CenturyLink Stock – Understand the Newest CTL Options

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Investors in CenturyLink Inc (NYSE:CTL) saw new options become available today for the Oct. 16 expiration. One of the key data points that goes into the price an option buyer is willing to pay is the time value.

centurylink185So, with 235 days until expiration, the newly available contracts represent a potential 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 CTL options chain for the new Oct. 16 contracts and identified one put and one call contract of particular interest.

The put contract at the $33 strike price has a current bid of $1.55. If an investor was to sell-to-open that put contract, he is committing to purchase CTL stock at $33 but will also collect the premium, putting the cost basis of the shares at $31.45 (before broker commissions).

To an investor already interested in purchasing shares of CTL, that could represent an attractive alternative to paying $36.65 per share today.

Because the $33 strike represents an approximate 10% discount to the current trading price of CTL 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 69%.

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 4.7% return on the cash commitment or 7.3% annualized.

START SLIDESHOW: Top YieldBoost Puts of the S&P 500

Below is a chart showing the trailing-12-month trading history for CenturyLink and highlighting in green where the $33 strike is located relative to that history:

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Turning to the calls side of CTL option chain, the call contract at the $37 strike price has a current bid of $1.70. If an investor was to purchase shares of CTL stock at the current price level of $36.65 per share and then sell-to-open that call contract as a “covered call,” he is committing to sell CenturyLink stock at $37. Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 5.59% if CTL stock gets called away at the Oct. 16 expiration (before broker commissions).

Of course, a lot of upside could potentially be left on the table if CTL shares really soar, which is why looking at the trailing-12-month trading history for CenturyLink, as well as studying the business fundamentals becomes important.

Below is a chart showing CTL’s trailing-12-month trading history with the $37 strike highlighted in red:

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Considering the fact that the $37 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 his shares of stock and the premium collected.

The current analytical data (including greeks and implied greeks) suggest the current odds of that happening are 55%. 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 4.64% boost of extra return to the investor or 7.21% annualized.

START SLIDESHOW: Top YieldBoost Calls of the S&P 500.

The implied volatility in the put contract example is 24%, while the implied volatility in the call contract example is 22%. Meanwhile, we calculate the actual trailing-12-month volatility (considering the last 251 trading day closing values as well as today’s price of $36.65) to be 20%.

For more put and call options contract ideas worth looking at, visit StockOptionsChannel.com.


Article printed from InvestorPlace Media, https://investorplace.com/2015/02/centurylink-stock-ctl-stock-ctl-options/.

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