Investors in United States Steel Corp. (Symbol: X) saw new options become available today, for July 2023 expiry. One of the main inputs that goes into the price an option buyer is willing to pay is time value , so with 245 days to expiration, newly available contracts represent a possible opportunity for sellers of puts or calls to earn a higher premium than would be available for contracts whose expiry is closer. At Stock Options Channel, our YieldBoost formula scoured the X options channel for July 2023 new contracts and identified a put contract and a call contract of particular interest.
The put contract at the strike price of $23.00 has a current bid of $3.90. If an investor were to sell to open this put contract, they agree to buy the stock at $23.00, but will also collect the premium, placing the cost base of the stock at $19.10 (before brokerage commissions ). For an investor already interested in buying shares of X, this could represent an attractive alternative to paying $23.48/share today.
Since the $23.00 strike represents about a 2% discount to the stock’s current trading 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 63%. 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 16.96% on the cash commitment, or 25.27% annualized – at Stock Options Channel, we call this the Yield increase.
Below is a chart showing the past twelve month trading history for United States Steel Corp., and highlighting in green where the $23.00 strike falls in relation to that history:
On the call side of the options chain, the call contract at the strike price of $25.00 has a current bid of $4.05. If an investor were to buy X shares at the current price level of $23.48/share and then sell to open this call contract as a “covered call”, they are committing to selling the stock at 25 $.00. Assuming the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 23.72% if the stock is called at the July 2023 expiry (before brokerage commissions). Of course, a lot of upside could potentially be left on the table if X shares really spike, which is why it’s important to look at United States Steel Corp.’s past 12-month trading history, as well as to study the fundamentals of business. Below is a chart showing X’s trading history over the last twelve months, with the strike price of $25.00 highlighted in red:
Considering that the strike price of $25.00 represents a premium of approximately 6% 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 received. Current analytical data (including Greeks and implied Greeks) suggests that the current chance of this happening is 44%. 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 17.25% increase in incremental return to the investor, or 25.70% annualized, what we call the Yield increase.
The implied volatility in the example sell contract is 63%, while the implied volatility in the example buy contract is 58%.
Meanwhile, we calculate the actual volatility for the last twelve months (considering the closing values of the last 259 trading days as well as today’s price of $23.48) at 56%. For more put and call options contract ideas worth considering, visit StockOptionsChannel.com.
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