As investors, we tread the tumultuous waters of the stock market, seeking hidden treasures in the dance of options trading. This week, a new chapter unfolded for Amazon.com Inc (AMZN) with the commencement of options trading for the May 31st expiration date. Amidst the chaos, opportunities lie like buried gems waiting to be unearthed.
The Intriguing Put Option
A put contract at the $160.00 strike beckons, with a current bid of $1.00. For those daring souls willing to sell-to-open this contract, the prospect arises to acquire shares at $160.00, cushioned by the collected premium lowering the effective cost to $159.00. This move presents a stark 15% discount to the current trading price, a tantalizing proposition for the risk-savvy investor.
Considering the potential expiration of the put contract, statistics reveal a 90% chance of it expiring worthless, offering a glimpse of the risk-reward scale in this intricate options ballet. The premium yield could deliver a modest 0.62% return, or a more robust 4.66% annualized — a calculation we aptly term the YieldBoost.
The Tempting Call Option
On the calls side, the $190.00 strike call contract stands out with a bid of $8.45, tempting investors to dabble in the covered call strategy. Selling this call contract mandates a commitment to sell shares at $190.00, with the collected premium enriching the total return potential to 5.97% at the May 31st expiration.
Analysis reveals a 49% probability of the covered call expiring worthless, hinting at the delicate balance between risk and reward in this engaging waltz of options trading. The premium yield could offer a lucrative 4.51% boost, equivalent to a tantalizing 33.61% annualized return, dubbed the YieldBoost.
Volatility Insights
Implied volatility paints a vivid picture for investors, standing at 38% for the put option and 34% for the call option examples. In comparison, the trailing twelve month volatility, considering 251 trading days, stands at 29%, providing a compass for navigating the choppy seas of market dynamics.
As we navigate this labyrinth of options trading, embracing the thrill of uncertainty and the allure of potential gains, let us remember — in every calculated risk lies the essence of investment magic, waiting to be summoned by the zealous investor.
External References:
Institutional Holders of Xcel Energy
BAH Historical Stock Prices
Funds Holding CFFE
