Investors in Griffon Corp. (Symbol: GFF) saw new options trading this week, with an expiration date of February 2024. At Stock Options Channel, our YieldBoost formula searched up and down the GFF options chain for the February 2024 new contracts and found one put and one call contract of particular interest identified.
The put contract at the strike price of $50.00 has a current bid of 55 cents. If an investor were to sell that put contract to open, he would commit to buying the stock at $50.00, but he would also collect the premium, bringing the cost basis of the stock to $49.45 (before brokerage commissions). For an investor already interested in buying GFF stock, that could be an attractive alternative to paying $57.58/share today.
Because the $50.00 strike represents a discount of approximately 13% to the stock’s current trading price (in other words, it is out-of-the-money by that percentage), there is also the possibility that the put contract becomes worthless expires. Current analytical data (including the Greeks and the Implied Greeks) suggests that the current probability of this happening is 86%. 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 return of 1.10% on the cash commitment, or 7.04% annually. At Stock Options Channel we call this the Yield boost.
Below is a chart showing the trading history of Griffon Corp. shows in green where the $50.00 strike is relative to that history:
![Loading+graph+—+2023+TickerTech.com](https://www.nasdaq.com/sites/acquia.prod/files/ARP-Inline-Image.png)
Turning to the call side of the options chain, the call contract with the strike price of $60.00 has a current bid of $1.35. If an investor were to buy GFF stock at the current price level of $57.58/share, and then sell that call contract as a “covered call,” he is committing to sell the stock at $60.00. Since the call seller will also collect the premium, that would give a total return (excluding any dividends) of 6.55% if the shares are called away at the February 2024 maturity (before broker commissions). Of course, a lot of potential could be left on the table if GFF stock really rises. Therefore, it becomes important to look at both Griffon Corp.’s twelve-month trading history. to look at the business fundamentals. Below is a chart showing GFF’s twelve-month trading history with the $60.00 strike highlighted in red:
![Loading+graph+—+2023+TickerTech.com](https://www.nasdaq.com/sites/acquia.prod/files/ARP-Inline-Image.png)
Given that the $60.00 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. The current analytical data (including the Greeks and the Implied Greeks) suggests that the current chance of this happening is 57%. 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 2.34% for the investor, or 15.01% annually, which we estimate Yield boost.
The implied volatility in the put contract example is 43%, while the implied volatility in the call contract example is 56%.
Meanwhile, we calculate the actual volatility over the next twelve months (taking into account the closing values of the last 251 trading days and the current price of $57.58) to be 36%. For more put and call option contract ideas worth checking out, visit StockOptionsChannel.com.
Also see:
• LHCG videos
• Funds that hold TEAF
• KB videos
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.