Investors eyeing a purchase of AMAG Pharmaceuticals, Inc. (AMAG) shares, but tentative about paying the going market price of $17.50/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the May 2018 put at the $12 strike, which has a bid at the time of this writing of 95 cents. Collecting that bid as the premium represents a 7.9% return against the $12 commitment, or a 13.2% annualized rate of return (at Stock Options Channel we call this the YieldBoost).Selling a put does not give an investor access to AMAG'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 $12 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 AMAG Pharmaceuticals, Inc. sees its shares fall 31.4% and the contract is exercised (resulting in a cost basis of $11.05 per share before broker commissions, subtracting the 95 cents from $12), the only upside to the put seller is from collecting that premium for the 13.2% annualized rate of return. Below is a chart showing the trailing twelve month trading history for AMAG Pharmaceuticals, Inc., and highlighting in green where the $12 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 May 2018 put at the $12 strike for the 13.2% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for AMAG Pharmaceuticals, Inc. (considering the last 253 trading day closing values as well as today's price of $17.50) to be 65%. For other put options contract ideas at the various different available expirations, visit the AMAG Stock Options page of StockOptionsChannel.com.
More from Stocks
The Week Ahead: Housing, Fed Minutes and 13 Tell-Tale Earnings Reports to Watch
A shortened week still brings key economic numbers and earnings results.
What to Expect When Walmart and CVS Report Earnings This Week
Here are stocks to keep an eye on this week.
Consumers Remain Confident as Economists Fret Over Quality of U.S. Data
The University of Michigan's index of consumer sentiment rises to a reading of 95.5 in February from 91.2 the prior month, contrasting with a separate report earlier this week from the Census Bureau that showed retail sales fell in December by the most in nine years.
Oracle Shares End Higher After Warren Buffett's Berkshire Hathaway Dumps Stake
Oracle also announces buyback of $12 billion of common stock.
CBS Shares End Higher Despite Earnings Missing Analysts' Forecasts
Fourth-quarter and full-year earnings ring in below analysts' forecasts, though the company hits goal of 8 million online-streaming subscribers earlier than expected.