Investors in iShares Trust – Core S&P 500 Exchange Traded Fund (Symbol: IVV) saw new options become available today, for expiry on October 21. To Stock Options Channelour YieldBoost formula scoured the IVV options chain for new contracts on October 21 and identified one particularly attractive put and one call.
The put contract at the strike price of $425.00 has a current bid of $11.90. If an investor were to sell to open this put contract, they agree to buy the stock at $425.00, but will also collect the premium, placing the cost base of the stock at $413.10 (before brokerage commissions ). For an investor already interested in buying shares of IVV, this could represent an attractive alternative to paying $428.89/share today.
Since the strike price of $425.00 represents a discount of approximately 1% 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, publishing a table of these numbers on our website under the contract detail page for this contract. If the contract expires worthless, the premium would represent a return of 2.80% on the cash commitment, or 15.97% annualized – at Stock Options Channel, we call this the Yield increase.
Below is a graph showing the last twelve months trading history for iShares Trust – Core S&P 500 Exchange Traded Fund, and highlighting in green where the strike price of $425.00 stands against to this history:
On the call side of the options chain, the call contract at the strike price of $435.00 has a current bid of $9.30. If an investor were to buy shares of IVV at the current price level of $428.89/share and then sell to open this call contract as a “covered call”, they are committing to selling the stock at $435.00. Since the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 3.59% if the stock is called at the October 21 expiry (before broker commissions ). Of course, a lot of upside could potentially be left on the table if IVV shares really soar, which is why reviewing the past twelve months trading history for iShares Trust – Core S&P 500 Exchange Traded Fund , as well as studying the fundamentals of the business becomes important. Below is a chart showing IVV’s last twelve months trading history, with the $435.00 strike highlighted in red:
Considering that the strike price of $435.00 represents a premium of approximately 1% 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 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 trading history of the option contract will also be charted). If the covered call expires worthless, the premium would represent a 2.17% increase in incremental return to the investor, or 12.37% 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 the current price of $428.89) is 21%. 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.