Investors in Six Flags Entertainment Corp (Symbol: SIX ) saw new options begin trading today, for the February 2024 expiration. One of the most important data points that go into the price an option buyer is willing to pay is time value, so with 95 days to expiration, the new trade contracts represent a potential opportunity for sellers of puts or calls to realize a higher premium than would be available for the contracts with a closer expiry. At the Stock Options Channel, our YieldBoost formula has looked up and down the SIX options chain for the new February 2024 contracts and identified a put and a call contract of particular interest.
The put contract at the $22.50 strike price has a current bid of 90 cents. If an investor were to sell-to-open that put contract, they commit to buying the stock at $22.50 but will also collect the premium, which puts the cost basis of the stock at $21.60 (before brokerage commissions). For an investor already interested in buying shares of SIX, that could represent an attractive alternative to paying $23.11/share today.
Because the $22.50 strike represents a discount of approximately 3% to the stock’s current trading price (in other words, it is out of the money by that percentage), there is also the possibility that the put contract will expire worthless. The current analytical data (including Greeks and implied Greeks) suggests that the current odds of that happening are 99%. Stock Options Channel will track these odds over time to see how they change and publish a chart of these numbers on our website under the contract details page for that contract. If the contract expires worthless, the premium will represent a return of 4.00% of the cash commitment, or 15.37% on an annualized basis — at the Stock Options Channel we call this YieldBoost.
Below is a chart showing the last 12 months of trading history for Six Flags Entertainment Corp, highlighting in green where the $22.50 strike is positioned relative to that history:
Turning to the call side of the options chain, the call contract at the $25.00 strike price has a current bid of 80 cents. If an investor were to buy shares of SIX stock at the current price level of $23.11/share and then sell to open that call contract as a “covered call,” they are committing to sell the stock at $25.00. Given that the call seller will also collect the premium, calling the stock at expiration in February 2024 (before brokerage commissions) would yield a total return (excluding dividends, if any) of 11.64%. Of course, a lot of upside could potentially be left on the table if SIX shares really soar, which is why it becomes important to look at the past 12 months of trading history for Six Flags Entertainment Corp. Below is a chart showing SIX’s trailing 12-month trading history, with the $25.00 strike highlighted in red:
Given the fact that the $25.00 strike represents an approximately 8% premium to the stock’s current trading price (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 and the premium collected. The current analytical data (including Greeks and implied Greeks) suggests that the current odds of that happening are 99%. On our website under the contract detail page for this contract, the stock options channel will track these odds over time to see how they change and publish a chart of these numbers (the trading history of the options contract will also be charted). If the covered call expires worthless, the premium will represent an additional 3.46% return to the investor, or 13.30% annualized, which we call YieldBoost.
Meanwhile, we calculate the actual trailing 12-month volatility (taking into account the last 250 trading days’ closes as well as today’s price of $23.11) to be 47%. For more bid and call option contracts worth watching, visit StockOptionsChannel.com.
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Also see:
• Jeremy Grantham Stock options
• COT Options chain
• INAQ’s average annual return
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
