Investors in Expedia Group Inc (Symbol: EXPE saw new options begin trading today, for the September 9th expiration.
The put contract at the $104.00 strike price has a current bid of $7.65. If an investor was to sell-to-open that put contract, they are committing to purchase the stock at $104.00, but will also collect the premium, putting the cost basis of the shares at $96.35 (before broker commissions). To an investor already interested in purchasing shares of EXPE, that could represent an attractive alternative to paying $104.88/share today.
Because the $104.00 strike represents an approximate 1% discount to the current trading price of the stock (in other words it is out-of-the-money by that percentage, there is also the possibility that the put contract would expire worthless. The current analytical data (including greeks and implied greeks suggest the current odds of that happening are 55%. Should the contract expire worthless, the premium would represent a 7.36% return on the cash commitment, or 63.93% annualized
Turning to the calls side of the option chain, the call contract at the $106.00 strike price has a current bid of $7.80. If an investor was to purchase shares of EXPE stock at the current price level of $104.88/share, and then sell-to-open that call contract as a "covered call," they are committing to sell the stock at $106.00. Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 8.50% if the stock gets called away at the September 9th expiration (before broker commissions). Of course, a lot of upside could potentially be left on the table if EXPE shares really soar, which is why looking at the trailing twelve month trading history for Expedia Group Inc, as well as studying the business fundamentals become important.
Considering the fact that the $106.00 strike represents an approximate 1% premium to the current trading price of the stock (in other words it is out-of-the-money by that percentage, there is also the possibility that the covered call contract would expire worthless, in which case the investor would keep both their shares of stock and the premium collected. The current analytical data (including greeks and implied greeks suggest the current odds of that happening are 49%. Should the covered call contract expire worthless, the premium would represent a 7.44% boost of extra return to the investor, or 64.63% annualized
The implied volatility in the put contract example is 62%, while the implied volatility in the call contract example is 64%.
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