IInvestors at Sorrento Therapeutics Inc (Ticker: SRNE) saw new options start trading today, for September 9 expiry. At Stock Options Channel, our YieldBoost formula scoured the SRNE options channel for new contracts on September 9 and identified one particularly interesting put contract and one call contract.
The put contract at the strike price of $2.50 has a current bid of 31 cents. If an investor were to sell to open this put contract, they are committing to buy the stock at $2.50, but will also receive the premium, which will put the base price of the stock at $2.19 (before brokerage fees). For an investor already interested in buying SRNE shares, this could represent an attractive alternative to paying $2.61/share today.
Since the $2.50 strike price represents about a 4% discount to 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 12.40% on the cash commitment, or 105.26% annualized – at Stock Options Channel, we call this the Yield increase.
Below is a graph showing Sorrento Therapeutics Inc’s trading history for the last twelve months, and highlighting in green where the $2.50 strike falls in relation to that history:
On the call side of the options chain, the call contract at the $3.00 strike price has a current bid of 24 cents. If an investor were to buy SRNE stock at the current price level of $2.61/share and then sell to open this purchase contract as a “covered call”, they are committing to selling the stock at 3 $.00. Assuming the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 24.14% if the stock is called at the September 9 expiry (before broker commissions) . Of course, a lot of upside could potentially be left on the table if SRNE shares really spike, which is why it becomes important to look at Sorrento Therapeutics Inc’s trading history for the past twelve months, as well as Study the fundamentals of business. Below is a chart showing SRNE’s trading history over the last twelve months, with the $3.00 strike highlighted in red:
Considering that the strike price of $3.00 represents a premium of approximately 15% 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 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 9.20% incremental incremental return to the investor, or 78.05% annualized, what we call the Yield increase.
Meanwhile, we calculate that the actual volatility for the last twelve months (considering the closing values for the last 252 trading days as well as today’s price of $2.61) is 80%. 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.