New Options Trading for Dow Inc: Analysis and Insights

Investors in Dow Inc (Symbol: DOW) noticed new options beginning trading today, specifically for the May 30th expiration. At Stock Options Channel, our YieldBoost formula analyzed the DOW options chain for these new contracts and highlighted one put and one call contract of particular interest.

Put Contract Analysis

The identified put contract at the $27.00 strike price carries a current bid of $1.52. If an investor sells-to-open that put contract, they commit to purchasing shares at $27.00. Additionally, they will collect the premium, resulting in an effective cost basis of $25.48 per share, excluding broker commissions. For investors eager to acquire shares of DOW, this could be an appealing alternative compared to the current market price of $27.41 per share.

It’s important to note that since the $27.00 strike price reflects a 2% discount to the current trading price (indicating it is out-of-the-money by that percentage), there’s a chance that the put contract could expire worthless. Current analytical data, including greeks and implied greeks, indicate a 55% probability of that outcome. Stock Options Channel will continuously monitor these odds and publish updates on our website under the contract detail page. If the contract does expire worthless, the premium will yield a 5.63% return on the cash commitment, translating to a 41.10% annualized return, a figure we refer to as the YieldBoost.

Price Chart Overview

Below is a chart revealing the trailing twelve-month trading history for Dow Inc, with the $27.00 strike highlighted in green:

Call Contract Insights

On the call side, the $28.00 strike price currently has a bid of 20 cents. By purchasing shares of DOW at the current price of $27.41 and then selling-to-open that call contract as a “covered call,” an investor agrees to sell the shares at $28.00. This strategy, combined with the collected premium, offers a potential total return of 2.88% (excluding any dividends) if the stock is called away at the May 30th expiration, subject to broker commissions.

However, investors should be aware that significant upside may remain if DOW shares appreciate notably. Thus, reviewing DOW’s trailing twelve-month trading history and the company’s fundamentals is essential. The chart below illustrates DOW’s trading history with the $28.00 strike marked in red:

As the $28.00 strike represents an approximate 2% premium to the current trading price, there exists the possibility that the covered call could expire worthless. In this scenario, the investor would retain both their shares and the collected premium. Current analytics show a 55% probability of this outcome, which Stock Options Channel will track and update. Should the covered call expire worthless, the premium would yield a 0.73% boost in return, equating to 5.33% on an annualized basis, another figure we define as the YieldBoost.

Volatility Insights

The implied volatility for the put contract stands at 52%, while the call contract has an implied volatility of 40%. In comparison, we calculate the actual trailing twelve-month volatility—based on the last 251 trading day closing values alongside today’s price of $27.41—to be 33%. For additional options contract ideas worth exploring, visit StockOptionsChannel.com.

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Also see:

• Top Ten Hedge Funds Holding ODD
• Franklin Resources Technical Analysis
• Institutional Holders of NSSC

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