Under Armor Inc (symbol: UA) investors saw new options for April 2023 expiration become available this week. One of the most important inputs to the price an option buyer is willing to pay is time value, so the newly available contracts with 217 days to expiration present a potential opportunity for put or call sellers to earn a higher premium than this the case would be available for contracts with near expiry. At Stock Options Channel, our YieldBoost formula scanned the UA options chain for the new April 2023 contracts and identified a put and a call contract of particular interest.
The put contract at a strike price of $5.00 has a current bid of 30 cents. If an investor were to sell to open this put contract, they commit to buying the stock at $5.00 but also collect the premium, making the cost basis of the shares $4.70 (before brokerage commissions). For an investor already interested in buying UA stock, this could present an attractive alternative to paying $7.35/share today.
Since the $5.00 strike price represents a discount of approximately 32% to the stock’s current trading price (in other words, it’s out of the money by that percentage), there’s also a chance that the put contract will expire worthless. The current analytical data (including Greeks and implied Greeks) suggests that the probability of this happening is currently 87%. Stock Options Channel will track these odds over time to see how they change and will post a chart of these numbers on our website under the contract detail page for that contract. Should the contract expire worthless, the premium would represent a return of 6.00% on the cash obligation or 10.09% on an annualized basis – at Stock Options Channel we call that yield boost.
Below is a chart showing Under Armor Inc’s back twelve month trading history and highlighted in green where the $5.00 strike is relative to that history:
On the call side of the option chain, the call contract at a strike price of $7.50 has a current bid of 90 cents. If an investor were to buy shares of UA stock at the current price level of $7.35/share and then sell that call contract as a “covered call,” they commit to selling the stock at $7.50. Considering that the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 14.29% if the stock is called at expiration in April 2023 (before brokerage commissions). Of course, there could potentially still be a lot of upside on the table if UA stock really does go higher, which is why it’s important to look back at Under Armor Inc’s 12-month trading history and study fundamentals of the business. Below is a chart showing UA’s trailing 12-month trading history, with the $7.50 strike highlighted in red:
Given that the $7.50 strike price represents a roughly 2% premium to the stock’s current trading price (in other words, it’s out of the money by that percentage), there’s also a possibility that the covered call contract would expire worthless, in which case the investor would retain both their equity interest and the premium received. The current analytical data (including Greeks and implied Greeks) suggests that the probability of this happening is currently around 40%. On our website, under the contract detail page for that contract, the Stock Options Channel tracks these quotes over time to see how they are changing and publishes a chart of these numbers (options contract trading history is also graphed). Should the covered call contract expire worthless, the premium would represent an additional 12.24% return enhancement for the investor, or 20.60% on an annualized basis, which we refer to as the yield boost.
The implied volatility in the put contract example is 73%, while the implied volatility in the call contract example is 62%.
In the meantime, we calculate the actual volatility over the last 12 months (taking into account the closing values for the last 252 trading days and today’s price of $7.35) to be 58%. For more put and call option contract ideas worth checking out, visit StockOptionsChannel.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.