Investors in Alon USA Energy Inc (ALJ) saw new options begin trading today, for the October 21st expiration. At Stock Options Channel, our YieldBoost formula has looked up and down the ALJ options chain for the new October 21st contracts and identified the following call contract of particular interest.The call contract at the $7.50 strike price has a current bid of 10 cents. If an investor was to purchase shares of ALJ stock at the current price level of $7.28/share, and then sell-to-open that call contract as a "covered call," they are committing to sell the stock at $7.50. Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 4.40% if the stock gets called away at the October 21st expiration (before broker commissions). Of course, a lot of upside could potentially be left on the table if ALJ shares really soar, which is why looking at the trailing twelve month trading history for Alon USA Energy Inc, as well as studying the business fundamentals becomes important. Below is a chart showing ALJ's trailing twelve month trading history, with the $7.50 strike highlighted in red: Considering the fact that the $7.50 strike represents an approximate 3% 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 34%. 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 1.37% boost of extra return to the investor, or 8.36% annualized, which we refer to as the YieldBoost. The implied volatility in the call contract example above is 225%. Meanwhile, we calculate the actual trailing twelve month volatility (considering the last 252 trading day closing values as well as today's price of $7.28) to be 54%. For more put and call options contract ideas worth looking at, visit StockOptionsChannel.com.
More from Stocks
AT&T Shares Gain Amid Reports Of DirecTV Sale as Elliott Ratchets-Up Pressure
AT&T shares were indicated higher in pre-market trading Thursday amid reports that it could be preparing to either spin-off its DirecTV business or orchestrate a deal to combine it with Dish Network.
Dow Futures Drift Amid Fed Rate Debate; Repo Markets Eye Third $75 Bln Injection
Global stocks traded mixed Thursday, with U.S. equity futures indicating modest declines, as investors picked through two major interest rate decisions from major central banks, while preparing for a third later today, while keeping a keen eye on developments in Wall Street's overnight lending markets.
Predictable Fed Cut: Cramer's 'Mad Money' Recap (Wednesday 9/18/19)
The uber-bulls were disappointed, says Jim Cramer. Jay Powell is not a fire-breathing Fed chief, and investors should appreciate that.