Investors considering a purchase of NeuStar, Inc. (NSR) shares, but tentative about paying the going market price of $22.12/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the July put at the $20 strike, which has a bid at the time of this writing of $1.45. Collecting that bid as the premium represents a 7.2% return against the $20 commitment, or a 23.2% annualized rate of return (at Stock Options Channel we call this the YieldBoost).Selling a put does not give an investor access to NSR'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 $20 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 NeuStar, Inc. sees its shares fall 9.5% and the contract is exercised (resulting in a cost basis of $18.55 per share before broker commissions, subtracting the $1.45 from $20), the only upside to the put seller is from collecting that premium for the 23.2% annualized rate of return. Below is a chart showing the trailing twelve month trading history for NeuStar, Inc., and highlighting in green where the $20 strike is located relative to that history: 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 at the $20 strike for the 23.2% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for NeuStar, Inc. (considering the last 252 trading day closing values as well as today's price of $22.12) to be 36%. For other put options contract ideas at the various different available expirations, visit the NSR Stock Options page of StockOptionsChannel.com. In mid-afternoon trading on Wednesday, the put volume among S&P 500 components was 547,841 contracts, with call volume at 547,841, for a put:call ratio of 0.71 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.
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
Memorial Day Sale: Join Jim Cramer's Club for Investors and Save
Get 57% off on your membership to Jim's Action Alerts PLUS club for investors.
How a Chinese Restriction on 'Rare Earths' Could Threaten Apple
China is the world's supplier of rare earths. Export restrictions could be bad news for Apple investors.
Amazon Is Headed to $3,000 a Share, Says Bullish Piper Jaffray Note
The firm estimates Amazon will cross $3,000 a share sometime between mid-2021 and mid-2022.
Buy Alibaba Shares on the Dip, Says Stifel, Adding It to Select List
Stifel says long-term trends working in Alibaba's favor are more significant than the trade war between the U.S. and China.