Investors in New Oriental Education & Technology Group Inc (Symbol: EDU) witnessed the commencement of trading for new options this week, with the March 15th expiration date taking center stage. The advent of these contracts has caught the interest of savvy market players, marking an opportune moment for exploratory trading and investment strategies.
Put Contracts in Focus
One of the options that has garnered particular interest is the put contract at the $70.00 strike price, which currently commands a bid of $5.40. Should an investor choose to sell-to-open this put contract, they commit to purchasing the stock at $70.00 while enjoying the premium. This effectively sets the cost basis of the shares at $64.60, offering a compelling 1% discount to the current trading price for potential buyers of EDU shares.
However, with the put contract being out-of-the-money by approximately 1%, there’s a 57% chance that it may expire worthless. This alignment of current analytical data and implied greeks highlights the robust potential of this contract, with the premium presenting a tantalizing 7.71% return on the cash commitment, equivalent to an enticing 50.32% annualized YieldBoost.
Visualizing Market Position
A chart illustrates the trailing twelve-month trading history for New Oriental Education & Technology Group Inc, clearly pinpointing the $70.00 strike within this context, affording additional clarity to potential investors.
Call Contracts Under Scrutiny
Delving into the calls side of the option chain, the call contract at the $75.00 strike price boasts a current bid of $4.35. In the scenario where an investor purchases EDU shares at the current price level of $70.64/share and opts to sell-to-open this call contract as a “covered call,” they are committing to selling the stock at $75.00. The call seller stands to collect the premium, potentially yielding a tantalizing 12.33% total return at the March 15th expiration.
This, however, poses the potential risk of forgoing additional upside if EDU shares experience substantial gains. Thus, scrutinizing the trailing twelve-month trading history of New Oriental Education & Technology Group Inc and delving into business fundamentals becomes pivotal at this juncture. A chart demonstrating the trailing twelve-month trading history, with the $75.00 strike highlighted in red, adds a layer of insight into market dynamics.
Assessing Market Position
Given that the $75.00 strike represents an approximate 6% premium to the current trading price of the stock, there exists a 57% chance that the covered call contract may expire worthless. This consideration is underpinned by the analysis of current greeks and implied greeks, with the premium potentially providing a 6.16% boost of extra return to the investor, translating to an appealing 40.17% annualized YieldBoost.
Volatility and Beyond
The implied volatility in the put contract example stands at 56%, while the call contract example exhibits 55% implied volatility. Interestingly, the actual trailing twelve-month volatility is calculated to be 49%, underscoring the complex interplay of market forces at play.
To uncover further put and call options contract ideas worthy of exploration, a visit to StockOptionsChannel.com is certainly in order.
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