Investors in NIO Inc (Symbol: NIO) saw new options available this week, for the February 2024 expiration. One of the key data points that goes into the price an option buyer is willing to pay is the time value, so with 78 days to expiration the newly available contracts represent a potential opportunity for sellers of puts or calls to achieve a higher premium than. would be available for the contracts with closer expiration. At Stock Options Channel, our YieldBoost formula looked up and down the NIO options chain for the new February 2024 contracts and identified one put and one call contract of particular interest.
The put contract at the strike price of $7.00 has a current bid of 65 cents. If an investor were to sell-to-open that put contract, they commit to buying the stock at $7.00, but will also collect the premium, putting the stock’s cost basis at $6.35 (before broker commissions). To an investor already interested in buying shares of NIO, this could represent an attractive alternative to paying $7.29/share today.
Since the $7.00 strike represents an approximate 4% discount 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 would expire worthless. The current analytical data (including Greeks and implied Greeks) suggests that the current probability of this happening is 62%. Stock Options Channel will track those odds over time to see how they change, publishing a chart of those numbers on our website under the contract detail page for this contract. If the contract expires worthless, the premium would represent a 9.29% return on the cash commitment, or 43.45% annualized – at Stock Options Channel we call that the YieldBoost.
Below is a chart showing the trailing twelve month trading history for NIO Inc, and highlighting in green where the $7.00 strike is located relative to that history:
![Loading+chart+—+2023+TickerTech.com](https://www.nasdaq.com/sites/acquia.prod/files/ARP-Inline-Image.png)
Turning to the call side of the options chain, the call contract at the $8.00 strike price has a current bid of 60 cents. If an investor were to buy shares of NIO stock at the current price level of $7.29/share, and then sell-to-open that call contract as a “covered call,” they are committing to sell the stock at $8.00. Given that the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 17.97% if the shares are called at the February 2024 expiration (before broker commissions). Of course, a lot of upside could be left on the table if NIO stock really soars, which is why looking at the trailing twelve month trading history for NIO Inc, as well as studying the trading fundamentals becomes important. Below is a chart showing the twelve month trading history of NIO, with the $8.00 strike highlighted in red:
![Loading+chart+—+2023+TickerTech.com](https://www.nasdaq.com/sites/acquia.prod/files/ARP-Inline-Image.png)
Given the fact that the $8.00 strike represents an approximate 10% premium 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 covered call contract would be . expires worthless, in which case the investor would keep both their shares of stock and the premium collected. The current analytical data (including Greeks and implied Greeks) suggests that the current probability of this happening is 54%. On our website under the contract detail page for this contract, Stock Options Channel will track those odds over time to see how they change and publish a chart of those numbers (the trading history of the options contract will also be charted). If the covered call contract expires worthless, the premium would represent an 8.23% boost in extra return to the investor, or 38.51% annualized, which we refer to as the YieldBoost.
The implied volatility in the put contract example, as well as the call contract example, are both approximately 65%.
Meanwhile, we calculate the actual trailing twelve-month volatility (taking into account the last 251 trading-day closing values as well as today’s price of $7.29) to be 65%. For more put and call contract ideas to watch, 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.