Investors in Masco Corp. (Symbol: MAS) witnessed the commencement of trading for new options today, pegged to the October 18th expiration. The options, with 246 days until expiration, represent a potential opening for sellers of puts or calls to achieve a higher premium than what would be available for contracts with a nearer expiration. At Stock Options Channel, our YieldBoost formula has scanned through the MAS options chain for these new contracts and identified one put and one call contract of particular interest.
The put contract at the $70.00 strike price currently has a bid of $3.90. Selling-to-open that put contract commits an investor to purchase the stock at $70.00, while also collecting the premium, effectively putting the cost basis of the shares at $66.10 (before broker commissions). For an investor interested in acquiring MAS shares, this presents an attractive alternative to paying $73.59/share today.
The $70.00 strike represents an approximate 5% discount to the current trading price of the stock, making it out-of-the-money by that percentage and raising the possibility that the put contract could expire worthless. The current analytical data indicate a 99% likelihood of that happening. Stock Options Channel will monitor these odds over time and publish a chart of those numbers on our website. Upon expiring worthless, the premium would denote a 5.57% return on the cash commitment or an 8.27% annualized yield, known as the YieldBoost.
Below is a chart illustrating the trailing twelve month trading history for Masco Corp., with the $70.00 strike marked relative to that history:
On the calls side, the call contract at the $75.00 strike price boasts a current bid of $6.00. Purchasing shares of MAS stock at the current price level of $73.59/share and then selling-to-open that call contract as a “covered call” commits the investor to sell the stock at $75.00. The call seller will also collect the premium, resulting in a total return of 10.07% if the stock gets called away at the October 18th expiration (before broker commissions). However, there is potential for substantial upside should MAS shares rally, making a study of the company’s trading history and business fundamentals crucial. Below is a chart presenting MAS’s trailing twelve month trading history, with the $75.00 strike highlighted in red:
Given that the $75.00 strike represents an approximate 2% premium to the current trading price of the stock, there is also the possibility that the covered call contract would expire worthless, with the current analytical data indicating a 99% chance of that occurring. Stock Options Channel will track these odds over time and publish a chart of those numbers. Upon expiring worthless, the premium would represent an 8.15% boost of extra return to the investor, or 12.10% annualized, known as the YieldBoost.
Meanwhile, the actual trailing twelve month volatility, considering the last 251 trading day closing values as well as today’s price of $73.59, is calculated to be 26%. For more put and call options contract ideas worth considering, visit StockOptionsChannel.com.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
