Interesting FOXA Put Options For November 14th

An analysis of a FOXA $60.00 put option, currently bid at 5 cents with the stock trading at $62.05, highlights a strategy for investors to effectively acquire shares at $59.95, a 3% discount. This out-of-the-money contract has a 64% probability of expiring worthless, which would yield an annualized 0.71% return on the cash commitment. The option's implied volatility of 36% is notably higher than FOXA's 29% trailing 12-month historical volatility.

Analysis

The analysis centers on a cash-secured put strategy for Fox Corp (FOXA), which is trading at $62.05 per share. The proposed trade involves selling a put option with a $60.00 strike price for a 5-cent premium. This strategy presents two primary outcomes for an investor: either acquiring FOXA shares at an effective cost basis of $59.95 if the stock price falls below the strike, or retaining the premium if the option expires worthless. The probability of the latter scenario is calculated at 64%, which would result in a 0.08% return on the committed capital, or a 0.71% annualized yield. A key observation is the divergence between the option's implied volatility of 36% and the stock's trailing twelve-month actual volatility of 29%. This spread suggests that option premiums are currently elevated relative to the stock's recent price behavior, potentially making option-selling strategies more attractive.

Key Decisions for Investors

• Investors with a bullish-to-neutral outlook on FOXA, who are comfortable acquiring the stock at $60.00, could utilize this put-selling strategy to establish a position at a discount to the current market price or to generate a modest income.
• The potential annualized yield of 0.71% from the premium is minimal and should be weighed against the risk of capital being tied up and the possibility of acquiring shares in a declining market environment.