Investors in Exxon Mobil Corp (NYSE: XOM) saw new options become available today, for the February 2018 expiration. One of the key inputs that goes into the price an option buyer is willing to pay, is the time value, so with 100 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 XOM options chain for the new February 2018 contracts and identified one put and one call contract of particular interest.
The put contract at the $80.00 strike price has a current bid of $1.60. If an investor was to sell-to-open that put contract, they are committing to purchase the stock at $80.00, but will also collect the premium, putting the cost basis of the shares at $78.40 (before broker commissions). To an investor already interested in purchasing shares of XOM, that could represent an attractive alternative to paying $83.10/share today.
Because the $80.00 strike represents an approximate 4% 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 66%. 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 2.00% return on the cash commitment, or 7.30% annualized — at Stock Options Channel we call this the YieldBoost.
Below is a chart showing the trailing twelve month trading history for Exxon Mobil Corp, and highlighting in green where the $80.00 strike is located relative to that history:
Turning to the calls side of the option chain, the call contract at the $85.00 strike price has a current bid of $1.22. If an investor was to purchase shares of XOM stock at the current price level of $83.10/share, and then sell-to-open that call contract as a “covered call,” they are committing to sell the stock at $85.00. Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 3.75% if the stock gets called away at the February 2018 expiration (before broker commissions). Of course, a lot of upside could potentially be left on the table if XOM shares really soar, which is why looking at the trailing twelve month trading history for Exxon Mobil Corp, as well as studying the business fundamentals becomes important. Below is a chart showing XOM’s trailing twelve month trading history, with the $85.00 strike highlighted in red: