This week, Herbalife Nutrition Ltd investors have had new options trading for the first week of 2019. There are 228 days until the expiration in, and therefore, the investors are focusing on critical data.
One of the things that have emerged from recent trading data is that the time value is of great importance. There is an opportunity for traders of puts or calls to get to higher premium compared to contracts that have closer expiration.
Looking at the company’s options chain for the contracts expiring in August 2019, you will notice that there are calls and puts deals that should be watched closely.
The Contracts to Watch
There is a current bid amounting to $4.60 for a put contract of $57.5 strike price. This is an attractive offer considering that it may lead to an investor paying $52.9 for a share that costs 58.56. With such an offer, there is no doubt that the investors will be rushing for this put contract.
The other reason why it is an attractive offer is that the investor will also collect the premium even though they will agree to buy that share at it stated value.
Statistics show that this share is already attracting a lot of interest from investors. Leading investment advisers are asking investors to check the trading trends of these shares over the years before investing.
If you look at it closely, you will notice that this share has a 2 percent discount on it. This means that it is out-of-the-money by that margin and therefore, the possibility of it expiring without any worth is high. The odds of this situation occurring are at 59 percent according to data from the various analyst. If this stock expires without any worth, the premium that the buyer gets will represent an 8 percent gain on the cash that was committed.
This is a significant boost for an investment that has only over 200 days to expire and which looks like a sure gain for the investors.
The Call Side Contract
When you look at the option chain of Herbalife Nutrition Ltd, you will notice that there is a share on the call side that is of significant interest too. This is the call contract that is currently trading at $60.00 strike price. When you look at the figures, you will notice that it is attached to a bid price of 5.15. This means that an investor that commits to purchase the share at the current rate of $58.56 per share and the sell-to-open as a covered call will be selling it at sixty dollars.
When you factor in the premium that the investor is supposed to collect, you realize that they will be making a gain of 11.25 percent. This gain excludes dividends if there are any. However, it is important to note that there could be a lot of upsides left on the table.
One of the upsides that we cannot overlook is the fact that the shares could soar and therefore, the dividends could be much more than projected. This is the reason an investor has to look at the history of Herbalife Nutrition Ltd shares and check the business fundamentals.
In addition to that, you need to test at least 12 months history of the trading. The $60 strike translates to a 2% premium concerning the current trading price and therefore, the covered call contract, just like the puts contract that we discussed earlier, could expire without any worth. When this situation happens, the investor will have the opportunity to keep both the shares and the premium that is collected on them. You can take a closer look at the HLF stock here: https://finance.yahoo.com/quote/HLF/