Investors in Silvercorp Metals Inc (SVM - Get Report) saw new options begin trading this week, for the September 18th expiration. One of the key data points that goes into the price an option buyer is willing to pay, is the time value, so with 239 days until expiration the newly trading contracts represent a potential opportunity for sellers of puts or calls to achieve a higher premium than would be available for the contracts with a closer expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the SVM options chain for the new September 18th contracts and identified the following call contract of particular interest.The call contract at the $2.00 strike price has a current bid of 10 cents. If an investor was to purchase shares of SVM stock at the current price level of $1.56/share, and then sell-to-open that call contract as a "covered call," they are committing to sell the stock at $2.00. Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 34.62% if the stock gets called away at the September 18th expiration (before broker commissions). Of course, a lot of upside could potentially be left on the table if SVM shares really soar, which is why looking at the trailing twelve month trading history for Silvercorp Metals Inc, as well as studying the business fundamentals becomes important. Below is a chart showing SVM's trailing twelve month trading history, with the $2.00 strike highlighted in red: Considering the fact that the $2.00 strike represents an approximate 28% premium to the current trading price of the stock (in other words it is out-of-the-money by that percentage), there is also the possibility that the covered call contract would expire worthless, in which case the investor would keep both their shares of stock and the premium collected. The current analytical data (including greeks and implied greeks) suggest the current odds of that happening are 57%. On our website under the contract detail page for this contract, Stock Options Channel will track those odds over time to see how they change and publish a chart of those numbers (the trading history of the option contract will also be charted). Should the covered call contract expire worthless, the premium would represent a 6.41% boost of extra return to the investor, or 9.79% annualized, which we refer to as the YieldBoost. The implied volatility in the call contract example above is 68%. Meanwhile, we calculate the actual trailing twelve month volatility (considering the last 252 trading day closing values as well as today's price of $1.56) to be 64%. For more put and call options contract ideas worth looking at, visit StockOptionsChannel.com.
TheStreet’s Fundamentals of Investing Course will teach you the keys to making the right decisions in any market.
TheStreet’s Personal Finance Essentials Course will teach you money management basics and investing strategies to help you avoid major financial pitfalls.
TheStreet Courses offers dedicated classes designed to improve your investing skills, stock market knowledge and money management capabilities.
More from Stocks
This Sedate Market Is an Ink Blot Test for Investors
The bulls will say this is healthy consolidation that will set up another leg higher, while the bears will say this is an indication of indecision and is a prelude to a rollover.
Dow Futures Flat, But Near Record; Investors Eye Retail Sales, Q2 Bank Earnings
U.S. equity futures were little-changed in early Tuesday trading as investors maintained their cautious stance on global stocks heading into the second quarter earnings season and keyed on June retail sales data for further clues on the direction of Federal Reserve interest rates.
Cboe: A Test Case in Discovering the Cost of Over-Enthusiasm
Let's use the history of Cboe Global Markets Inc. as an example of how to recognize overvaluation and trade out before major pullbacks, potentially side-stepping declines.