Commit To Purchase Fleetmatics Group At $35, Earn 8.5% Annualized Using Options

Investors eyeing a purchase of Fleetmatics Group plc ( FLTX) shares, but cautious about paying the going market price of $42.25/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the January 2016 put at the $35 strike, which has a bid at the time of this writing of $1.90. Collecting that bid as the premium represents a 5.4% return against the $35 commitment, or a 8.5% 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 FLTX'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 $35 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 Fleetmatics Group plc sees its shares decline 17.3% and the contract is exercised (resulting in a cost basis of $33.10 per share before broker commissions, subtracting the $1.90 from $35), the only upside to the put seller is from collecting that premium for the 8.5% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for Fleetmatics Group plc, and highlighting in green where the $35 strike is located relative to that history:

If you liked this article you might like

Toshiba May Delay Its Chip Auction -- Tech Roundup

Verizon Ends Data Center Auction With $3.6B Sale to Equinix

How M&A Is Driving the Growth of the Internet of Things

AT&T May Look to Market Data Centers

Verizon CFO Downplays the Impact of Apple's iPhone 7 Roll-Out