IInvestors at Arch Resources Inc (Symbol: ARCH) saw new options start trading today, for January 2023 expiry. One of the key data points that goes into the price that a buyer option is willing to pay is the time value, so with 301 days to expiration, new trade contracts represent a potential opportunity for put or call sellers to obtain a higher premium than would be available for contracts whose expiration is nearer. At Stock Options Channel, our YieldBoost formula scoured the ARCH options channel for new January 2023 contracts and identified one particularly interesting put contract and one call contract.
The contract to sell at the strike price of $115.00 has a current bid of $22.00. If an investor were to sell to open this put contract, they agree to buy the stock at $115.00, but will also collect the premium, placing the cost base of the stock at $93.00 (before brokerage commissions ). For an investor already interested in buying shares of ARCH, this could represent an attractive alternative to paying $147.49/share today.
Since the strike price of $115.00 represents a discount of approximately 22% 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 79%. 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 19.13% on the cash commitment, or 23.19% annualized – at Stock Options Channel, we call this the Yield increase.
Below is a graph showing the last twelve months trading history for Arch Resources Inc, and highlighting in green where the $115.00 strike falls in relation to that history:
On the call side of the options chain, the call contract at the strike price of $150.00 has a current bid of $24.10. If an investor were to buy ARCH stock at the current price level of $147.49/share and then sell to open this call contract as a “covered call”, they are committing to sell the stock at 150 $.00. Assuming that the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 18.04% if the stock is called at the January 2023 expiry (before brokerage commissions). Of course, a lot of upside could potentially be left on the table if ARCH’s stock really spikes, which is why it becomes important to look at Arch Resources Inc’s trading history for the past twelve months, as well than studying the fundamentals of business. Below is a chart showing ARCH’s trading history over the last twelve months, with the strike price of $150.00 highlighted in red:
Considering that the strike price of $150.00 represents a premium of approximately 2% 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 42%. 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 16.34% incremental incremental return to the investor, or 19.81% annualized, what we call the Yield increase.
The implied volatility in the example sell contract is 104%, while the implied volatility in the example buy contract is 65%.
Meanwhile, we calculate that the actual volatility of the last twelve months (taking into account the closing values of the last 253 trading days as well as the current price of $147.49) is 50%. 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.