IInvestors in BlackBerry Ltd (Ticker: BB) saw new options start trading today, for the April 22 expiry. At Stock Options Channel, our YieldBoost formula scoured the BB options channel for new contracts on April 22 and identified one put contract and one call contract of particular interest.
The put contract at the strike price of $6.00 has a current bid of 34 cents. If an investor were to sell to open this put contract, they agree to buy the stock at $6.00, but will also collect the premium, which will put the cost base of the stock at $5.66 (before commissions brokerage). For an investor already interested in buying shares of BB, this could represent an attractive alternative to paying $6.69/share today.
Since the $6.00 strike represents about a 10% 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 71%. 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 5.67% on the cash commitment, or 41.40% annualized – at Stock Options Channel, we call this the Yield increase.
Below is a graph showing the last twelve months trading history for BlackBerry Ltd, and highlighting in green where the $6.00 strike falls in relation to that history:
On the call side of the options chain, the call contract at the $7.00 strike price has a current bid of 51 cents. If an investor were to buy BB shares at the current price level of $6.69/share and then sell to open this call contract as a “covered call”, they are committing to selling the stock at 7 $.00. Since the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 12.26% if the stock is called at the April 22 expiry (before broker commissions ). Of course, a lot of upside could potentially be left on the table if BB shares really soar, which is why it becomes important to look at BlackBerry Ltd’s trading history for the last twelve months, as well as to study the fundamentals of the business. Below is a chart showing BB’s trading history over the last twelve months, with the strike price of $7.00 highlighted in red:
Considering that the strike price of $7.00 represents a premium of approximately 5% 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 53%. 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 7.62% incremental incremental return to the investor, or 55.70% annualized, what we call the Yield increase.
The implied volatility in the example sell contract is 80%, while the implied volatility in the example buy contract is 83%.
Meanwhile, we calculate the actual volatility for the last twelve months (considering the closing values of the last 253 trading days as well as today’s price of $6.69) at 67%. 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.