IOccidental Petroleum Corp (Symbol: OXY) investors saw new options today that expire on August 27th. At Stock Options Channel, our YieldBoost formula scoured the OXY options chain for the new contracts dated August 27 and identified a put and a call contract of particular interest.
The put contract at an exercise price of USD 27.00 has a current bid of 94 cents. If an investor were to sell this put contract to open, they would commit to buy the stock at $ 27.00 but also collect the premium, with the cost base of the stock being $ 26.06 (before brokerage commissions). For an investor already interested in buying OXY stock, this could be an attractive alternative to paying $ 29.55 / share today.
Also, since the exercise price of $ 27.00 represents a discount of approximately 9% on 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 could expire worthless. Current analytical data (including Greeks and implied Greeks) suggests that the probability of this happening is currently 100%. Stock Options Channel tracks these odds over time to see how they change and posts a graph of these numbers on our website under the contract details page for that contract. Should the contract expire worthless, the premium would represent a return of 3.48% on the cash obligation or 25.41% annualized – in the Stock Options Channel we call this the YieldBoost.
Below is a chart showing the last twelve months of trading history for Occidental Petroleum Corp and marked in green where the 27.00 strike is compared to this history:
On the call side of the option chain, the call contract at the strike price of USD 30.00 has a current bid of USD 1.39. If an investor wants to buy shares of OXY shares at the current price level of USD 29.55 / share and then sell that call contract as a “covered call”, they undertake to sell the share at USD 30.00. Considering the call seller also collects the premium, this would result in a total return (excluding dividends, if any) of 6.23% if the stock is called on August 27th (before brokerage commissions). Of course, there could still be a lot of upside potential on the table if OXY stocks really do rise, which is why it’s important to look at the past twelve months of Occidental Petroleum Corp’s trading history and study the fundamentals of the business. Below is a graph showing the past twelve months of trading for OXY, with the $ 30.00 strike highlighted in red:
Given that the strike price of $ 30.00 represents a premium of approximately 2% on 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 expires worthless, in which case the investor would keep both his shares and the premium received. Current analytical data (including Greeks and Implied Greeks) suggest that the probability that this will happen is currently 99%. On our website under the contract detail page for that contract, the Stock Options Channel tracks these odds over time to see how they change and publishes a graph of these numbers (the trading history of the options contract is also recorded). Should the covered call contract expire worthless, the premium would represent an additional 4.70% return for the investor, or 34.34% annualized, which we refer to as YieldBoost.
In the meantime, we calculate the actual volatility of the last 12 months (taking into account the last 252 trading days and today’s rate of USD 29.55) at 69%. You can find more interesting ideas for put and call options contracts on StockOptionsChannel.com.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.