Trending

Filed under: News

 

Interesting MMM Put And Call Options For February 2014

Dec 23 2013, 11:06am CST | by

Interesting MMM Put And Call Options For February 2014
Photo Credit: Forbes
 
 
 

Investors in 3M Co (NYSE: MMM) saw new options begin trading today, for the February 2014 expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the MMM options chain for the new February 2014 contracts and identified one put and one call contract of particular interest.

The put contract at the $135.00 strike price has a current bid of $3.05. If an investor was to sell-to-open that put contract, they are committing to purchase the stock at $135.00, but will also collect the premium, putting the cost basis of the shares at $131.95 (before broker commissions). To an investor already interested in purchasing shares of MMM, that could represent an attractive alternative to paying $136.74/share today.

Because the $135.00 strike represents an approximate 1% 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 57%. 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 2.26% return on the cash commitment, or 13.52% annualized — at Stock Options Channel we call this the YieldBoost.

Click here to find out the Top YieldBoost Puts of the Dow »

Below is a chart showing the trailing twelve month trading history for 3M Co, and highlighting in green where the $135.00 strike is located relative to that history:

Turning to the calls side of the option chain, the call contract at the $140.00 strike price has a current bid of $1.91. If an investor was to purchase shares of MMM stock at the current price level of $136.74/share, and then sell-to-open that call contract as a “covered call,” they are committing to sell the stock at $140.00. Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 3.78% if the stock gets called away at the February 2014 expiration (before broker commissions). Of course, a lot of upside could potentially be left on the table if MMM shares really soar, which is why looking at the trailing twelve month trading history for 3M Co, as well as studying the business fundamentals becomes important. Below is a chart showing MMM’s trailing twelve month trading history, with the $140.00 strike highlighted in red:

Considering the fact that the $140.00 strike represents an approximate 2% premium 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 covered call contract would expire worthless, in which case the investor would keep both their shares of stock and the premium collected. The current analytical data (including greeks and implied greeks) suggest the current odds of that happening are 65%. On our website under the contract detail page for this contract, Stock Options Channel will track those odds over time to see how they change and publish a chart of those numbers (the trading history of the option contract will also be charted). Should the covered call contract expire worthless, the premium would represent a 1.40% boost of extra return to the investor, or 8.36% annualized, which we refer to as the YieldBoost.

Click here to find out the Top YieldBoost Calls of the Dow »

The implied volatility in the put contract example is 17%, while the implied volatility in the call contract example is 16%. Meanwhile, we calculate the actual trailing twelve month volatility (considering the last 251 trading day closing values as well as today’s price of $136.74) to be 14%. For more put and call options contract ideas worth looking at, visit StockOptionsChannel.com.

Source: Forbes

You Might Also Like

Updates

Shopping Deals

 
 
 

<a href="/latest_stories/all/all/31" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.

 

 

Comments

blog comments powered by Disqus

Latest stories

Will The iWatch Kill The iPod?
Will The iWatch Kill The iPod?
Analysts are expecting the iWatch to replace the iPod
 
 
Apple announces its second quarter results
Apple announces its second quarter results
Apple exceeded Wall Street expectations, amassing $45.6 billion in Q2 this year.
 
 
NCAA: Tony Gwynn on Leave from San Diego State Aztecs
NCAA: Tony Gwynn on Leave from San Diego State Aztecs
San Diego State Aztecs baseball coach Tony Gwynn, a 20-year MLB veteran, is on leave from the team due to health issues.
 
 
Sony: Mark Zuckerberg tested our VR headset before buying rival company
Sony: Mark Zuckerberg tested our VR headset before buying rival company
Facebook's latest business-gobbling venture involved acquiring a company called Oculus VR, a nascent group devoted to emerging virtual reality technology. According to new comments from Sony, the impending PS4-centric Project Morpheus may have had something to do with that.
 
 
 

The Hottest Photos of Victoria's Secret Fashion Show 2013

 

Viral Stories the Web