First Week Of June 2014 Options Trading For Exco Resources (XCO)

Investors in Exco Resources Inc. ( XCO) saw new options begin trading this week, for the June 2014 expiration. One of the key data points that goes into the price an option buyer is willing to pay, is the time value, so with 242 days until expiration the newly trading contracts represent a possible opportunity for sellers of puts or calls to achieve a higher premium than would be available for the contracts with a closer expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the XCO options chain for the new June 2014 contracts and identified one put and one call contract of particular interest.

The put contract at the $6.00 strike price has a current bid of 55 cents. If an investor was to sell-to-open that put contract, they are committing to purchase the stock at $6.00, but will also collect the premium, putting the cost basis of the shares at $5.45 (before broker commissions). To an investor already interested in purchasing shares of XCO, that could represent an attractive alternative to paying $6.84/share today.

Because the $6.00 strike represents an approximate 12% 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 70%. 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 9.17% return on the cash commitment, or 13.83% annualized — at Stock Options Channel we call this the YieldBoost.

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Below is a chart showing the trailing twelve month trading history for Exco Resources Inc., and highlighting in green where the $6.00 strike is located relative to that history:

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