Investors in Melco Resorts & Entertainment Ltd (Symbol: MLCO) saw new options available today with an expiration date of December 29th. At Stock Options Channel, our YieldBoost formula scanned the MLCO options chain for the new December 29th contracts and identified a put and a call contract of particular interest.
The put contract at the strike price of $7.00 has a current bid of 20 cents. If an investor were to sell this put contract to open it, they are committing to buying the stock at $7.00 but also receiving the premium, bringing the shares’ cost basis to $6.80 (before broker commissions). For an investor already interested in purchasing MLCO stock, this could represent an attractive alternative to paying $7.79/share today.
Since the $7.00 strike price represents a discount of approximately 10% 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 could expire worthless. The current analytical data (including Greek and implied Greek data) suggests that the probability of this happening is currently 99%. Stock Options Channel tracks these odds over time to see how they change and posts a chart of these numbers on our website on the contract detail page for that contract. Should the contract expire worthless, the premium would correspond to a return of 2.86% on the cash commitment or 20.86% on an annual basis – at Stock Options Channel we call this the YieldBoost.
Below is a chart showing the last twelve month trading history for Melco Resorts & Entertainment Ltd, highlighting in green where the $7.00 strike price is relative to that history:
On the call side of the options chain, the current bid for the call contract at the strike price of $8.00 is 45 cents. If an investor were to purchase MLCO stock at the current price level of $7.79/share and then sell that call contract as a covered call at the open, they are committing to selling the stock for $8.00. Considering that the call seller also collects the premium, this would result in a total return (excluding any dividends) of 8.47% if the stock is called on December 29th (before brokerage commissions). Of course, if MLCO shares do soar, there could still be plenty of upside potential left, which is why it’s important to look at Melco Resorts & Entertainment Ltd’s trailing 12-month trading history and study its business fundamentals. Below is a chart showing MLCO’s trading history over the last twelve months, with the strike price of $8.00 highlighted in red:
Considering that the $8.00 strike price represents a premium of about 3% to the stock’s current trading price (in other words, it is out of the money by that percentage), there is also a possibility that the covered call -Contract doing so would expire and become worthless; in this case, the investor would keep both his shares and the premium collected. The current analytical data (including Greek and implied Greek data) suggests that the probability of this happening is currently 99%. On our website under the contract details page for that contract, Stock Options Channel tracks these odds over time to see how they change and publishes a chart of these numbers (the trading history of the options contract is also recorded). Should the covered call contract expire worthless, the premium would represent an increase in additional return to the investor of 5.78% or 42.17% on an annual basis, which we refer to as “…” YieldBoost.
Meanwhile, we calculate the actual volatility over the last twelve months (taking into account the closing values of the last 251 trading days and today’s price of $7.79) at 54%. For more worth-watching put and call options contract ideas, visit StockOptionsChannel.com.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.