Investors in Star Bulk Carriers Corp (symbol: SLKK) saw new options become available this week, with an expiration date of October 20. At Stock Options Channel, our YieldBoost formula has searched up and down the SBLK options chain for the October 20 new contracts and identified one put and one call contract of particular interest.
The put contract at the strike price of $17.50 has a current bid of 40 cents. If an investor were to sell that put contract to open, he would commit to buying the stock at $17.50, but he would also collect the premium, bringing the cost basis of the stock to $17.10 (before brokerage commissions). For an investor already interested in buying shares of SBLK, this could be an attractive alternative to paying $17.82/share today.
Because the $17.50 strike represents a discount of about 2% to the stock’s current trading price (in other words, it’s out-of-the-money by that percentage), there’s also the possibility that the put contract expires worthless . Current analytical data (including the Greeks and the Implied Greeks) suggests that the current chance of this happening is 99%. Stock Options Channel will monitor these odds over time to see how they change, and publish a graph of these numbers on our website under the contract detail page for this contract. If the contract expires worthless, the premium would represent a 2.29% return on the cash commitment, or 26.07% annualized. At Stock Options Channel we call this the Yield boost.
Below is a chart showing Star Bulk Carriers Corp’s twelve-month trading history and showing in green where the $17.50 strike is relative to that history:
Turning to the call side of the options chain, the call contract at the strike price of $18.50 currently has a bid of 20 cents. If an investor were to buy SBLK stock at the current price level of $17.82/share, and then sell that call contract to open as a “covered call,” he is committing to sell the stock at $18.50. Considering that the call seller will also collect the premium, that would give a total return (excluding any dividends) of 4.94% if the shares are called away at the October 20 expiration date (before broker commissions). Of course, a lot of potential could be left on the table if SBLK stock really rises. Therefore, it becomes important to look at Star Bulk Carriers Corp’s trailing twelve-month trading history as well as its business fundamentals. Below is a chart showing SLKK’s twelve-month trading history with the $18.50 strike highlighted in red:
Considering that the $18.50 strike represents a roughly 4% premium to the stock’s current trading price (in other words, it’s out-of-the-money by that percentage), there’s also the possibility that the covered call contract expires worthless, in which case the investor would keep both his stock shares and the premium collected. Current analytical data (including the Greeks and the Implied Greeks) suggests that the current chance of this happening is 99%. On our website under the 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 those numbers (the options contract’s trading history will also be charted). If the covered call contract expires worthless, the premium would mean an additional return increase of 1.12% for the investor, or 12.80% on an annual basis, which we estimate Yield boost.
Meanwhile, we calculate the true twelve-month volatility (considering the closing values of the last 250 trading days and the current price of $17.82) to be 42%. For more put and call option contract ideas worth checking out, visit StockOptionsChannel.com.
Top YieldBoost Calls from the S&P 500 »
• ARTL Stock Predictions
• PEAK market cap history
• 13F filers for public storage
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.