Investors interested in Herbalife Nutrition Ltd (HLF) saw that new options begin trading in the last week of 2018, with the expiration date being August 2019. Due to the fact that time value is one of the key data points which goes into the price that an option buyer is willing to pay, having a 228 days expiration date for the newly trading contracts makes this a possible opportunity for sellers of both puts or calls to reach a higher premium than what would be available for contracts which have a closer expiration.
The YieldBoost formula of the Stock Options Channel has looked up and down the HLF option chain when it came to the new August contracts and managed to identify one put and also one call contract which could be of particular interest for investors who are keeping a close eye on HLF shares.
On the put side, the put contract which is at the $57.50 strike price currently has a bid of $4.60. What this means, is that if an investor would sell-to-open said put contract, they would commit to purchasing the stock at the price of $57.50, but they would also end up collecting the premium, making the cost basis of HLF shares $52.90. For investors who are already showing interest in purchasing shares of Herbalife Nutrition, this could be a good alternative compared to paying $58.56 per share now.
Due to the fact that $57.50 strike is a ~2% discount to the trading price of the stock, it is also possible that the put contract could expire worthless. Odds of it happening are at 59%, according to current analytical data. Stock Options Channel will continue to track the odds over time in order to see how things change and will publish a chart on their website. If the contract expires worthless, the premium will represent an 8% return on the cash commitment or a 12.81% annualized.
On the calls side, the call contract which is at the $60 strike price currently has a bid of $5.15. What this means is that if an investor would purchase shares of HLF stock at the price level of $58.56 per share, and then would sell-to-open said call contract, they would be committing to sell the stock at the price of $60.00.
Taking into consideration that the call seller would collect the premium as well, this would drive a return of 11.25% if the said stock gets called way at the expiration. Another important fact is that a lot of upsides could end up being left on the table in case the Herbalife shares soar. This means that looking at the trailing 12-month trading history for HLF and studying the business fundamentals is important for investors who are interested in HLF shares.
The $60.00 strike represents a ~2% premium to the trading price of the stock, which means that it is also possible that the covered call contract could expire worthless, which means that the investor would end up keeping their shares of the stock as well as the premium collected. The odds of that happening are at 50% according to current analytical data. Stock Options Channel will continue to track the odds in order to see how they change over time. If the covered call contract will expire worthless, then the premium would be a boost of 8.79% of extra return for the investor, or a 14.08% annualized.
As far as volatility is concerned, the implied volatility for is 34% and 32% for the put contract example and for the call contract example respectively. At the same time, Stock Options Channel calculates the actual trailing 12-month volatility (taking into consideration the closing values of the past 250 trading days and the price nowadays which is $58.56) to be 26%. Stock Options Channel.