Investors in General Dynamics Corp (Symbol: GD) saw new options become available today, for the December 15th expiration. One of the key inputs that affects the price of an option is the time value. With 87 days until expiration, the newly available contracts offer an opportunity for sellers of puts or calls to earn a higher premium compared to contracts with a closer expiration date. At Stock Options Channel, our YieldBoost formula has identified one put and one call contract of interest in the GD options chain for the new December 15th contracts.
The put contract at the $220.00 strike price currently has a bid of $3.80. Selling this put contract would commit the investor to purchase the stock at $220.00, but they would also collect the premium, establishing a cost basis of $216.20 per share (before broker commissions). For investors considering buying GD shares, this could be an attractive alternative to paying the current price of $224.56 per share.
Since the $220.00 strike represents a 2% discount to the current trading price of the stock, there is a chance that the put contract could expire worthless. However, based on the current data, the odds of that happening are 99%. Stock Options Channel will track these odds over time and publish the data on our website. If the contract expires worthless, the premium collected would represent a 1.73% return on the cash commitment, or 7.24% annualized, which we call the YieldBoost.
On the calls side of the option chain, the call contract at the $230.00 strike price currently has a bid of $4.30. If an investor purchases GD shares at the current price of $224.56 per share and sells this call contract as a “covered call,” they commit to selling the stock at $230.00. Including the premium collected, this would result in a total return of 4.34% if the stock is called away at the December 15th expiration (before broker commissions). It’s important to assess the trailing twelve month trading history of General Dynamics Corp and study its business fundamentals to understand the potential upside beyond the covered call. Below is a chart highlighting the $230.00 strike in red.
Given that the $230.00 strike represents a 2% premium to the current trading price of the stock, there is a chance that the covered call contract could expire worthless. The current data suggests that the odds of that happening are 99%. Stock Options Channel will track these odds over time and publish the data on our website, along with the trading history of the option contract. If the covered call contract expires worthless, the premium collected would represent a 1.91% boost of extra return to the investor, or 8.03% annualized, which we call the YieldBoost.
Meanwhile, the actual trailing twelve month volatility of General Dynamics Corp is calculated to be 19%. For more put and call options contract ideas, visit StockOptionsChannel.com.
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