IInvestors in APA Corp (ticker: APA) saw new options start trading this week, for the March 18 expiry. AT Stock Options Channel, our YieldBoost formula scanned the APA options chain for new contracts from top to bottom on March 18 and identified one put contract and one call contract of particular interest.
The put contract at the strike price of $30.00 has a current bid of $2.67. If an investor were to sell to open this put contract, they agree to buy the stock at $30.00, but will also collect the premium, placing the cost base of the stock at $27.33 (before brokerage commissions ). For an investor already interested in buying shares of APA, this could represent an attractive alternative to paying $30.43/share today.
Since the strike price of $30.00 represents a discount of approximately 1% 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 57%. 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 8.90% on the cash commitment, or 58.05% annualized – at Stock Options Channel, we call this the Yield increase.
Below is a graph showing APA Corp’s last 12 months trading history, and highlighting in green where the $30.00 strike falls in relation to that history:
On the call side of the options chain, the call contract at the strike price of $32.50 has a current bid of $2.04. If an investor were to buy APA stock at the current price level of $30.43/share and then sell to open this call contract as a “covered call”, they are committing to selling the stock at 32 $.50. Assuming that the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 13.51% if the stock is called at the March 18 expiry (before brokerage commissions). Of course, a lot of upside could potentially be left on the table if APA shares really spike, which is why it’s important to look at APA Corp’s past 12-month trading history, as well as Study the fundamentals of business. Below is a chart showing APA’s trading history over the last twelve months, with the $32.50 strike highlighted in red:
Considering that the strike price of $32.50 represents a premium of approximately 7% 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 58%. 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 graph of these numbers (the trading history of the option contract will also be plotted). If the covered call contract expires worthless, the premium would represent a 6.70% increase in incremental return to the investor, or 43.73% annualized, what we call the Yield increase.
The implied volatility in the sell contract example is 64%, while the implied volatility in the buy contract example is 65%.
Meanwhile, we calculate the actual volatility for the last twelve months (considering the closing values of the last 253 trading days as well as today’s price of $30.43) at 56%. 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.
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