First week of options trading October 21 WERN
Investors at Werner Enterprises, Inc. (Ticker: WERN) saw new options become available this week, for the October 21 expiry. To Stock Options Channelour YieldBoost formula scoured the WERN options chain for new contracts on October 21 and identified one particularly interesting put contract and one call contract.
The put contract at the strike price of $40.00 has a current bid of 80 cents. If an investor were to sell to open this put contract, they agree to buy the stock at $40.00, but will also collect the premium, placing the base cost of the stock at $39.20 (before brokerage commissions ). For an investor already interested in buying shares of WERN, this could represent an attractive alternative to paying $42.84/share today.
Since the strike price of $40.00 represents a discount of approximately 7% from the current stock price (in other words, it is out of the money by that percentage), it is also possible that the sales contract expires worthless. Current analytical data (including Greeks and implied Greeks) suggests that the current chance of this happening is 74%. Stock Options Channel will track these odds over time to see how they change, posting a table of these numbers on our website under contract detail page for this contract. If the contract expires worthless, the premium would represent a return of 2.00% on the cash commitment, or 12.17% annualized – at Stock Options Channel, we call this the Yield increase.
Below is a graph showing Werner Enterprises, Inc.’s last twelve months trading history, and highlighting in green where the $40.00 strike falls in relation to that history:
On the call side of the options chain, the call contract at the $45.00 strike price has a current bid of 95 cents. If an investor were to buy WERN stock at the current price level of $42.84/share and then sell to open this call contract as a “covered call”, they are committing to sell the stock at 45 $.00. Assuming that the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 7.26% if the stock is called at the October 21 expiry (before brokerage commissions). Of course, a lot of upside could potentially be left on the table if WERN stock really spikes, which is why it becomes important to look at Werner Enterprises, Inc.’s past twelve-month trading history, as well as to study the fundamentals of business. Below is a chart showing WERN’s last twelve month trading history, with the $45.00 strike highlighted in red:
Given that the strike price of $45.00 represents a premium of approximately 5% 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 65%. On our website under contract detail page for this contract, Stock Options Channel will track these odds over time to see how they change and publish a chart of these numbers (the option contract’s trading history will also be charted). If the covered call expires worthless, the premium would represent a 2.22% increase in incremental return to the investor, or 13.49% annualized, what we call the Yield increase.
The implied volatility in the example sell contract is 50%, while the implied volatility in the example buy contract is 30%.
Meanwhile, we calculate that the actual volatility for the last twelve months (considering the closing values for the last 251 trading days as well as today’s price of $42.84) is 28%. 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.