Commit To Buy 1-800 Flowers.com At $5, Earn 3.2% Annualized

Investors eyeing a purchase of 1-800 Flowers.com, Inc. (FLWS) stock, but tentative about paying the going market price of $6.77/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 $5 strike, which has a bid at the time of this writing of 10 cents. Collecting that bid as the premium represents a 2% return against the $5 commitment, or a 3.2% 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 FLWS'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 1-800 Flowers.com, Inc. sees its shares fall 26.1% and the contract is exercised (resulting in a cost basis of $4.90 per share before broker commissions, subtracting the 10 cents from $5), the only upside to the put seller is from collecting that premium for the 3.2% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for 1-800 Flowers.com, Inc., 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 March 2014 put at the $5 strike for the 3.2% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for 1-800 Flowers.com, Inc. (considering the last 250 trading day closing values as well as today's price of $6.77) to be 43%. For other put options contract ideas at the various different available expirations, visit the FLWS Stock Options page of StockOptionsChannel.com.

null

More from Stocks

Abercrombie & Fitch CEO: We Aren't the Same Abercrombie You Once Knew

Abercrombie & Fitch CEO: We Aren't the Same Abercrombie You Once Knew

3 Things We Just Learned About Chip Stocks -- and It's Not All Bad News

3 Things We Just Learned About Chip Stocks -- and It's Not All Bad News

Chipotle's New CEO Has Set its Path for Redemption

Chipotle's New CEO Has Set its Path for Redemption

Will China Save Tesla?

Will China Save Tesla?

Facebook First-Quarter Earnings Live Blog

Facebook First-Quarter Earnings Live Blog