IInvestors at Vale SA (ticker: VALE) saw new options start trading today, for December 2024 expiry. One of the main entries that go into the price an option buyer is ready-to-pay is the time value, so with 954 days to expiration, new trade contracts represent a possible opportunity for put or call writers to earn a higher premium than they would be available for contracts with shorter maturities. At Stock Options Channel, our YieldBoost formula scoured the VALE options channel for new December 2024 contracts and identified one particularly interesting put contract and one call contract.
The put contract at the strike price of $15.00 has a current bid of $2.50. If an investor were to sell to open this put contract, they agree to buy the stock at $15.00, but will also collect the premium, placing the base cost of the stock at $12.50 (before brokerage commissions ). For an investor already interested in buying shares of VALE, this could represent an attractive alternative to paying $15.57/share today.
Since the $15.00 strike represents about a 4% discount to the current stock price (in other words, it’s out of the money by that percentage), it’s also possible that the sales contract expires worthless. Current analytical data (including Greeks and implied Greeks) suggests that the current chance of this happening is 99%. Stock Options Channel will track these odds over time to see how they change, by posting a table of these numbers on our website under the contract detail page for that contract. If the contract expires worthless, the premium would represent a return of 16.67% on the cash commitment, or 6.38% annualized – at Stock Options Channel, we call this the Yield increase.
Below is a chart showing Vale SA’s last twelve month trading history, and highlighting in green where the $15.00 strike falls in relation to that history:
On the call side of the options chain, the call contract at the $20.00 strike price has a current bid of $1.00. If an investor were to buy shares of VALE at the current price level of $15.57/share and then sell to open this call contract as a “covered call”, they are committing to selling the stock at $20.00. Assuming the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 34.87% if the stock is called at the December 2024 expiry (before brokerage commissions). Of course, a lot of upside could potentially be left on the table if VALE shares really soar, which is why it becomes important to look at Vale SA’s past 12-month trading history, as well as Study the fundamentals of business. Below is a chart showing VALE’s trading history over the last twelve months, with the strike price of $20.00 highlighted in red:
Considering that the strike price of $20.00 represents a premium of approximately 28% to the current stock price (in other words, it is out of the price by that percentage), it It is also possible for the covered call contract to expire worthless, in which case the investor would keep both his shares and the premium collected. Current analytical data (including Greeks and implied Greeks) suggests that the current chance of this happening is 99%. On our website, under the contract detail page for that contract, the Stock Options Channel will track those odds over time to see how they change and publish a table of those numbers (the option contract’s trading history will be also plotted). If the covered call contract expires worthless, the premium would represent a 6.42% incremental incremental return to the investor, or 2.46% annualized, what we call the Yield increase.
Meanwhile, we calculate that the actual volatility for the last twelve months (considering the closing values of the last 253 trading days as well as the current price of $15.57) is 42%. For more put and call options contract ideas worth considering, visit StockOptionsChannel.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.