IInvestors in Anavex Life Sciences Corp (Symbol: AVXL) have seen new options begin trading this week, through March 4. In the Stock Options Channel, YieldBoost formula looked up and down the AVXL Options Chain of New Contracts on March 4th and identified one buy contract and one call contract of particular interest.
The sell contract at the strike price of $14.00 has a current bid of $2.15. If the investor were to sell to open this sell contract, he would commit to buying the stock at $14.00, but would also collect the premium, setting the cost basis for the shares at $11.85 (before broker commissions). For an investor already interested in buying AVXL shares, this can be an attractive alternative to paying $14.10/share today.
Since the $14.00 strike represents an approximate 1% discount to the stock’s current trading price (in other words, it’s out of the money by that percentage), there’s also the possibility that the sell contract will expire worthless. Current analytical data (including the Greek and the implied Greek) indicate that the current odds of this happening are 58%. The Stock Options Channel will track those odds over time to see how they change, and publish a chart of these numbers on our website under the Contract Details page for this contract. If the contract expires worthless, the premium would represent a return of 15.36% on the cash obligation, or 124.56% per annum – in Stock Options Channel we call this YieldBoost.
Below is a chart showing the trading history for the next twelve months for Anavex Life Sciences Corp, highlighting in green the location of the $14.00 strike for that date:
Moving to the ask side of the options chain, a buy contract with a strike price of $15.00 has a current bid of $1.70. If an investor were to buy shares of AVXL stock at the current price level of $14.10/share, and then sell that call contract to open it as a “covered call,” he is obligated to sell the stock at $15.00. Given that the call seller would also collect the premium, which would yield a total return (excluding dividends, if any) of 18.44% if the stock was called away at expiration on March 4th (before broker commissions). Of course, a lot of upside could be left on the table if AVXL shares really rose, which is why looking at Anavex Life Sciences Corp’s twelve-month trading history, as well as studying business fundamentals becomes important. Below is a chart showing the twelve month trading history of AVXL, with the $15.00 strike highlighted in red:
Given the fact that the $15.00 strike represents an approximate premium of 6% over the stock’s current trading price (in other words, it’s out of the money by that percentage), there’s also the possibility that the covered call will expire worthless, in which case the investor keeps Each of his shares of shares and the premium collected. Current analytical data (including the Greek and the implied Greek) indicate that the current odds of this happening are 50%. On our website under the Contract Details page for this contract, the Stock Options Channel will track those odds over time to see how they change and publish a chart of these numbers (the option contract trading history will also be plotted). Should the covered call contract expire worthless, the premium would represent a 12.06% increase in the investor’s additional return, or 97.79% per annum, which we refer to as YieldBoost.
The implied volatility in the sell contract example is 162%, while the implied volatility in the buy contract example is 155%.
In the meantime, we calculate the actual twelve-month volatility (taking into account the closing values of the last 252 trading days plus today’s price of $14.10) to be 98%. For more call and put options contract ideas worth looking at, visit StockOptionsChannel.com.
The opinions and opinions expressed here are those of the author and do not necessarily reflect the views and opinions of Nasdaq, Inc.