Investors who were interested in Herbalife Nutrition Ltd (HLF) and kept a close eye on the company saw new options which started trading at the end of 2018, with the expiration date being August of this year. When it comes to the price that an option buyer is willing to pay, one of the key data points which go into it is time value. In this case, having a 228 days expiration date means that the new trading contracts offer a possible opportunity for sellers of puts and of calls to achieve a higher premium which would otherwise be available for contracts with a closer expiration. The YieldBoost formula of Stock Options Channel has looked up and down the option chain of HLF for the new contracts and ended up identifying a put and a call contract which could be of particular interest for investors.
On the call side, the call contract which is at the $60 strike price has a bid currently of $5.15. If an investor would purchase shares of Herbalife stock at the price level which is currently $58.56 per share, and then they would sell-to-open that call contract, they would be committing to selling the stock at $60. Taking into consideration the fact that the call seller would be collecting the premium, that would drive a return of 11.25% if the stock ends up getting called away at the expiration date in August of 2019. There is also the fact that a lot of upside could end up being left on the table in case Herbalife shares soar. This means that looking at the trailing 12-month trading history of the company and studying the business fundamental is important.
The $60 strike means an approximate 2% premium to the trading price of the stock, which means that there is also the possibility that the call contract could expire worthless. In case the call contract ends up expiring worthless, the investor would end up keeping both the shares of the HLF stock and the premium collected. The odds of the contract expiring worthless are at 50% according to analytical data. Stock Options Channel will continue to track the odds in order to see the changes that occur and will publish a chart with the respective numbers. If the call contract will end up expiring worthless, that means the premium would represent an 8.79% boost of return for the investor, or a 14.08% annualized.
On the put side, the $57.50 strike price has a bid of $4.60. If an investor would sell-to-open said put contract, they would be committing to purchase the Herbalife stock at the price of $57.50, but they would also collect the premium, thus putting the cost of the shares at the price of $52.90. This represents an alternative to paying $58.56 per share for the investor who is already interested in purchasing shares. Due to the fact that the $57.50 strike is an approximate discount of 2% to the trading price, there is also the chance that the put contract would end up expiring worthless. The odds of that happening, according to analytical data, are at 59%. Stock Option Channel will continue to monitor those odds and see how they change over time. If the put contract expires worthless, then the premium would represent a return of 8% on the cash commitment, or a 12.81% annualized.
The implied volatility in the call contract is 32% and 32% in the put contract example. However, Stock Options Channel calculated the actual trailing 12-month volatility, taking into consideration the closing values for the previous 250 trading days and the current price of $58.56, and concluded it to be 26%. Stock Options Channel will continue to provide put and calls options contract ideas that are of interest to investors.