Investors in Honeywell International Inc. (NYSE:HON) saw new options become available yesterday for the May 15 expiration.
At Stock Options Channel, our YieldBoost formula has looked up and down the HON options chain for the new May 15 contracts and identified one put and one call contract of particular interest.
The Honeywell put contract at the $97.50 strike price has a current bid of 96 cents. If an investor was to sell-to-open that put contract, he would be committing to purchase HON stock at $97.50 but will also collect the premium, putting the cost basis of the shares at $96.54 (before broker commissions).
To an investor already interested in purchasing shares of HON, that could represent an attractive alternative to paying $104.18 per share today.
Because the $97.50 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 80%.
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 0.98% return on the cash commitment, or 6.78% annualized.
Below is a chart showing the trailing-12-month trading history for Honeywell and highlighting in green where the $97.50 strike is located relative to that history:
Turning to the calls side of the option chain, the call contract at the $105 strike price has a current bid of $2.27. If an investor was to purchase shares of HON stock at the current price level of $104.18 per share and then sell-to-open that call contract as a “covered call,” he would be committing to sell HON stock at $105.
Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 2.97% if the stock gets called away at the May 15 expiration (before broker commissions). Of course, a lot of upside could potentially be left on the table if HON shares really soar, which is why looking at the trailing-12-month trading history for Honeywell, as well as studying the business fundamentals, becomes important.
Below is a chart showing HON’s trailing-12-month trading history, with the $105 strike highlighted in red:
Considering the fact that the $105 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 54%. 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 2.18% boost of extra return to the investor, or 15.01% annualized.
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The implied volatility in the put contract example is 21%, while the implied volatility in the call contract example is 18%. Meanwhile, we calculate the actual trailing-12-month volatility (considering the last 251 trading day closing values as well as today’s price of $104.18) to be 17%.
For more put and call options contract ideas worth looking at, visit StockOptionsChannel.com.
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