Ambarella Options Provide Attractive Opportunities for Investors

Investors in Ambarella, Inc. (Symbol: AMBA) are seeing new options commence trading this week, set for expiration on November 21st. With 241 days remaining until expiration, these newly available contracts present a potential opportunity for sellers of puts or calls to earn higher premiums compared to options with nearer expirations. Utilizing Stock Options Channel’s YieldBoost formula, we explored the AMBA options chain for these new contracts and pinpointed one put and one call contract of interest.

Put Option Analysis

The put contract at the $55.00 strike price features a current bid of $7.70. An investor selling-to-open this put would agree to buy the shares of AMBA at $55.00, while collecting the premium, resulting in an effective cost basis of $47.30 (before broker commissions). For those already considering the purchase of AMBA shares, this option represents a potentially attractive alternative to paying the current market price of $55.69 per share.

Notably, the $55.00 strike price reflects an approximate 1% discount to AMBA’s current trading price, indicating it is out-of-the-money by that percentage. Current analytical data suggests there is a 62% probability that the put contract may expire worthless. Stock Options Channel will continue to track these odds over time, providing updates and a chart of these figures on our website under the contract details. Should the contract expire without value, the premium collected could yield a 14.00% return on the cash commitment, or an annualized 21.20%, referred to as the YieldBoost.

Below is a chart displaying Ambarella’s trailing twelve months trading history, with the $55.00 strike indicated in green:

Call Option Analysis

Analyzing the call side, the $57.50 strike price is currently bid at $8.60. An investor could buy shares of AMBA at $55.69 and then execute a covered call at this $57.50 strike. In this case, the seller would commit to sell the stock at $57.50 while also collecting the premium. This setup would enable a total return (not including dividends) of 18.69% if the stock is called away at the November 21st expiration (before broker commissions). However, substantial upside may be forfeited if AMBA shares appreciate significantly, underscoring the importance of studying both the recent trading history and fundamental business aspects of Ambarella.

Below is a chart illustrating AMBA’s trailing twelve months trading history, with the $57.50 strike highlighted in red:

The $57.50 strike represents an approximate 3% premium over the current trading price, indicating it is also out-of-the-money by this percentage. There is a possibility that the covered call contract will expire worthless, allowing the investor to retain both the shares and the premium collected. Current analyses suggest a 42% probability of this outcome. Stock Options Channel will monitor these chances over time and publish updates, including the trading history of the option contract. If the covered call expires worthless, the premium would equate to a 15.44% additional return for the investor, or a 23.38% annualized rate, termed as the YieldBoost.

The implied volatility for the put contract stands at 57%, with the call contract at 56%. In contrast, we calculate the actual trailing twelve-month volatility (based on the last 250 trading days) to be 55%. For further options contract ideas, please visit StockOptionsChannel.com.

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