Interesting January 2016 Stock Options for American Express

Consistently, one of the more popular stocks people enter into their stock options watchlist at Stock Options Channel is American Express Co. ( AXP). So this week we highlight one interesting put contract, and one interesting call contract, from the January 2016 expiration for AXP. The put contract our YieldBoost algorithm identified as particularly interesting, is at the $55 strike, which has a bid at the time of this writing of 77 cents. Collecting that bid as the premium represents a 1.4% return against the $55 commitment, or a 0.9% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

START SLIDESHOW:
Top YieldBoost AXP Puts »

Selling a put does not give an investor access to AXP'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 American Express Co. sees its shares decline 40% and the contract is exercised (resulting in a cost basis of $54.23 per share before broker commissions, subtracting the 77 cents from $55), the only upside to the put seller is from collecting that premium for the 0.9% annualized rate of return.

Turning to the other side of the option chain, we highlight one call contract of particular interest for the January 2016 expiration, for shareholders of American Express Co. ( AXP) looking to boost their income beyond the stock's 1.1% annualized dividend yield. Selling the covered call at the $110 strike and collecting the premium based on the $3.20 bid, annualizes to an additional 2.1% 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 3.3% annualized rate in the scenario where the stock is not called away. Any upside above $110 would be lost if the stock rises there and is called away, but AXP shares would have to advance 19.9% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 23.4% return from this trading level, in addition to any dividends collected before the stock was called.

START SLIDESHOW:
Top YieldBoost AXP Calls »

The chart below shows the trailing twelve month trading history for American Express Co., highlighting in green where the $55 strike is located relative to that history, and highlighting the $110 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 January 2016 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 American Express Co. (considering the last 251 trading day AXP historical stock prices using closing values, as well as today's price of $91.75) to be 19%.

If you liked this article you might like

Why Millennials Love Warren Buffett

Why Millennials Love Warren Buffett

These 5 Dow Stocks Are Already in Correction in 2018

These 5 Dow Stocks Are Already in Correction in 2018

This Black History Month on Wall Street

This Black History Month on Wall Street

Managed Care Stocks Thrashed on Amazon News but Could Be Buying Opportunity

Managed Care Stocks Thrashed on Amazon News but Could Be Buying Opportunity

How to Invest Like Warren Buffett

How to Invest Like Warren Buffett