Investors considering a purchase of Newpark Resources, Inc. (NR - Get Report) stock, but tentative about paying the going market price of $8.70/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the September put at the $2.50 strike, which has a bid at the time of this writing of 10 cents. Collecting that bid as the premium represents a 4% return against the $2.50 commitment, or a 8% annualized rate of return (at Stock Options Channel we call this the YieldBoost).Selling a put does not give an investor access to NR'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 $2.50 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 Newpark Resources, Inc. sees its shares fall 71.4% and the contract is exercised (resulting in a cost basis of $2.40 per share before broker commissions, subtracting the 10 cents from $2.50), the only upside to the put seller is from collecting that premium for the 8% annualized rate of return. Below is a chart showing the trailing twelve month trading history for Newpark Resources, Inc., and highlighting in green where the $2.50 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 September put at the $2.50 strike for the 8% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Newpark Resources, Inc. (considering the last 252 trading day closing values as well as today's price of $8.70) to be 39%. For other put options contract ideas at the various different available expirations, visit the NR Stock Options page of StockOptionsChannel.com. In mid-afternoon trading on Friday, the put volume among S&P 500 components was 1.63M contracts, with call volume at 1.87M, for a put:call ratio of 0.87 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
Endo Surges as Opioid Maker Reaches Settlement in Landmark Lawsuit
Endo's stock price surges after the company announces a settlement with Cuyahoga and Summit counties, removing the company from a potentially damaging trial in state court in October.
Kohl's Cuts Gains After Conference Call Quells Earnings Optimism
Kohl's quickly reversed action, proving that management commentary is the key to preserving gains on the print.
Apple's Tim Cook Plays the Role of Diplomat -- and It Seems to Be Paying Off
The tech giant's CEO has met with President Trump on at least five occasions since his election. Those meetings appear to be paying dividends.
Home Depot Posts Strong Earnings but Sees Lumber Prices, Tariffs Affecting Sales
Home Depot's earnings beat analysts' forecasts, though the company indicated future earnings growth may look slightly less solid.