Investors eyeing a purchase of Epizyme Inc. (EPZM - Get Report) stock, but cautious about paying the going market price of $11.97/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the August 2018 put at the $7.50 strike, which has a bid at the time of this writing of 65 cents. Collecting that bid as the premium represents a 8.7% return against the $7.50 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 EPZM'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 $7.50 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 Epizyme Inc. sees its shares fall 37.2% and the contract is exercised (resulting in a cost basis of $6.85 per share before broker commissions, subtracting the 65 cents from $7.50), 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 Epizyme Inc., and highlighting in green where the $7.50 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 2018 put at the $7.50 strike for the 13.2% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Epizyme Inc. (considering the last 253 trading day closing values as well as today's price of $11.97) to be 62%. For other put options contract ideas at the various different available expirations, visit the EPZM 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
Warning Signs Appear, but It Is Still Too Early to Go Full Bear
There are still dip buyers jumping on intraday weakness and the indices are staying above key technical levels.
'Avengers: Endgame' Sets Thursday Box Office Record, AMC Says
AMC says it will show the film an unprecedented 58,000 times at its theaters this weekend.
Global Stocks Drift Lower Ahead of U.S. GDP Data; Dollar Tests Two-Year High
Global stocks drifted lower Thursday as investors focused on a key reading of U.S. economic growth later in the session and the spillover from a mixed set of earnings last night on Wall Street.
Uber Sets IPO Price Range to Value Group at Between $80 Billion and $90 Billion
Uber Technologies set the indicative price of its planned IPO that would value the ride-sharing group at around $85 billion, well below the $120 billion valuation investors had pegged prior to the debut of rival Lyft month.