New Options Available for The Materials Select Sector SPDR Fund

Investors in The Materials Select Sector SPDR Fund (Symbol: XLU) noted the launch of new options this week, set to expire on May 16th. Our YieldBoost formula at Stock Options Channel has analyzed the XLU options chain to identify one put and one call contract of particular interest.

Put Option Insights

The put contract at the $73.00 strike price currently has a bid of 17 cents. Selling to open this put contract commits the investor to purchase shares at $73.00 while also collecting the premium. This results in an effective cost basis of $72.83, excluding broker commissions. For investors keen on acquiring XLU shares, this approach offers an appealing alternative compared to paying the current market price of $76.91 per share.

This $73.00 strike price translates to an approximate 5% discount off the current trading price. Consequently, there’s a possibility that this put contract may expire worthless. Current analytical data shows an 86% likelihood of this scenario. Stock Options Channel will continue monitoring these odds over time and provide updates on our website, including a detailed chart for this contract. Should the contract expire without value, the premium would yield a 0.23% return on the cash commitment, or 1.63% annualized—referred to as our YieldBoost.

Trading History

Below is a chart depicting the trailing twelve-month trading history for The Materials Select Sector SPDR Fund, with the $73.00 strike marked in green:

Call Option Analysis

On the call side, the $81.00 strike price option has a current bid of 63 cents. If an investor purchases shares of XLU at the current price of $76.91 and sells to open this call contract as a “covered call,” they agree to sell the stock at $81.00. Including the premium collected, this results in a total return of 6.14% (excluding dividends) if the stock is called away at the May 16th expiration (before broker commissions). However, significant upside potential could be lost if XLU shares increase significantly; thus, examining both the trading history and business fundamentals is critical.

Below is an overview of XLU’s trailing twelve-month trading history, with the $81.00 strike highlighted in red:

Notably, the $81.00 strike represents roughly a 5% premium to the current trading price. Thus, there’s also a chance that this covered call contract could expire worthless. In this scenario, the investor retains both their shares and the premium collected. Current analytical data indicates a 70% probability of this outcome. We will track these odds on our website and publish a chart illustrating the trading history of this option contract. If the covered call contract expires without value, the premium would increase returns by an extra 0.82%, or 5.75% annualized, which we also classify as a YieldBoost.

Volatility Metrics

Implied volatility stands at 17% for the put contract and 16% for the call contract. In contrast, we calculated the actual trailing twelve-month volatility, based on the last 250 trading days and the current price of $76.91, to be 16%. For further options contract ideas worth exploring, visit Stock Options Channel.

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Also see:

• DRV Videos
• PPSI shares outstanding history
• GEV Average Annual Return

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