Interesting ELF Put Options For July 11th

Investors interested in e.l.f. Beauty Inc. (ELF) might consider selling-to-open put contracts at the $104.00 strike price, currently bid at $4.35, potentially lowering their cost basis to $99.65 per share. This strategy offers a 4.18% return on cash commitment (35.50% annualized) if the contract expires worthless, though current data suggests only a 1% chance of that occurring, while the trailing twelve month volatility is 72%.

Analysis

The article outlines a specific options strategy for e.l.f. Beauty Inc. (ELF), involving the sale of a put contract at the $104.00 strike price, which currently bids at $4.35. This transaction would establish an effective cost basis of $99.65 per share if assigned, a notable discount from the current trading price of $110.00. Although the $104.00 strike is approximately 5% out-of-the-money, current analytical data indicates a low 1% probability of the contract expiring worthless. In such an event, the collected premium would generate a 4.18% return on the cash commitment, or an annualized 35.50%, a metric Stock Options Channel refers to as "YieldBoost." Critically, e.l.f. Beauty Inc. exhibits a high trailing twelve-month volatility of 72%, calculated from the last 250 trading days and the current price. This elevated volatility underpins the substantial premium but also signifies a considerable risk of adverse price movements, increasing the likelihood of the stock price falling below the strike, leading to assignment.

Key Decisions for Investors

• Investors fundamentally bullish on ELF, and willing to acquire shares at an effective price of $99.65, might consider selling this $104.00 strike put, acknowledging the high probability of assignment.
• The significant 72% trailing volatility in ELF shares means the attractive 4.18% premium (or 35.50% annualized "YieldBoost" if the option expires worthless) primarily compensates for the substantial stock price risk and the 99% implied probability of the put being exercised.
• Evaluate whether the potential 9.4% discount on share acquisition (from $110.00 to an effective $99.65) adequately justifies the assumption of equity risk in a highly volatile security, especially given the low likelihood of the option expiring unexercised.