Investing in West Pharmaceutical: A Look at Selling Puts
Investors eyeing West Pharmaceutical Services, Inc. (Symbol: WST) stock at the current market price of $211.81 per share may want to explore selling put options as a strategic alternative. Particularly noteworthy is the December put option with a $180 strike price, currently bidding at $13.60. Collecting this premium translates to a 7.6% return based on a $180 commitment, or an annualized rate of 11.2%, a figure we refer to as the YieldBoost.
It’s crucial to understand that selling a put does not provide investors with the same upside potential as owning shares directly. A put seller effectively gets ownership of shares only if the option is exercised. The seller of the put would benefit from selling the stock only if doing so yields a better outcome than the current market price. Unless West Pharmaceutical’s shares see a decline of 14.7% and the contract is exercised, the primary advantage for the put seller lies in securing the premium, which offers an annualized return of 11.2%.
Interestingly, the 11.2% annualized return surpasses West Pharmaceutical’s dividend yield of 0.4% by a significant 10.8%, based on today’s share price of $211.81. If an investor buys the stock outright to collect the dividend, they face greater risk since the stock would need to decrease by 14.74% to hit the $180 strike price.
When evaluating dividends, it’s vital to keep in mind that dividend payments are generally unpredictable and align closely with a company’s profitability. For West Pharmaceutical, reviewing the dividend history chart below can indicate whether the recent dividend is sustainable, thus informing whether the 0.4% annualized yield is realistic.
The trailing twelve-month trading history for West Pharmaceutical is illustrated in the chart below, which highlights the location of the $180 strike in relation to past prices:
This chart, along with the stock’s historical volatility, serves as a valuable tool for determining if selling the December $180 put for the 11.2% annualized return offers a favorable risk-reward scenario. Currently, West Pharmaceutical’s trailing twelve-month volatility stands at 62%, calculated using the last 251 trading day closing values and today’s price of $211.81. Investors interested in exploring other put option contracts at various expirations can visit the WST options page at StockOptionsChannel.com.
As of mid-afternoon trading on Wednesday, put volume among S&P 500 components reached 1.15 million contracts, while call volume stood at 1.43 million. This yields a put-to-call ratio of 0.80 for the day, significantly higher than the long-term median ratio of 0.65. This indicates a notable increase in put buyers relative to call buyers in today’s options trading.
Top YieldBoost Puts of the S&P 500 »
also see:
- WMB Dividend Growth Rate
- ORPN Options Chain
- HSII Historical Stock Prices
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
