Options for EOG Resources, Inc. (Symbol: EOG) commenced trading today, setting the stage for potential opportunities as the new October 18th expiration date looms 246 days away. The emergence of these contracts might prove advantageous for sellers, with the temporal element playing a pivotal role in determining the premium. The longer period until expiration signifies a prospect for sellers of puts or calls to attain a higher premium compared to contracts with tighter expirations.
At Stock Options Channel, our YieldBoost formula scrutinizes the EOG options chain and pinpoints a put and call contracts that bear particular interest.
Exploring Put Contracts
Delving into the put contract at the $110.00 strike price, it reveals a current bid of $8.80. Should an investor opt to sell-to-open that put contract, they are thereby committing to procure the stock at $110.00, enabling them to collect the premium. This action effectively places the cost basis of the shares at $101.20 (prior to broker commissions). For an investor keen on purchasing EOG shares, this could offer an appealing alternative to the current share price of $113.15.
Notably, the $110.00 strike presents an approximate 3% discount to the current trading price of the stock, signaling its out-of-the-money status by that percentage. This positioning raises the prospect of the put contract expiring worthless. The existing analytical data, encompassing greeks and implied greeks, point to a 99% likelihood of this outcome. Stock Options Channel intends to track these probabilities over time, compelling a chart of these figures on our website, underscoring the contract detail page. If the contract expires unexercised, the premium would translate to an 8.00% return on the cash commitment or 11.87% annualized, a phenomenon christened as YieldBoost at Stock Options Channel.
Charting the Options Landscape
Below, a chart illustrates the trailing twelve-month trading history for EOG Resources, Inc., accentuating the $110.00 strike’s position relative to that history.
On the calls side of the option chain, the call contract at the $115.00 strike price stands at a current bid of $10.80. Should an investor purchase EOG shares at the prevailing price of $113.15/share, they can then sell-to-open that call contract as a “covered call,” effectively committing to vend the stock at $115.00. This maneuver, combined with collecting the premium, could yield a total return of 11.18% at the October 18th expiration (prior to broker commissions). However, the looming question pertains to the potential upside that could be left on the table in the event of a significant surge in EOG shares. Consequently, peering into EOG’s trailing twelve-month trading history and delving into business fundamentals gains prominence. A chart portraying this concept is illustrated below, with the $115.00 strike highlighted in red.
Contemplating Probabilities
The $115.00 strike discloses an approximate 2% premium to the current trading price of the stock, implying its out-of-the-money status by that percentage. This sets the stage for the likelihood of the covered call contract expiring worthless, underscoring a 99% chance based on the existing analytical data. Stock Options Channel pledges to monitor these probabilities over time while publishing a chart of these figures, staking the option contract’s trading history. Should the covered call contract expire as such, the premium would embody a 9.54% boost of extra return for the investor or 14.16% annualized, a concept distinctive to YieldBoost.
Calculation of the actual trailing twelve-month volatility is also pertinent, recorded at 29% based on the last 251 trading day closing values and today’s price of $113.15. For further put and call options contract ideas worth exploring, 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.
