Herbalife Nutrition Ltd (HLF) investors saw the onset of new options trading this week. One of the most significant key points that determine the price that a willing option buyer is going to pay is time value. With around 220 days until August 2019 when the trading is set to expire, there will be numerous lucrative opportunities to sellers. These lucrative opportunities are new trading contracts that allow sellers to get a higher premium as compared to what's offered on almost expiring contracts. The YieldBoost formula by the Stock Options Channel has intensively gone through this company's options chain for the August 2019 contracts and a unique contract of particular interest. This contract follows the one put and one call path.
An attractive deal
On the one put side, the contract offers a lucrative $57.50 strike price in line with the current bid of $4.60. In this scenario, an investor taking a sell-to-open approach on the put contract will be committing to a $57.50 stock purchase price. In addition to this, the investor will also be liable to collect a premium on their investment. This puts the cost basis of their share investment before broker commissions at around $52.90. For the investors interested in purchasing HLF shares, $58.56 per share is a really attractive deal today.
Since the $57.50 strike price represents around a 2% discount in relation to the current trading price, there is a minimal chance the contracts will expire worthlessly. The analytical data available today suggests that there is a 59% chance of the contracts expiring worthless. The Stock Options Channel has promised to keep track of how these odds change over time. They added that they would be publishing their findings on their website's contract detail page. In the case that this Herbalife contract expires worthless, there would be an 8.0% cash commitment return as premium. If annualized, the cash commitment return as the premium would be 12.81%.
The 'covered call' deal
The option chain's call side offers an even better deal; this is as the call contract is issued at a $60.00 strike price. This price provides a high premium compared to the $5.15 current bid price. If an investor purchases Herbalife HLF stock shares at their current $58.56 per share price level, they can sell-to-open that particular call contract as a 'covered call.' In this case, they will be committing to selling their stock at $60.00. Keeping in mind that part of the premium has to go to the call seller, it means that the total return excluding any dividends will be at 11.25%. This will occur when the August 2019 expiration when the stocks get called away before broker commissions. Many experts are of the thought that the massive potential upside of the HLF shares won't be taken advantage if the prices really soar. This conclusion was arrived upon by taking a look at the company's previous year's trading history. On top of that, studying its business fundamentals also played a significant role in the reaching of this conclusion.
Given the fact that $60.00 strike price is relative to a 2% premium in line with the current stock trading price. This means that the current price is out-of-the-money in relation to that percentage. This goes ahead to show that the implied volatility of the put contract is 34%. On the other hand, the stock's implied volatility of the call contract is 32%. To get the actual volatility, the closing value of Herbalife's past 250 trading days has to be taken into account. As an investor, it's essential that you consider both put and call options before making your mind.
More information can be found by visiting the Herbalife Youtube: https://www.youtube.com/user/HerbalifeIntl