IInvestors at Callon Petroleum Co. (Symbol: CPE) saw new options start trading today, for June 17 expiry. At Stock Options Channel, our YieldBoost formula scoured the CPE 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 $60.00 has a current bid of $6.40. If an investor were to sell to open this put contract, they agree to buy the stock at $60.00, but will also collect the premium, placing the cost base of the stock at $53.60 (before brokerage commissions ). For an investor already interested in buying shares of CPE, this could represent an attractive alternative to paying $61.23/share today.
Since the strike price of $60.00 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 99%. 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 10.67% on the cash commitment, or 60.83% annualized – at Stock Options Channel, we call this the Yield increase.
Below is a graph showing Callon Petroleum Co.’s past 12 month trading history, and highlighting in green where the $60.00 strike falls in relation to that history:
On the call side of the options chain, the call contract at the strike price of $65.00 has a current bid of $5.90. If an investor were to buy CPE shares at the current price level of $61.23/share and then sell to open this call contract as a “covered call”, they are committing to selling the stock at 65 $.00. Since the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 15.79% if the stock is called at the June 17 expiration (before broker commissions ). Of course, a lot of upside could potentially be left on the table if CPE shares really spike, which is why it’s important to look at Callon Petroleum Co.’s past 12-month trading history, as well as study the fundamentals of business. Below is a chart showing CPE’s trading history over the last twelve months, with the $65.00 strike highlighted in red:
Given that the strike price of $65.00 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 collected. Current analytical data (including Greeks and implied Greeks) suggests that the current chance of this happening is 99%. 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 9.64% incremental incremental return to the investor, or 54.95% annualized, what we call the Yield increase.
Meanwhile, we calculate the actual volatility for the last twelve months (considering the closing values for the last 254 trading days as well as today’s price of $61.23) at 76%. 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.