July Options Now Available For Dresser-Rand Group (DRC)

Investors in Dresser-Rand Group Inc ( DRC) saw new options become available today, for the July expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the DRC options chain for the new July contracts and identified one put and one call contract of particular interest.

The put contract at the $65.00 strike price has a current bid of $3.30. If an investor was to sell-to-open that put contract, they are committing to purchase the stock at $65.00, but will also collect the premium, putting the cost basis of the shares at $61.70 (before broker commissions). To an investor already interested in purchasing shares of DRC, that could represent an attractive alternative to paying $65.52/share today.

Because the $65.00 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 55%. 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 5.08% return on the cash commitment, or 30.38% annualized — at Stock Options Channel we call this the YieldBoost.

START SLIDESHOW:
Top YieldBoost Puts of the S&P 500 »

Below is a chart showing the trailing twelve month trading history for Dresser-Rand Group Inc, and highlighting in green where the $65.00 strike is located relative to that history:

Loading+chart++2013+TickerTech.com

Turning to the calls side of the option chain, the call contract at the $70.00 strike price has a current bid of $1.95. If an investor was to purchase shares of DRC stock at the current price level of $65.52/share, and then sell-to-open that call contract as a "covered call," they are committing to sell the stock at $70.00. Considering the call seller will also collect the premium, that would drive a total return of 9.81% if the stock gets called away at the July expiration (before broker commissions). If course, a lot of upside could potentially be left on the table if DRC shares really soar, which is why looking at the trailing twelve month trading history for Dresser-Rand Group Inc, as well as studying the business fundamentals becomes important. Below is a chart showing DRC's trailing twelve month trading history, with the $70.00 strike highlighted in red:

Loading+chart++2013+TickerTech.com

Considering the fact that the $70.00 strike represents an approximate 7% 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 2.98% boost of extra return to the investor, or 17.81% annualized, which we refer to as the YieldBoost.

START SLIDESHOW:
Top YieldBoost Calls of the S&P 500 »

The implied volatility in the put contract example is 34%, while the implied volatility in the call contract example is 35%. Meanwhile, we calculate the actual trailing twelve month volatility (considering the last 248 trading day closing values as well as today's price of $65.52) to be 30%. For more put and call options contract ideas worth looking at, visit StockOptionsChannel.com.

null

If you liked this article you might like

Dresser-Rand Group (DRC) Hits New Lifetime High Today

Dresser-Rand Group (DRC) Hits New Lifetime High Today

Strong And Under The Radar Today: Dresser-Rand Group (DRC)

Strong And Under The Radar Today: Dresser-Rand Group (DRC)

Dresser-Rand Group (DRC) Highlighted As Strong And Under The Radar Stock Of The Day

Dresser-Rand Group (DRC) Highlighted As Strong And Under The Radar Stock Of The Day

Trade-Ideas: Dresser-Rand Group (DRC) Is Today's New Lifetime High Stock

Trade-Ideas: Dresser-Rand Group (DRC) Is Today's New Lifetime High Stock

Dresser-Rand Group (DRC) Is Today's Strong And Under The Radar Stock

Dresser-Rand Group (DRC) Is Today's Strong And Under The Radar Stock