Investors in Six Flags Entertainment Corp (Symbol: SIX) today saw new options expiring in February 2024 begin trading. One of the most important data points that goes into the price an options buyer is willing to pay is time value. With 95 days until expiration, the newly traded contracts represent a potential opportunity for sellers of puts or calls to achieve a higher premium for which contracts with closer expiration would be available. At Stock Options Channel, our YieldBoost formula scanned 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 strike price of $22.50 has a current bid of 90 cents. If an investor were to sell this put contract to open it, they would be committing to buying the stock at $22.50 but would also receive the premium, bringing the shares’ cost basis to $21.60 (before broker commissions). For an investor already interested in purchasing SIX shares, this could represent an attractive alternative to today’s price of $23.11/share.
Since the $22.50 strike price represents a discount 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 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 equate to a return of 4.00% on the cash commitment or 15.37% annualized – at Stock Options Channel we call this the YieldBoost.
Below is a chart showing the last twelve month trading history for Six Flags Entertainment Corp, highlighting in green where the strike price of $22.50 is relative to that history:
As for the call side of the options chain, the call contract at the strike price of $25.00 has a current bid of 80 cents. If an investor were to purchase SIX shares at the current price level of $23.11/share and then sell this call contract as a covered call at the open, they are committing to selling the stock for $25.00. Considering that the call seller also collects the premium, this would result in a total return (excluding any dividends) of 11.64% if the stock is called at expiration in February 2024 (before brokerage commissions). Of course, there could potentially be a lot of upside left if SIX shares really soar, which is why it’s important to look at Six Flags Entertainment Corp’s trailing 12-month trading history and study its business fundamentals. Below is a chart showing SIX’s trailing twelve-month trading history, with the strike price of $25.00 highlighted in red:
Considering that the strike price of $25.00 represents a premium of approximately 8% 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 3.46% or 13.30% on an annual basis, which we refer to as “extra.” YieldBoost.
Meanwhile, we calculate the actual volatility over the last twelve months (taking into account the closing values of the last 250 trading days and today’s price of $23.11) at 47%. For more worth-watching put and call options contract ideas, visit StockOptionsChannel.com.
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