IInvestors in Amphastar Pharmaceuticals Inc (Ticker: AMPH) saw new options become available this week, for the July 15 expiry. At Stock Options Channel, our YieldBoost formula scoured the AMPH options channel for new contracts on July 15 and identified one put contract and one call contract of particular interest.
The put contract at the strike price of $30.00 has a current bid of 65 cents. If an investor were to sell to open this put contract, they agree to buy the stock at $30.00, but will also collect the premium, placing the cost base of the stock at $29.35 (before brokerage commissions ). For an investor already interested in buying shares of AMPH, this could represent an attractive alternative to paying $36.30/share today.
Since the strike price of $30.00 represents a discount of approximately 17% from the current stock price (in other words, it is out of play by this percentage), it is also possible that the contract of sale expires worthless. Current analytical data (including Greeks and implied Greeks) suggests that the current chance of this happening is 93%. 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 2.17% on the cash commitment, or 15.82% annualized – at Stock Options Channel, we call this the Yield increase.
Below is a graph showing Amphastar Pharmaceuticals Inc’s last twelve months trading history, and highlighting in green where the $30.00 strike falls in relation to that history:
On the call side of the options chain, the call contract at the strike price of $40.00 has a current bid of $2.75. If an investor were to buy AMPH stock at the current price level of $36.30/share and then sell to open this call contract as a “covered call”, they are committing to sell the stock at 40 $.00. Assuming the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 17.77% if the stock is called at the July 15 expiry (before broker commissions) . Of course, a lot of upside could potentially be left on the table if AMPH stock really does soar, which is why it becomes important to look at Amphastar Pharmaceuticals Inc’s past 12-month trading history, as well as study the fundamentals of business. Below is a chart showing AMPH’s past twelve month trading history, with the $40.00 strike highlighted in red:
Considering that the strike price of $40.00 represents a premium of approximately 10% 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 73%. 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 7.58% incremental incremental return to the investor, or 55.30% annualized, what we call the Yield increase.
The implied volatility in the example sell contract is 107%, while the implied volatility in the example buy contract is 118%.
Meanwhile, we calculate that the actual volatility for the last twelve months (considering the closing values for the last 253 trading days as well as today’s price of $36.30) is 38%. 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.