Commit To Purchase Dawson Geophysical Co. At $35, Earn 7.2% Annualized

Investors considering a purchase of Dawson Geophysical Co. (DWSN) shares, but tentative about paying the going market price of $38.77/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the March 2014 put at the $35 strike, which has a bid at the time of this writing of $1.65. Collecting that bid as the premium represents a 4.7% return against the $35 commitment, or a 7.2% 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 DWSN'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 $35 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 Dawson Geophysical Co. sees its shares fall 10.1% and the contract is exercised (resulting in a cost basis of $33.35 per share before broker commissions, subtracting the $1.65 from $35), the only upside to the put seller is from collecting that premium for the 7.2% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for Dawson Geophysical Co., and highlighting in green where the $35 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 March 2014 put at the $35 strike for the 7.2% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Dawson Geophysical Co. (considering the last 249 trading day closing values as well as today's price of $38.77) to be 35%. For other put options contract ideas at the various different available expirations, visit the DWSN Stock Options page of StockOptionsChannel.com.

In mid-afternoon trading on Friday, the put volume among S&P 500 components was 799,475 contracts, with call volume at 996,248, for a put:call ratio of 0.80 so far for the day, which is unusually high compared to the long-term median put:call ratio of .65. In other words, there are lots more put buyers out there in options trading so far today than would normally be seen, as compared to call buyers.

null

More from Stocks

Pegasystems Founder Explains Why He Has One of the Hottest Tech Stocks Around

Pegasystems Founder Explains Why He Has One of the Hottest Tech Stocks Around

9 Stocks Goldman Sachs Thinks Will Blow Wall Street's Performance Away in 2019

9 Stocks Goldman Sachs Thinks Will Blow Wall Street's Performance Away in 2019

Jim Cramer on U.S.-China Trade: The Media Has it Wrong

Jim Cramer on U.S.-China Trade: The Media Has it Wrong

Is Tesla's Stock Set to Nearly Double to $500?

Is Tesla's Stock Set to Nearly Double to $500?

Tesla's $78,000 Model 3 Is a Bargain. Here's Why

Tesla's $78,000 Model 3 Is a Bargain. Here's Why