Commit To Purchase Ring Energy At $10, Earn 13.8% Annualized Using Options

Investors eyeing a purchase of Ring Energy Inc (REI) shares, but cautious about paying the going market price of $12.10/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 45 cents. Collecting that bid as the premium represents a 4.5% return against the $10 commitment, or a 13.8% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

START SLIDESHOW:
Top YieldBoost Puts of Stocks with Recent Secondaries »

Selling a put does not give an investor access to REI'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 Ring Energy Inc sees its shares fall 17.4% and the contract is exercised (resulting in a cost basis of $9.55 per share before broker commissions, subtracting the 45 cents from $10), the only upside to the put seller is from collecting that premium for the 13.8% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for Ring Energy Inc, and highlighting in green where the $10 strike is located relative to that history:

Loading+chart++2017+TickerTech.com

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 13.8% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Ring Energy Inc (considering the last 252 trading day closing values as well as today's price of $12.10) to be 52%. For other put options contract ideas at the various different available expirations, visit the REI Stock Options page of StockOptionsChannel.com.

In mid-afternoon trading on Friday, the put volume among S&P 500 components was 925,870 contracts, with call volume at 934,710, for a put:call ratio of 0.99 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.

More from Stocks

Get a Juicy 8%+ Dividend Yield With Solid Income Streams All in One Stock

Get a Juicy 8%+ Dividend Yield With Solid Income Streams All in One Stock

U.S.-Chinese Trade War Could Mash Up Apple

U.S.-Chinese Trade War Could Mash Up Apple

How to Overcome the Fear of Trading Super-Momentum Stocks

How to Overcome the Fear of Trading Super-Momentum Stocks

Tesla's People Problem and the Inscrutable Musk: 2 Things That Make You Go Hmmm

Tesla's People Problem and the Inscrutable Musk: 2 Things That Make You Go Hmmm

Dow Hits Another Closing High to End Record Setting Week

Dow Hits Another Closing High to End Record Setting Week