Interesting EQR Put And Call Options For October 18th

Feb 24 2014, 10:49am CST | by

Interesting EQR Put And Call Options For October 18th
Photo Credit: Forbes Business

Investors in Equity Residential (NYSE: EQR) saw new options begin trading today, for the October 18th expiration. One of the key inputs that goes into the price an option buyer is willing to pay, is the time value, so with 236 days until expiration the newly trading contracts represent a possible opportunity for sellers of puts or calls to achieve a higher premium than would be available for the contracts with a closer expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the EQR options chain for the new October 18th contracts and identified one put and one call contract of particular interest.

The put contract at the $55.00 strike price has a current bid of $1.60. If an investor was to sell-to-open that put contract, they are committing to purchase the stock at $55.00, but will also collect the premium, putting the cost basis of the shares at $53.40 (before broker commissions). To an investor already interested in purchasing shares of EQR, that could represent an attractive alternative to paying $59.02/share today.

Because the $55.00 strike represents an approximate 7% discount to the current trading price of the stock (in other words it is out-of-the-money by that percentage), there is also the possibility that the put contract would expire worthless. The current analytical data (including greeks and implied greeks) suggest the current odds of that happening are 65%. Stock Options Channel will track those odds over time to see how they change, publishing a chart of those numbers on our website under the contract detail page for this contract. Should the contract expire worthless, the premium would represent a 2.91% return on the cash commitment, or 4.50% annualized — at Stock Options Channel we call this the YieldBoost.

Click here to find out the Top YieldBoost Puts of the REITs »

Below is a chart showing the trailing twelve month trading history for Equity Residential, and highlighting in green where the $55.00 strike is located relative to that history:

Turning to the calls side of the option chain, the call contract at the $60.00 strike price has a current bid of $1.50. If an investor was to purchase shares of EQR stock at the current price level of $59.02/share, and then sell-to-open that call contract as a “covered call,” they are committing to sell the stock at $60.00. Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 4.20% if the stock gets called away at the October 18th expiration (before broker commissions). Of course, a lot of upside could potentially be left on the table if EQR shares really soar, which is why looking at the trailing twelve month trading history for Equity Residential, as well as studying the business fundamentals becomes important. Below is a chart showing EQR’s trailing twelve month trading history, with the $60.00 strike highlighted in red:

Considering the fact that the $60.00 strike represents an approximate 2% premium to the current trading price of the stock (in other words it is out-of-the-money by that percentage), there is also the possibility that the covered call contract would expire worthless, in which case the investor would keep both their shares of stock and the premium collected. The current analytical data (including greeks and implied greeks) suggest the current odds of that happening are 57%. On our website under the contract detail page for this contract, Stock Options Channel will track those odds over time to see how they change and publish a chart of those numbers (the trading history of the option contract will also be charted). Should the covered call contract expire worthless, the premium would represent a 2.54% boost of extra return to the investor, or 3.93% annualized, which we refer to as the YieldBoost.

Click here to find out the Top YieldBoost Calls of the REITs »

The implied volatility in the put contract example, as well as the call contract example, are both approximately 18%. Meanwhile, we calculate the actual trailing twelve month volatility (considering the last 251 trading day closing values as well as today’s price of $59.02) to be 18%. For more put and call options contract ideas worth looking at, visit StockOptionsChannel.com.

Source: Forbes Business

 
 

Don't miss ...

 

<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

blog comments powered by Disqus

Latest stories

Merkel warns of recession in Europe
Berlin, Nov 26 (IANS) German Chancellor Angela Merkel Tuesday warned that Europe could slide back into recession, media reported.
 
 
India, Nepal ink nine deals; Modi inaugurates trauma centre, bus service (Roundup)
Kathmandu, Nov 25 (IANS) Nepal's happiness "gives us joy", Prime Minister Narendra Modi said here Tuesday on his second visit to the Himalayan country in 100 days as both sides inked nine agreements, further cementing their close ties.
 
 
India, Nepal ink 10 deals; Modi inaugurates trauma centre, bus service (Intro Roundup)
Kathmandu, Nov 25 (IANS) Nepal's happiness "gives us joy", Prime Minister Narendra Modi said here Tuesday on his second visit to the Himalayan country in 100 days as both sides inked 10 agreements, including on $1 billion assistance to Nepal.
 
 
Saarc leaders to meet amid hopes of South Asian integration (Curtain Raiser)
Kathmandu, Nov 25 (IANS) The 18th Saarc Summit begins here Wednesday with focus on deeper integration among the eight South Asian neighbours, amid high hopes that the leaders of India and Pakistan will meet to break their diplomatic ice.
 
 
 

Latest from the Network

Taylor Swift cautious of fake friends
Taylor Swift has no time for fake friends. The 'Shake It Off' hitmaker says she's not interested in being friends with people who are only keen on spending time with her because she's rich and famous. She explained: ''...
Read more on Celebrity Balla
 
Cyber Monday Deals better than Black Friday Deals?
Black Friday 2014 Sales are underway. We count over 12 Black Friday 2014 sales that either have fully launched or offer a selection of the advertised Black Friday deals. Each year there is discussion about if Black...
Read more on Black Friday Countdown
 
Shia LaBeouf abides by plea deal
Shia LaBeouf is abiding by the plea deal he reached with Manhattan prosecutors after his drunken meltdown in June. The 'Fury' actor appeared in Manhattan Criminal Court earlier today (25.11.14) to submit proof he's been...
Read more on Celebrity Balla
 
The Best Laptop Deal in Black Friday 2014
Black Friday 2014 is here and the first Black Friday 2014 Sales are already underway. The full push of Black Friday 2014 deals happens on Thanksgiving Day. So there is still a little time to make your shopping lists. If...
Read more on Black Friday Countdown
 
Cheryl Fernandez-Versini blasts Simon Cowell over weight comments
Cheryl Fernandez-Versini has blasted Simon Cowell for commenting on her weight. The 31-year-old beauty said it was ungentlemanly for a man in his 50s to suggest she'd gained weight prior to her brief appearance on the...
Read more on Celebrity Balla
 
Nick Cannon denies links to Amber Rose
Nick Cannon has denied having any romance with Amber Rose. The 34-year-old entertainer recently separated from Mariah Carey, whom he married in 2008, and has since been romantically linked to Amber Rose, 31, who filed...
Read more on Celebrity Balla
 
The Best TV Deals on Black Friday
Black Friday is one of the best times to buy TVs. It is the best time to get your hands on bargain TV deals like a $79 32-inch TV or a $119 40-inch TV. You see such deals never during the year. You also do not see such...
Read more on TV Balla
 
The Best Black Friday 2014 iPad Deals
The Amazon Black Friday 2014 Sale has been released. The Amazon Black Friday 2014 begins earlier than ever before. In past years the Amazon Black Friday deals week started on Sunday.Besides Amazon, Walmart has kicked...
Read more on Apple Balla
 
Early Access Target Black Friday Sale is Wednesday
Best Buy is offering 20 Black Friday 2014 Deals in an early access sale and tomorrow it is Target's turn. Target will release a selection of advertised Black Friday 2014 deals on Wednesday, Nov. 26 online and in stores....
Read more on Black Friday Countdown
 
Algeria steps vigillance on Libyan border over terror threat
Algiers, Nov 26 (IANS) Algerian army have stepped up vigillance along the borderline with Libya over reports of potential terror attacks, a security source revealed Tuesday. The source specified that both Algerian and...
Read more on Politics Balla