Unveiling New Prospects
Investors in The Materials Select Sector SPDR Fund (Symbol: XLF) were greeted with a fresh opportunity as new options for the March 2025 expiration entered the trading arena today. The time value, a pivotal factor influencing the price that option buyers are willing to pay, is a key consideration. With 364 days until expiration, these recently unveiled contracts hold the potential for sellers of puts or calls to fetch a higher premium compared to nearer expiry contracts. At Stock Options Channel, our YieldBoost formula has swept through the XLF options chain to identify one put and one call contract that stand out among the rest.
A Brighter Alternative
At a $38.00 strike price, the put contract brims with promise, boasting a current bid of $1.09. By selling-to-open this put contract, an investor commits to procuring the stock at $38.00, while also pocketing the premium. This move pegs the cost basis of the shares at a tantalizing $36.91 (excluding broker commissions). For those eyeing XLF shares, this presents an appealing alternative to the current $41.98/share price tag.
Peering into the Crystal Ball
With the $38.00 strike standing as an approximately 9% markdown from the stock’s present trading price, the put contract has the potential to expire worthless. As per current analytical data, the odds of such an outcome materializing stand at a respectable 78%. Stock Options Channel will continue monitoring these probabilities, providing a visual representation via a chart on our website. A worthless expiration would yield a 2.87% return on the cash commitment, or 2.88% annualized — a phenomenon we fondly refer to as the YieldBoost.
An Exciting Proposition
Venturing into the calls realm, the $46.00 strike call contract sparkles with promise, sporting a current bid of $1.64. Opting for a “covered call” strategy involves purchasing XLF shares at the current price of $41.98/share and selling-to-open the call contract, committing to offload the stock at $46.00. With the call seller also reaping the premium, this maneuver could yield a total return of 13.48% (excluding dividends, if applicable) should the stock get called away at the March 2025 expiration, before broker commissions. Yet, a surge in XLF shares could potentially leave significant upside untouched, underscoring the importance of analyzing the stock’s business fundamentals and examining its trailing twelve month trading history.
Diving into the Dynamic World of Options
Given the $46.00 strike’s representation of an approximately 10% premium to the current trading price, the covered call contract may drift into oblivion, leaving the investor with both their shares and the collected premium. Presently, the analytics indicate a 60% chance of this occurrence. Stock Options Channel will diligently monitor these odds and present them in chart format on our website. A worthless expiration for the covered call contract would translate to a 3.91% boost in additional return for the investor, or 3.92% annualized, which we affectionately dub the YieldBoost.
Numbers and Nuances
The implied volatility stands at 21% for the put contract example and 16% for the call contract scenario. On a different note, the actual trailing twelve month volatility, considering the last 249 trading day closing values alongside today’s price of $41.98, hovers at 13%. For more enriching put and call options contract ideas, feel free to explore StockOptionsChannel.com.
Top YieldBoost Calls of the S&P 500 »
Also see:
BDCs Hedge Funds Are Selling
Top Ten Hedge Funds Holding IWM
Funds Holding PX
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
