Interesting DVA Put And Call Options For November 21st

The article outlines two options strategies for DaVita Inc. (DVA) based on its current $129.07 share price. Selling a $125.00 strike put for $4.00 offers an 18.24% annualized return (YieldBoost) with a 63% probability of expiring worthless, or an effective acquisition cost of $121.00. Alternatively, a covered call strategy utilizing a $130.00 strike call for $7.40 provides a 6.45% return if DVA shares are called away by November 21st, or a 32.68% annualized YieldBoost if the option expires worthless (47% probability), serving as a mechanism for yield enhancement or discounted entry/exit points for DVA exposure.

Analysis

The article outlines two specific options strategies for DaVita Inc. (DVA), which is currently trading at $129.07 per share, leveraging its options chain for either discounted acquisition or yield enhancement. The first strategy involves selling a cash-secured put at a $125.00 strike price for a $4.00 premium. This establishes a potential entry point at an effective cost basis of $121.00, representing a notable discount to the current market price. Alternatively, if the option expires worthless, which analytical data suggests has a 63% probability, the seller would realize an 18.24% annualized return (YieldBoost) on the cash commitment. The second strategy is a covered call for existing shareholders, involving selling a $130.00 strike call for a $7.40 premium. This caps the upside but provides a total return of 6.45% if the stock is called away by the November 21st expiration. If the call expires worthless (a 47% probability), the premium provides a 32.68% annualized yield enhancement. Critically, the implied volatility in the put (36%) and call (38%) contracts is elevated compared to the stock's actual trailing twelve-month volatility of 33%, suggesting that options premiums are relatively rich, making option-selling strategies more attractive at present.

Key Decisions for Investors

• Investors bullish on DVA but seeking a more favorable entry point could consider selling the $125 strike put to either acquire shares at a discounted basis of $121.00 or generate an 18.24% annualized yield.
• Current DVA shareholders could implement the covered call strategy at the $130 strike to generate income, but must accept the trade-off of capping potential gains and the possibility of having their shares sold at $130.00.
• Given that implied volatility of 36-38% is currently running above the 33% historical volatility, strategies that involve selling options premium on DVA are tactically attractive as they benefit from this elevated pricing.
• Both strategies carry assignment risk; investors must be comfortable with the outcomes of either buying the stock at $125 or selling it at $130, and these actions should align with their fundamental valuation of the company.