Consistently, one of the more popular stocks people enter into their stock options watchlist at Stock Options Channel is Verizon Communications (VZ). So this week we highlight one interesting put contract, and one interesting call contract, from the August expiration for VZ. The put contract our YieldBoost algorithm identified as particularly interesting, is at the $48 strike, which has a bid at the time of this writing of 65 cents. Collecting that bid as the premium represents a 1.4% return against the $48 commitment, or a 10.8% annualized rate of return (at Stock Options Channel we call this the YieldBoost).
Selling a put does not give an investor access to VZ's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. So unless Verizon Communications Inc sees its shares fall 2.3% and the contract is exercised (resulting in a cost basis of $47.35 per share before broker commissions, subtracting the 65 cents from $48), the only upside to the put seller is from collecting that premium for the 10.8% annualized rate of return.
Interestingly, that annualized 10.8% figure actually exceeds the 4.3% annualized dividend paid by Verizon Communications Inc by 6.5%, based on the current share price of $49.15. And yet, if an investor was to buy the stock at the going market price in order to collect the dividend, there is greater downside because the stock would have to lose 2.34% to reach the $48 strike price.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV