HOOD August 22nd Options Begin Trading

The article details two options strategies for Robinhood Markets (HOOD) at its current trading price of $93.89. Selling a $90.00 strike put for a $8.15 premium offers a potential acquisition cost of $81.85, representing an attractive discount, with a 62% probability of the put expiring worthless and yielding a 9.06% (66.11% annualized) return on the cash commitment. Alternatively, a covered call strategy utilizing a $97.00 strike call, sold for $9.25, could generate a 13.16% total return if HOOD is called away, or a 9.85% (71.92% annualized) premium boost if the call expires worthless, with a 48% probability, leveraging HOOD's implied volatility of 76-78%.

Analysis

The options market for Robinhood Markets (HOOD), currently trading at $93.89, presents two distinct strategies based on investor objectives. For investors seeking to acquire shares at a discount, selling the $90.00 strike put contract for an $8.15 premium offers an effective entry point of $81.85 per share. This strategy carries a 62% probability of the option expiring worthless, which would generate a 9.06% return on the cash collateral (66.11% annualized). For existing shareholders, a covered call strategy involving the sale of a $97.00 strike call for a $9.25 premium could yield a total return of 13.16% if the stock is called away by the August 22nd expiration. Alternatively, there is a 48% chance the call expires worthless, allowing the investor to retain the shares and the premium, representing a 9.85% income boost. Critically, the implied volatility of these options, at 76-78%, is closely aligned with the stock's actual trailing twelve-month volatility of 76%, suggesting that the current option premiums are priced in line with recent historical price fluctuations and do not indicate an expectation of extraordinary future price movements.

Key Decisions for Investors

• Investors bullish on HOOD but seeking a lower entry point could consider selling the $90.00 strike put to either acquire the stock at an effective cost of $81.85 or generate a 9.06% return on capital if the stock remains above the strike price.
• Current HOOD shareholders could evaluate selling the $97.00 strike covered call to generate immediate income and achieve a potential 13.16% total return, while acknowledging this strategy caps further upside potential.
• Given the high implied and historical volatility around 76%, any options strategy on HOOD involves substantial risk, and investors must be prepared for significant price swings and the possibility of assignment or having shares called away.