September 21st Options Now Available For Chubb (CB)

Investors in Chubb Corp. (CB) saw new options begin trading today, for the September 21st expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the CB options chain for the new September 21st contracts and identified one put and one call contract of particular interest.

The put contract at the $80.00 strike price has a current bid of 30 cents. If an investor was to sell-to-open that put contract, they are committing to purchase the stock at $80.00, but will also collect the premium, putting the cost basis of the shares at $79.70 (before broker commissions). To an investor already interested in purchasing shares of CB, that could represent an attractive alternative to paying $88.48/share today.

Because the $80.00 strike represents an approximate 10% 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 89%. 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 0.38% return on the cash commitment, or 2.24% annualized — at Stock Options Channel we call this the YieldBoost.

START SLIDESHOW:
Top YieldBoost Puts of Stocks Conducting Buybacks »

Below is a chart showing the trailing twelve month trading history for Chubb Corp., and highlighting in green where the $80.00 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 $90.00 strike price has a current bid of $1.33. If an investor was to purchase shares of CB stock at the current price level of $88.48/share, and then sell-to-open that call contract as a "covered call," they are committing to sell the stock at $90.00. Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 3.22% if the stock gets called away at the September 21st expiration (before broker commissions). If course, a lot of upside could potentially be left on the table if CB shares really soar, which is why looking at the trailing twelve month trading history for Chubb Corp., as well as studying the business fundamentals becomes important. Below is a chart showing CB's trailing twelve month trading history, with the $90.00 strike highlighted in red:

Loading+chart++2013+TickerTech.com

Considering the fact that the $90.00 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 61%. 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 1.50% boost of extra return to the investor, or 8.99% annualized, which we refer to as the YieldBoost.

START SLIDESHOW:
Top YieldBoost Calls of Stocks Conducting Buybacks »

The implied volatility in the put contract example is 20%, while the implied volatility in the call contract example is 15%. Meanwhile, we calculate the actual trailing twelve month volatility (considering the last 248 trading day closing values as well as today's price of $88.48) to be 14%. For more put and call options contract ideas worth looking at, visit StockOptionsChannel.com.

null

More from Stocks

Instagram, Federal Reserve, Starbucks and Google - 5 Things You Must Know

Instagram, Federal Reserve, Starbucks and Google - 5 Things You Must Know

3 Software Stocks Now Available at a Discount

3 Software Stocks Now Available at a Discount

EOG Resources Is the Stock to Own in This Crude Oil Rally

EOG Resources Is the Stock to Own in This Crude Oil Rally

Why Big Mergers Are Still Happening Even With Stocks at Record Highs

Why Big Mergers Are Still Happening Even With Stocks at Record Highs

An Alibaba Trade Setup Off Weekly Support

An Alibaba Trade Setup Off Weekly Support