New Options for Merck Offer Investment Opportunities Ahead of November Expiration

Investors in Merck & Co Inc (Symbol: MRK) have new options available today that expire on November 21st. With 186 days until expiration, these contracts provide a significant time value, which can lead to higher premiums for sellers of puts or calls compared to contracts with shorter timeframes. Our analysis of the MRK options chain has discovered noteworthy put and call contracts for this expiration date.

Attractive Put Contract Opportunity

The put contract at the $75.00 strike price currently has a bid of $5.65. If an investor chooses to sell-to-open this put contract, they would agree to purchase the stock at $75.00 while collecting the premium. This would effectively lower the cost basis of the shares to $69.35, providing a cost-effective entry point compared to the current trading price of $76.05 per share.

The $75.00 strike price is approximately a 1% discount to the current stock price, making it out-of-the-money by that percentage. Current analytical data indicates there is a 58% chance the put contract could expire worthless. Over time, these odds will be monitored, and updates will be published on the contract detail page of our website. If the put contract expires worthless, the premium collected would represent a 7.53% return on the cash outlay, or an annualized return of 14.78%—referred to as the YieldBoost.

Call Contract Insights

The call contract at the $90.00 strike price has a bid of $2.49. Investors buying shares of MRK at the current price of $76.05 per share and selling this call contract as a covered call would commit to selling their shares at $90.00. Including the premium, this sets up a total potential return of 21.62% if the stock is called away at the November 21st expiration, excluding dividends.

However, if MRK shares experience significant growth, the investor may miss out on additional upside. It is crucial to consider both the historical trading performance and the underlying business fundamentals of Merck. The chart below illustrates MRK’s trailing twelve-month trading history, with the $90.00 strike highlighted in red:

Since the $90.00 strike represents approximately an 18% premium relative to the current trading price, there is also the possibility that the covered call could expire worthless. In this scenario, the investor would retain both their shares and the premium received. Current data suggests a 70% chance that the contract could expire worthless, and these probabilities will be updated regularly. Should the covered call expire worthless, the premium would yield an additional 3.27% return for the investor, or an annualized 6.42%—also referred to as the YieldBoost.

Volatility Insights

The implied volatility for both the put and call contracts stands at approximately 36%. In contrast, the actual trailing twelve-month volatility, calculated from the last 249 trading days along with today’s price of $76.05, is 28%.

For more ideas on potential put and call options contracts, further resources are available for investors to explore.

Note: The views and opinions expressed herein are solely those of the author and may not necessarily reflect those of Nasdaq, Inc.