One Put, One Call Option To Know About for Annaly Capital Management

Consistently, one of the more popular stocks people enter into their stock options watchlist at Stock Options Channel is Annaly Capital Management (NLY). So this week we highlight one interesting put contract, and one interesting call contract, from the July expiration for NLY.The put contract our YieldBoost algorithm identified as particularly interesting, is at the $10 strike, which has a bid at the time of this writing of 14 cents. Collecting that bid as the premium represents a 1.4% return against the $10 commitment, or a 5% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

START SLIDESHOW:
Top YieldBoost NLY Puts »

Selling a put does not give an investor access to NLY'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. So unless Annaly Capital Management Inc sees its shares fall 10.6% and the contract is exercised (resulting in a cost basis of $9.86 per share before broker commissions, subtracting the 14 cents from $10), the only upside to the put seller is from collecting that premium for the 5% annualized rate of return.

Turning to the other side of the option chain, we highlight one call contract of particular interest for the July expiration, for shareholders of Annaly Capital Management Inc ( NLY) looking to boost their income beyond the stock's 10.8% annualized dividend yield. Selling the covered call at the $12 strike and collecting the premium based on the 13 cents bid, annualizes to an additional 4.1% rate of return against the current stock price (this is what we at Stock Options Channel refer to as the YieldBoost), for a total of 14.9% annualized rate in the scenario where the stock is not called away. Any upside above $12 would be lost if the stock rises there and is called away, but NLY shares would have to climb 7.3% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 8.5% return from this trading level, in addition to any dividends collected before the stock was called.

START SLIDESHOW:
Top YieldBoost NLY Calls »

The chart below shows the trailing twelve month trading history for Annaly Capital Management Inc, highlighting in green where the $10 strike is located relative to that history, and highlighting the $12 strike in red:

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 July put or call options highlighted in this article deliver a rate of return that represents good reward for the risks. We calculate the trailing twelve month volatility for Annaly Capital Management Inc (considering the last 252 trading day NLY historical stock prices using closing values, as well as today's price of $11.16) to be 27%.

In mid-afternoon trading on Monday, the put volume among S&P 500 components was 936,812 contracts, with call volume at 936,812, for a put:call ratio of 0.75 so far for the day, which is above normal compared to the long-term median put:call ratio of .65. In other words, if we look at the number of call buyers and then use the long-term median to project the number of put buyers we'd expect to see, we're actually seeing more put buyers than expected out there in options trading so far today. Find out which 15 call and put options traders are talking about today.

More from Stocks

BlackBerry CEO Talks Impact of Trump's Tariffs Among His Big Automaker Clients

BlackBerry CEO Talks Impact of Trump's Tariffs Among His Big Automaker Clients

Trump Sowing the Seeds of a 10% Stock Market Correction?

Trump Sowing the Seeds of a 10% Stock Market Correction?

Dow Falls Sharply as Wall Street Weighs Trump's New Trade Threats

Dow Falls Sharply as Wall Street Weighs Trump's New Trade Threats

Harley-Davidson to Shift Some U.S. Production in Wake of Tariffs

Harley-Davidson to Shift Some U.S. Production in Wake of Tariffs

Why 5 Big Industrial Stocks Are Being Rocked By Trade War Fears

Why 5 Big Industrial Stocks Are Being Rocked By Trade War Fears