IInvestors in NeoGenomics Inc (Symbol: NEO) saw new options this week for the April 16th expiration. At Stock Options Channel, our YieldBoost formula examined the NEO options chain for the new April 16 contracts up and down and identified a put and a call contract of particular interest.
The put contract at the strike price of 45.00 USD has a current bid of 95 cents. When an investor sells this put contract to open, he or she agrees to buy the stock at a price of $ 45.00 but also collects the premium, with the cost base of the stock at $ 44.05 (before brokerage commissions). For an investor already interested in buying NEO stock, this could be an attractive alternative to paying $ 50.29 / share today.
Also, since the $ 45.00 strike represents an approximate 11% discount on the current trading price of the stock (in other words, it’s 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 implicit Greeks) suggests that the current probability of this is 77%. Stock Options Channel will track these winning opportunities over time to see how they change and post a graph of these numbers on our website under the contract details page for that contract. Should the contract expire worthless, the premium would mean a return of 2.11% on the cash deposit or 24.86% on an annual basis – with Stock Options Channel we call this the YieldBoost.
Below is a graph showing trailing twelve month trading history for NeoGenomics Inc, highlighting in green where the $ 45.00 strike is relative to that history:
Turning to the call side of the options chain, at the strike price of $ 55.00, the call contract has a current bid of $ 1.05. If an investor should buy shares of NEO stock at the current price level of $ 50.29 / share and then sell that call contract as a “covered call”, he or she agrees to sell the stock at $ 55.00. Given the call seller also collects the premium, this would result in a total return (excluding dividends, if any) of 11.45% if the stock is called on April 16 (before brokerage commissions). Of course, there could potentially be a lot of upside potential on the table if NEO stocks really go up, which is why it becomes important to look at the trailing twelve month trading history for NeoGenomics Inc and study the fundamentals of the business. Below is a graph showing NEO’s twelve month trailing trading history, with the $ 55.00 strike highlighted in red:
Given that the $ 55.00 strike represents a premium of approximately 9% over 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 doing this would expire worthless. In this case, the investor would keep both their shares and the collected premium. Current analytical data (including Greeks and implicit Greeks) suggests that the current probability of this is 66%. 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 mean an increase in the additional return for the investor by 2.09% or on an annual basis by 24.58%, which we call YieldBoost.
The implied volatility in the put contract example is 58%, while the implied volatility in the call contract example is 57%.
In the meantime, we calculate the actual trailing volatility after twelve months (taking into account the closing values of the last 252 trading days and today’s price of USD 50.29) at 53%. For more contract ideas on put and call options, visit StockOptionsChannel.com.
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The views and opinions expressed are those of the author and do not necessarily reflect those of Nasdaq, Inc.
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