease by 21% and the option is exercised (resulting in a cost basis of $193.80 per share, based on the deduction of the $16.20 premium from the $210 strike), the put seller’s only profit comes from collecting the premium for a 4.3% annualized yield.

To provide further clarity, the following chart illustrates the trailing twelve-month trading history for Cadence Design Systems Inc, highlighting the $210 strike in green relative to this history:

This chart, along with Cadence’s historical volatility, serves as a valuable resource alongside fundamental analysis to assess whether selling the January 2027 put at the $210 strike for a 4.3% annualized return is commensurate with the associated risks. The trailing twelve-month volatility for Cadence Design Systems Inc, calculated considering the last 250 trading day closing values along with the current price of $265.87, stands at 37%. For further put options strategies at various expirations, refer to the CDNS Stock Options page on StockOptionsChannel.com.

During mid-afternoon trading on Wednesday, the put volume among S&P 500 components reached 1.07 million contracts, equaling call volume at 1.07 million. This results in a put:call ratio of 0.70, which is above the long-term median of 0.65. This indicates a higher than expected number of put buyers in today’s options trading, contrasting with historical data. To explore which call and put options traders are discussing today, follow this link.

Top YieldBoost Puts of the Nasdaq 100 »

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• GILT Stock Predictions

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