October 3rd Options Now Available For Kinder Morgan (KMI)

The article details two options strategies for Kinder Morgan (KMI) investors to enhance yield: selling a $26.00 strike put or a $27.00 strike covered call. Selling the put offers a potential 15.02% annualized return if unassigned, while the covered call yields 16.79% annualized if not called away, both leveraging premium collection for a 'YieldBoost.' A notable observation for investors is the significantly higher implied volatility (41-46%) for these options compared to KMI's 12-month historical volatility (26%), potentially indicating attractive premium capture opportunities.

Analysis

The provided text outlines two distinct options strategies for Kinder Morgan, Inc. (KMI), focusing on yield enhancement through premium collection. The first strategy involves selling a cash-secured put at the $26.00 strike, which presents an alternative entry point for bullish investors. By collecting a 46-cent premium, an investor's effective cost basis would be reduced to $25.54, a discount to the current share price of $26.80. If the put expires worthless, which has a stated probability of 60%, the premium represents a 15.02% annualized return on the committed capital. The second strategy is a covered call at the $27.00 strike for existing shareholders, offering a 53-cent premium. This provides a potential 16.79% annualized yield boost if the option expires worthless (a 49% probability), or a total return of 2.72% if the stock is called away. A key analytical point is the significant disparity between the options' implied volatility (41% for the put, 46% for the call) and the stock's actual trailing twelve-month historical volatility of 26%. This volatility premium suggests that the options may be richly priced relative to KMI's recent price behavior, making option-selling strategies particularly attractive at this time.

Key Decisions for Investors

• Investors interested in acquiring KMI shares could consider selling the $26.00 strike put to either purchase the stock at a discounted cost basis of $25.54 or earn a 15.02% annualized yield if the shares remain above the strike.
• Current KMI shareholders can evaluate selling the $27.00 strike covered call to generate additional income, but must accept that this strategy caps upside potential at a 2.72% total return if the stock is called away.