LegalZoom Options Strategy: Selling Puts for Potential Returns

Investors considering an acquisition of LegalZoom.com Inc (Symbol: LZ) may want to explore alternative strategies rather than purchasing shares at the current market price of $9.43 per share. One notable option is to sell put options, specifically the January 2027 put with a $7 strike price, which is currently bidding at 95 cents. By collecting this premium, investors can expect a 13.6% return on the $7 commitment, translating to a 7.3% annualized rate of return, referred to as the YieldBoost at Stock Options Channel.

However, it’s important to note that selling a put does not grant investors access to the upside potential of LZ shares as directly owning them would. A put seller only acquires shares if the contract is exercised. This scenario occurs only if exercising the put at $7 proves to be more favorable than selling shares at the current market price. Since LegalZoom.com Inc shares would need to drop 25.4% for the contract to be exercised, resulting in an effective cost basis of $6.05 per share (considering the 95 cents from the premium), the primary benefit to the put seller remains the collection of the premium, representing the 7.3% annualized return.

Below, a chart illustrates the trailing twelve-month trading history for LegalZoom.com Inc, highlighting the location of the $7 strike relative to past performance:

This chart, along with an analysis of LegalZoom’s historical volatility, can serve as a valuable resource. When combined with fundamental analysis, these tools can help determine whether selling the January 2027 put at the $7 strike for a 7.3% annualized return compensates adequately for the associated risks. We have calculated the trailing twelve months volatility for LegalZoom.com Inc at 56%, based on the last 249 trading day closing values and the current price of $9.43. For additional contract ideas on puts with different expirations, please visit the LZ Stock Options page on StockOptionsChannel.com.

In mid-afternoon trading on Monday, the put volume among S&P 500 components stood at 2.40M contracts, while call volume reached 2.73M, resulting in a put-to-call ratio of 0.88 for the day. This figure is notably high compared to the long-term median ratio of 0.65, indicating an increased presence of put buyers in the options market today compared to call buyers. To see what call and put options are trending among traders, find out more.

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