New Options Trading Opportunities for Phillips 66 Investors

Investors in Phillips 66 (Symbol: PSX) recently observed new options begin trading today, specifically for the expiration date of July 18th. As there are 100 days until expiration, option pricing heavily factors in time value. The new contracts may offer sellers of puts or calls the chance to earn a premium higher than those available for contracts set to expire sooner.

Utilizing our YieldBoost formula at Stock Options Channel, we identified one put and one call contract that stand out in the PSX options chain. The put contract, set at an $85.00 strike price, currently shows a bid of $6.30. If an investor sells-to-open this put contract, they agree to purchase the Stock at $85.00, while also collecting the premium. This results in an adjusted cost basis of $78.70 per share, excluding broker commissions. For investors keen on obtaining shares of PSX, this option could provide a more attractive pathway than buying at the present price of $91.40/share.

Notably, the $85.00 strike translates to a roughly 7% discount from PSX’s current trading price, placing it out-of-the-money by that percentage. Current analytics indicate that there is a 66% probability the put contract will expire worthless. We will continue to track these odds at Stock Options Channel and publish a chart reflecting any changes to this information. Should the contract indeed expire worthless, the premium would yield a return of 7.41% on the cash commitment, or an impressive 27.05% annualized. This metric is referred to as the YieldBoost.

Below is a chart illustrating the trailing twelve-month trading history for Phillips 66, with the position of the $85.00 strike highlighted in green:

Shifting to the call options, the $100.00 strike price call contract has a current bid listed at $5.20. Investors purchasing PSX shares at the prevailing price of $91.40/share and selling-to-open this call contract as a “covered call” would be committing to sell the Stock at $100.00. By collecting the premium, this strategy could yield a total return of 15.10%, assuming the Stock is called away at the July 18th expiration (this excludes dividends, if applicable). However, significant upside may be missed if PSX shares surge substantially, underscoring the importance of analyzing both the trailing twelve-month trading history and the underlying business fundamentals.

Here is a chart depicting PSX’s trailing twelve-month trading history, with the $100.00 strike marked in red:

The $100.00 strike represents about a 9% premium to the current trading price (making it out-of-the-money by that percentage). Therefore, there is also the potential that the covered call contract could expire worthless, allowing the investor to retain both the shares and the premium collected. Current data indicates a 59% chance of this happening. We track such odds over time at Stock Options Channel, providing an updated chart on the option contract history. If the covered call expired worthless, it would equate to a 5.69% increase in returns for the investor, or 20.77% annualized—again termed the YieldBoost.

The implied volatility for the put contract stands at 54%, while the call contract has an implied volatility of 48%. Simultaneously, our analysis reveals that the actual trailing twelve-month volatility—considering the last 251 trading days along with today’s price of $91.40—amounts to 32%. For more insights into put and call options contracts worth considering, be sure to 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.