Commit To Purchase Oil States International At $75, Earn 7.5% Using Options

Investors considering a purchase of Oil States International, Inc. ( OIS) shares, but cautious about paying the going market price of $94.95/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the January 2016 put at the $75 strike, which has a bid at the time of this writing of $5.60. Collecting that bid as the premium represents a 7.5% return against the $75 commitment, or a 4% 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 OIS'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 $75 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 Oil States International, Inc. sees its shares fall 21.1% and the contract is exercised (resulting in a cost basis of $69.40 per share before broker commissions, subtracting the $5.60 from $75), the only upside to the put seller is from collecting that premium for the 4% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for Oil States International, Inc., and highlighting in green where the $75 strike is located relative to that history:

Loading+chart++2014+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 January 2016 put at the $75 strike for the 4% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Oil States International, Inc. (considering the last 252 trading day closing values as well as today's price of $94.95) to be 29%. For other put options contract ideas at the various different available expirations, visit the OIS Stock Options page of StockOptionsChannel.com.

If you liked this article you might like

Oil Service Stocks Fall After First Rig Decline in More Than 2 Months

Oil Service Stocks Fall After First Rig Decline in More Than 2 Months

David Einhorn Cashed Out of These 9 Stocks

David Einhorn Cashed Out of These 9 Stocks

Barbarian At The Gate: Oil States International (OIS)

Barbarian At The Gate: Oil States International (OIS)

Energy Stock Picks for Playing Strong Defense in Skittish Sector

Energy Stock Picks for Playing Strong Defense in Skittish Sector

Jim Cramer Points Out 24 Quality Stocks Down 40% or More

Jim Cramer Points Out 24 Quality Stocks Down 40% or More