Commit To Buy Boston Beer At $200, Earn 7.5% Annualized Using Options

Investors considering a purchase of Boston Beer Co., Inc ( SAM) stock, but tentative about paying the going market price of $241.02/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the September put at the $200 strike, which has a bid at the time of this writing of $7.80. Collecting that bid as the premium represents a 3.9% return against the $200 commitment, or a 7.5% 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 SAM'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 $200 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 Boston Beer Co., Inc sees its shares decline 17.1% and the contract is exercised (resulting in a cost basis of $192.20 per share before broker commissions, subtracting the $7.80 from $200), the only upside to the put seller is from collecting that premium for the 7.5% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for Boston Beer Co., Inc, and highlighting in green where the $200 strike is located relative to that history:

If you liked this article you might like

Talk About the Passion; Survivor Stocks -- Jim Cramer's Top Thoughts

Sapporo Drops Anchor in U.S. Craft Beer Market

Cramer: These 10 Stocks Are Survivors

Jim Cramer -- There's Little Reason to Bet Against This Beer Company