IInvestors in Li Auto Inc (Symbol: LI) saw new options become available this week, through March 4. In the Stock Options Channel, YieldBoost formula looked up and down the LI options chain of new contracts on March 4th and identified one buy contract and one call contract of particular interest.
The short contract at the strike price of $29.00 has a current bid of $2.16. If the investor were to sell to open this sell contract, he would commit to buying the stock at $29.00, but would also collect the premium, setting the cost basis for the shares at $26.84 (before broker commissions). For an investor already interested in buying LI shares, this can be an attractive alternative to paying $29.64/share today.
Since the $29.00 strike is an approximate 2% 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 7.45% on the cash obligation, or 61.79% annually – in Stock Options Channel we call this YieldBoost.
Below is a chart showing the trading history for the next twelve months for Li Auto Inc, highlighting in green the position of the $29.00 strike relative to this date:
Moving to the ask side of the options chain, a call contract at the strike price of $30.00 has a current bid of $2.46. If an investor were to buy shares of LI stock at the current price level of $29.64/share, and then sell that call contract to open it as a “covered call,” he is obligated to sell the stock at $30.00. Given that the call seller would also collect the premium, which would generate a total return (excluding dividends, if any) of 9.51% if the stock was called at expiration March 4 (before broker commissions). Of course, a lot of upside could be left on the table if LI shares really rose, which is why looking at Li Auto Inc’s twelve-month trading history, as well as studying the fundamentals of the business becomes important. Below is a chart showing LI’s twelve month trading history, with the $30.00 strike highlighted in red:
Given the fact that the $30.00 strike represents an approximate premium of 1% over the stock’s current trading price (in other words, it’s not available at that percentage), there’s also the possibility that a covered call will expire worthless, in which case the investor holds both His shares of the shares and the bonus collected. Current analytical data (including the Greek and the implied Greek) indicate that the current odds of this happening are 47%. 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 an 8.30% increase in the investor’s additional return, or 68.85% per annum, which we refer to as YieldBoost.
The implied volatility in the sell contract example is 67%, while the implied volatility in the buy contract example is 72%.
Meanwhile, we calculate the actual twelve-month volatility (taking into account the closing values of the last 253 trading days as well as today’s price of $29.64) to be 66%. 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.