First Week of ROST November 22nd Options Trading

Mar 26 2014, 12:30pm CDT | by

First Week of ROST November 22nd Options Trading
Photo Credit: Forbes Business

Investors in Ross Stores, Inc. (NASD: ROST) saw new options become available this week, for the November 22nd expiration. One of the key inputs that goes into the price an option buyer is willing to pay, is the time value, so with 241 days until expiration the newly available 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 ROST options chain for the new November 22nd contracts and identified one put and one call contract of particular interest.

The put contract at the $67.50 strike price has a current bid of $3.40. If an investor was to sell-to-open that put contract, they are committing to purchase the stock at $67.50, but will also collect the premium, putting the cost basis of the shares at $64.10 (before broker commissions). To an investor already interested in purchasing shares of ROST, that could represent an attractive alternative to paying $71.67/share today.

Because the $67.50 strike represents an approximate 6% 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 5.04% return on the cash commitment, or 7.63% annualized — at Stock Options Channel we call this the YieldBoost.

Click here to find out the Top YieldBoost Puts of the Nasdaq 100 »

Below is a chart showing the trailing twelve month trading history for Ross Stores, Inc., and highlighting in green where the $67.50 strike is located relative to that history:

Turning to the calls side of the option chain, the call contract at the $72.50 strike price has a current bid of $4.60. If an investor was to purchase shares of ROST stock at the current price level of $71.67/share, and then sell-to-open that call contract as a “covered call,” they are committing to sell the stock at $72.50. Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 7.58% if the stock gets called away at the November 22nd expiration (before broker commissions). Of course, a lot of upside could potentially be left on the table if ROST shares really soar, which is why looking at the trailing twelve month trading history for Ross Stores, Inc., as well as studying the business fundamentals becomes important. Below is a chart showing ROST’s trailing twelve month trading history, with the $72.50 strike highlighted in red:

Considering the fact that the $72.50 strike represents an approximate 1% 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 50%. 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 6.42% boost of extra return to the investor, or 9.72% annualized, which we refer to as the YieldBoost.

Click here to find out the Top YieldBoost Calls of the Nasdaq 100 »

The implied volatility in the put contract example, as well as the call contract example, are both approximately 23%. Meanwhile, we calculate the actual trailing twelve month volatility (considering the last 252 trading day closing values as well as today’s price of $71.67) to be 19%. 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

UN to radically scale up fight against Ebola
Monrovia, Aug 23 (IANS/WAM) The UN has vowed to radically scale up support to fight the Ebola virus outbreak in West Africa and said more health workers will be brought to Liberia to deal with the disease.
 
 
White dwarf stars formed mysterious supernova
London, Aug 23 (IANS) Supernova 2014J is 11 million light years away from earth and was only seen by chance at the University of London Observatory this year.
 
 
Universe's earliest stars were monstrous: Study
Tokyo, Aug 23 (IANS) Little is known about the universe's earliest stars but if we believe astronomers, they might have been hundreds of times more massive than the sun.
 
 
Killer fungus that grows on trees
New York, Aug 23 (IANS) A teenaged girl has helped scientists discover that a deadly fungus that generally attacks HIV/AIDS patients grows on trees.
 
 
 

Latest from the Network

Boy killed in Israeli airstrike on Gaza
Gaza, Aug 23 (IANS) An eight-year-old boy was killed and three others wounded in a fresh Israeli airstrike Saturday afternoon on a house in the central Gaza Strip, medics said. Ashraf al-Qedra, the health ministry...
Read more on Politics Balla
 
Toll in Japan mudslides hits 49
Tokyo, Aug 23 (IANS) The toll in deadly landslides in the Japanese city of Hiroshima rose to 49 Saturday, while 41 people remained missing. About 2,800 rescuers continued their efforts in searching for survivors three...
Read more on Politics Balla
 
Nicki Minaj's backup dancer bitten by snake
Los Angeles, Aug 23 (IANS) A six-foot snake bit a backup dancer, who was rehearsing for a performance of Nicki Minaj's new single "Anaconda", on set. Minaj was on stage performing her hit, "Anaconda" when the dancer,...
Read more on Celebrity Balla
 
1,200-year-old tomb discovered in China
Beijing, Aug 23 (IANS) Archaeologists said Saturday they have discovered a tomb with well preserved wall paintings, dating back more than 1,200 years, in northwest China's Shaanxi province. The Tang dynasty (618-907)...
Read more on Celebrity Balla
 
UN to radically scale up fight against Ebola
Monrovia, Aug 23 (IANS/WAM) The UN has vowed to radically scale up support to fight the Ebola virus outbreak in West Africa and said more health workers will be brought to Liberia to deal with the disease. "More...
Read more on Business Balla
 
100 Russian lorries return as Merkel visits Ukraine
Kiev, Aug 23 (IANS) As German Chancellor Angela Merkel arrived in the Ukrainian capital, about 100 lorries from an unauthorised Russian aid convoy crossed back over the border from eastern Ukraine, BBC reported...
Read more on Politics Balla
 
UN warns of possible 'massacre' in Iraqi town
Baghdad, Aug 23 (IANS) Fearing a possible massacre in northern Iraqi town of Amerli, under siege by Islamic State (IS) for two months, the UN has called for action to prevent this. According to UN secretary general's...
Read more on Politics Balla
 
American teenager breaks her own 400m freestyle world record
Canberra, Aug 23 (IANS) Seventeen-year-old American swimmer Katie Ledecky refreshed her own world record in the 400m freestyle at the Pan Pacific Championships in Australia Saturday, clocking 3 minutes 58.37 seconds to...
Read more on Sport Balla
 
Checklist of 13 items not needed in college hostel
Los Angeles, Aug 23 (IANS) Healthy food items, favourite jeans and wine opener are among the 13 items that students definitely don't need to bring to college. Usually when you're headed off to college, your parents...
Read more on Celebrity Balla
 
Ankle boots - must have footwear in autumn
London, Aug 23 (IANS) Looking for a fresh pair of shoes for autumn, must buy ankle boots, which can be worn with dresses, skirts, jeans and more. Wear them with your favourite sun-dresses and then on those days when...
Read more on Celebrity Balla