Commit To Purchase Accuride Corp At $5, Earn 28.6% Annualized

Investors considering a purchase of Accuride Corp ( ACW) shares, but tentative about paying the going market price of $5.50/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the October put at the $5 strike, which has a bid at the time of this writing of 40 cents. Collecting that bid as the premium represents a 8% return against the $5 commitment, or a 28.6% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

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

Selling a put does not give an investor access to ACW'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. And the person on the other side of the contract would only benefit from exercising at the $5 strike if doing so produced a better outcome than selling at the going market price. ( Do options carry counterparty risk? This and six other common options myths debunked). So unless Accuride Corp sees its shares fall 8.6% and the contract is exercised (resulting in a cost basis of $4.60 per share before broker commissions, subtracting the 40 cents from $5), the only upside to the put seller is from collecting that premium for the 28.6% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for Accuride Corp, and highlighting in green where the $5 strike is located relative to that history:

Loading+chart++2013+TickerTech.com

The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the October put at the $5 strike for the 28.6% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Accuride Corp (considering the last 249 trading day closing values as well as today's price of $5.50) to be 64%. For other put options contract ideas at the various different available expirations, visit the ACW Stock Options page of StockOptionsChannel.com.

null

If you liked this article you might like

Accuride (ACW) Stock Soars, Crestview to Acquire

Accuride (ACW) Stock Soars, Crestview to Acquire

7 Stocks Under $10 Spiking Toward Big Gains

7 Stocks Under $10 Spiking Toward Big Gains

7 Stocks Under $10 to Trade for Big Profits

7 Stocks Under $10 to Trade for Big Profits

Insider Trading Alert - VMC, CVCO And ACW Traded By Insiders

Insider Trading Alert - VMC, CVCO And ACW Traded By Insiders

3 Stocks Pushing The Automotive Industry Lower

3 Stocks Pushing The Automotive Industry Lower