Investors tracking DaVita Inc (Symbol: DVA) witnessed the debut of new options with the October 18th expiration date today, presenting a strategic window for market participants. With 246 days until expiration, these contracts potentially offer premium prospects for sellers of puts or calls compared to contracts with a closer expiration date. The opportunity arises from the intrinsic time value factor, a key variable in determining an option’s price.
Put Contracts Unveil Attractive Opportunities
At the $120.00 strike price, the put contract currently commands a bid of $10.70. For an investor leaning towards acquiring DVA shares, selling-to-open this put contract commits to buying the stock at $120.00, with an added collection of the premium, effectively setting a cost basis of $109.30 per share (excluding broker commissions).
The $120.00 strike presents approximately a 1% discount to the current trading price, signifying its out-of-the-money status by that margin. Consequently, there is a 99% chance of the put contract expiring without value. The data suggests that if this were to eventuate, the premium would translate to an 8.92% return on the cash commitment, equivalent to a notable 13.23% annualized return.
Exploring the Call Side
Set at the $130.00 strike price, the call contract currently bears a bid of $10.60. Should an investor purchase DVA shares at the prevailing price of $120.67/share and proceed to sell-to-open this call contract, a “covered call” strategy would ensue, obligating the sale of the stock at $130.00. Including the premium collection, this materializes as a potential total return of 16.52% if the stock is called away at the October 18th expiration (prior to broker commissions).
Although the call seller stands to gain, the considerable upside in a scenario of DVA shares skyrocketing remains. Examining the trading history of DaVita Inc becomes critical in assessing the underlying risk and reward. The $130.00 strike, positioned as an approximately 8% premium to the current trading price, also bears a 99% likelihood of expiring worthless. If this unfolds, the investor retains both their stock and the collected premium, which would serve as an 8.78% boost of additional return, translating to 13.04% annualized, a metric known as the YieldBoost.
Assessing Volatility and Beyond
The actual trailing twelve-month volatility is calculated at 37%, considering the last 251 trading day closing values alongside the current price of $120.67. For more insights into put and call options contract ideas, StockOptionsChannel.com is a valuable resource worthy of exploration.
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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.
