First Week of TTEK August 15th Options Trading

Selling a $35.00 strike price put option on Tetra Tech Inc. (TTEK), currently bid at $1.35, offers an alternative entry point for investors interested in the stock, potentially lowering the cost basis to $33.65. With a 58% probability of expiring worthless, the premium collected would represent a 3.86% return on the cash commitment, or 25.14% annualized, while the implied volatility of the put contract is 38% compared to the stock's 34% trailing twelve month volatility.

Analysis

The article outlines a specific options strategy for Tetra Tech Inc. (TTEK), focusing on selling a put contract at the $35.00 strike price with a current bid of $1.35. This strategy offers investors interested in acquiring TTEK shares an alternative to direct purchase at the current market price of $35.51, potentially reducing the cost basis to $33.65 per share (before commissions) if the shares are assigned. The $35.00 strike is approximately 1% out-of-the-money, and analytical data suggests a 58% probability of this put contract expiring worthless. Should this occur, the collected premium of $1.35 would represent a 3.86% return on the cash commitment, or an annualized YieldBoost of 25.14%. The implied volatility for this put contract is 38%, which is slightly higher than Tetra Tech's actual trailing twelve-month volatility of 34% (calculated over the last 250 trading days), indicating a modest premium in the option's price relative to recent historical price movements.

Key Decisions for Investors

• Investors bullish on Tetra Tech (TTEK) and willing to acquire shares at a discount to the current $35.51 price could consider selling the $35.00 strike put option, aiming for an effective entry point of $33.65 or to generate income if the option expires worthless.
• Carefully evaluate the 58% probability of the option expiring worthless against the obligation to purchase TTEK shares at $35.00 if the stock price declines below this level by expiration, ensuring comfort with this potential acquisition price.
• Note that the option's implied volatility of 38% exceeds the stock's historical volatility of 34%; this suggests the premium received for selling the put may offer adequate compensation for the risk, but also reflects market expectations of potential price fluctuations.