Commit To Buy Supernus Pharmaceuticals At $7, Earn 16.4% Annualized Using Options

Investors considering a purchase of Supernus Pharmaceuticals Inc (SUPN) stock, but tentative about paying the going market price of $8.29/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the March 2015 put at the $7 strike, which has a bid at the time of this writing of 55 cents. Collecting that bid as the premium represents a 7.9% return against the $7 commitment, or a 16.4% 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 SUPN'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 $7 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 Supernus Pharmaceuticals Inc sees its shares decline 15.5% and the contract is exercised (resulting in a cost basis of $6.45 per share before broker commissions, subtracting the 55 cents from $7), the only upside to the put seller is from collecting that premium for the 16.4% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for Supernus Pharmaceuticals Inc, and highlighting in green where the $7 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 March 2015 put at the $7 strike for the 16.4% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Supernus Pharmaceuticals Inc (considering the last 252 trading day closing values as well as today's price of $8.29) to be 46%. For other put options contract ideas at the various different available expirations, visit the SUPN Stock Options page of StockOptionsChannel.com.

More from Stocks

Facebook, Amazon, Microsoft and Ford - 5 Things You Must Know

Facebook, Amazon, Microsoft and Ford - 5 Things You Must Know

Abercrombie & Fitch CEO: We Aren't the Same Abercrombie You Once Knew

Abercrombie & Fitch CEO: We Aren't the Same Abercrombie You Once Knew

Amazon Wants to Use Your Car as a Mobile Warehouse - Here's What That Could Mean

Amazon Wants to Use Your Car as a Mobile Warehouse - Here's What That Could Mean

Chipotle's New CEO Has Set its Path for Redemption

Chipotle's New CEO Has Set its Path for Redemption

TheStreet Is About to Hold the BEST Institutional Investor Conference of 2018

TheStreet Is About to Hold the BEST Institutional Investor Conference of 2018