First Week of August 15th Options Trading For Merit Medical Systems (MMSI)

For Merit Medical Systems (MMSI), currently trading at $92.30, the article outlines two options strategies for yield enhancement. Selling a $90.00 strike put for a $2.95 premium offers a potential 22.57% annualized "YieldBoost" if the option expires worthless (61% probability), effectively lowering the purchase basis to $87.05 if assigned. Conversely, a covered call at the $95.00 strike for a $3.00 premium offers a 22.38% annualized "YieldBoost" if it expires worthless (55% probability), or a 6.18% total return if called away. Notably, the implied volatility for these options (34-36%) exceeds MMSI's trailing 12-month historical volatility of 26%, suggesting options are pricing in greater future price movement than recent history.

Analysis

The options market for Merit Medical Systems (MMSI), currently trading at $92.30, is pricing in significantly higher future volatility than its recent past, creating opportunities for premium-selling strategies. The implied volatility for near-term put and call options stands at 34% and 36% respectively, a notable premium over the stock's 26% trailing twelve-month historical volatility. This elevated premium allows for potentially high annualized returns. For instance, selling the $90.00 strike put contract for a $2.95 premium could lower an investor's cost basis to $87.05 if assigned, or generate a 22.57% annualized yield if the option expires worthless, an event with a 61% calculated probability. Similarly, for current shareholders, writing a covered call at the $95.00 strike for a $3.00 premium offers a potential 6.18% total return if called away or a 22.38% annualized yield boost if it expires worthless (55% probability). The spread between implied and historical volatility suggests options are relatively expensive, compensating sellers for taking on the risk of price swings that the market anticipates may be greater than those observed over the last year.

Key Decisions for Investors

• Investors seeking to acquire MMSI shares at a discount to the current price of $92.30 should consider selling the $90.00 cash-secured put, which offers an effective entry point of $87.05 or a high-yield income stream if the position is not assigned.
• Current MMSI shareholders aiming to generate income and enhance yield could write the $95.00 covered call, which captures a 3.25% premium boost while allowing for further capital appreciation up to the strike price.
• Given that implied volatility is substantially higher than historical volatility, investors should be aware that while option-selling strategies are well-compensated, the market is pricing in a greater probability of significant price movement in MMSI than has been recently observed.