IInvestors in Bunge Ltd. (Symbol: BG) saw new options become available today, for expiry on June 17th. One of the key data points that goes into the price an option buyer is willing to pay is time value, so with 101 days to expiration, newly available contracts represent a possible opportunity for traders. sellers of put or call options to obtain a higher premium than would be available for contracts with closer expiration. At Stock Options Channel, our YieldBoost formula scoured the BG options channel for new contracts on June 17 and identified one put contract and one call contract of particular interest.
The put contract at the strike price of $105.00 has a current bid of $7.10. If an investor were to sell to open this put contract, they agree to buy the stock at $105.00, but will also collect the premium, placing the base cost of the stock at $97.90 (before brokerage commissions ). For an investor already interested in buying shares of BG, this could represent an attractive alternative to paying $107.52/share today.
Since the strike price of $105.00 represents a discount of approximately 2% from the current stock price (in other words, it is out of play by that 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 59%. 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 6.76% on the cash commitment, or 24.45% annualized – at Stock Options Channel, we call this the Yield increase.
Below is a chart showing Bunge Ltd.’s last twelve months trading history, and highlighting in green where the $105.00 strike falls in relation to that history:
On the call side of the options chain, the call contract at the strike price of $110.00 has a current bid of $7.00. If an investor were to buy BG stock at the current price level of $107.52/share and then sell to open this call contract as a “covered call”, they are committing to selling the stock at 110 $.00. Assuming the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 8.82% if the stock is called at the June 17 expiry (before broker commissions) . Of course, a lot of upside could potentially be left on the table if BG shares really do soar, which is why it’s important to look at Bunge Ltd.’s past 12-month trading history, as well as any study the fundamentals of business. Below is a chart showing BG’s trading history over the last twelve months, with the $110.00 strike highlighted in red:
Considering that the strike price of $110.00 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 55%. 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 expires worthless, the premium would represent a 6.51% increase in incremental return to the investor, or 23.54% annualized, what we call the Yield increase.
The implied volatility in the example sell contract is 42%, while the implied volatility in the example buy contract is 38%.
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 the current price of $107.52) is 25%. 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.