Investors eyeing a purchase of ChannelAdvisor Corp (ECOM - Get Report) shares, but cautious about paying the going market price of $11.85/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the December put at the $10 strike, which has a bid at the time of this writing of 85 cents. Collecting that bid as the premium represents a 8.5% return against the $10 commitment, or a 13.6% annualized rate of return (at Stock Options Channel we call this the YieldBoost).Selling a put does not give an investor access to ECOM'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 ChannelAdvisor Corp sees its shares decline 15.2% and the contract is exercised (resulting in a cost basis of $9.15 per share before broker commissions, subtracting the 85 cents from $10), the only upside to the put seller is from collecting that premium for the 13.6% annualized rate of return. Below is a chart showing the trailing twelve month trading history for ChannelAdvisor 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 December put at the $10 strike for the 13.6% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for ChannelAdvisor Corp (considering the last 251 trading day closing values as well as today's price of $11.85) to be 48%. For other put options contract ideas at the various different available expirations, visit the ECOM Stock Options page of 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
Jim Cramer Unveils His 5 Rules for Trading Stocks During Earnings Season
Jim tells members of his Action Alerts PLUS club for investors what to look for when earnings reports come in.
Freeport-McMoRan Is Switching Into Bull Market Mode
After a rough 2018, Freeport-McMoRan is a 'buy the dips' stock.
Comcast Regains Its Swagger in a Brutal New Era of Streaming
Customers have a love/hate relationship with the cable TV industry because of continuously rising prices and poor customer service. The flip side is that cable TV, as a product, works, and Comcast can exploit that like no other.
Pinterest and Zoom Are Off to the Races, but Now Comes the Tough Part
The two tech unicorns popped on their first day of trading, but the performance of Lyft since its own initial day of trading serves as a cautionary tale.