Investors considering a purchase of Immersion Corp (IMMR - Get Report) shares, but tentative about paying the going market price of $11.51/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the August put at the $10 strike, which has a bid at the time of this writing of 75 cents. Collecting that bid as the premium represents a 7.5% return against the $10 commitment, or a 15.7% annualized rate of return (at Stock Options Channel we call this the YieldBoost).Selling a put does not give an investor access to IMMR'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 $10 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 Immersion Corp sees its shares fall 13.1% and the contract is exercised (resulting in a cost basis of $9.25 per share before broker commissions, subtracting the 75 cents from $10), the only upside to the put seller is from collecting that premium for the 15.7% annualized rate of return. Below is a chart showing the trailing twelve month trading history for Immersion Corp, and highlighting in green where the $10 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 August put at the $10 strike for the 15.7% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Immersion Corp (considering the last 252 trading day closing values as well as today's price of $11.51) to be 48%. For other put options contract ideas at the various different available expirations, visit the IMMR Stock Options page of StockOptionsChannel.com. In mid-afternoon trading on Friday, the put volume among S&P 500 components was 839,293 contracts, with call volume at 1.09M, for a put:call ratio of 0.77 so far for the day, which is unusually high compared to the long-term median put:call ratio of .65. In other words, there are lots more put buyers out there in options trading so far today than would normally be seen, as compared to call buyers. 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
Replay: Jim Cramer on Earnings Season, China and Amazon Prime Day
Jim Cramer's breaking down what he expects from earnings season, China's slowing growth, and Amazon's Prime day sale.
Prime Day Isn't Just For Amazon -- Target, Walmart, Others Want a Piece Too
Amazon's retail competitors will see a 79% revenue lift around Prime Day, according to a projection from Adobe Analytics.
Jim Cramer: Even if Slowdown Hits, You'll Look Good With These Six Stocks
Estee Lauder is among the companies that are sure winners, now matter which way the economy goes.
Slack Rallies by 3% as Research Firms Initiate Bullish Coverage
Canaccord, Barclays and William Blair all published bullish notes on the messaging service, which went public via a direct listing in June.
Earnings to Soon Give Insight into Market's Strength
Are we seeing low-volume consolidation setting stage for thrust higher or is this stalling action suggesting a rollover? The answer depends on how earnings season develops.