First Week of December 19th Options Trading For Exelixis (EXEL)

The article details options strategies for Exelixis Inc. (EXEL), presenting a put-selling opportunity at the $37.00 strike for a $1.60 premium, which could yield a 25.04% annualized return if the contract expires worthless (65% probability). Alternatively, a covered call strategy involves selling a $42.00 strike call for $2.10 against shares bought at $38.87, potentially offering a 13.46% return if called away or a 31.28% annualized boost if the call expires worthless (56% probability). These strategies offer investors methods to generate income or acquire EXEL shares at a discount, leveraging current market prices and implied volatility.

Analysis

The article outlines two distinct options strategies for Exelixis (EXEL), currently trading at $38.87/share, designed to either acquire shares at a discount or generate income. Selling a $37.00 strike put for a $1.60 premium offers a potential entry point at an effective $35.40, a 5% discount to the current price. This strategy boasts a 65% probability of expiring worthless, yielding an annualized 25.04% return on the cash commitment.

Conversely, a covered call strategy involves purchasing EXEL shares at $38.87 and simultaneously selling a $42.00 strike call for $2.10. This offers a 13.46% total return if shares are called away by the December 19th expiration. If the call expires worthless, which has a 56% probability, the premium provides an annualized 31.28% boost to the investor's return.

Notably, the implied volatilities for the put (63%) and call (57%) significantly exceed EXEL's trailing 12-month actual volatility of 43%. This elevated implied volatility contributes to the attractive premiums offered by these strategies, benefiting options sellers. However, it also signals market expectations of higher future price fluctuations.

These strategies present opportunities for investors with specific objectives: the put strategy for those looking to acquire EXEL at a lower price, and the covered call for existing shareholders or those willing to cap upside for income. Both involve distinct risk-reward profiles, including the potential for shares to be put or called away, or for premiums to be the sole return.

Key Decisions for Investors

• Consider the $37.00 strike put strategy for acquiring EXEL shares at a 5% discount, leveraging the 25.04% annualized premium if the option expires worthless.
• For income generation on existing EXEL holdings or new purchases, evaluate the $42.00 strike covered call, which offers a 31.28% annualized return if the option expires worthless.
• Acknowledge the elevated implied volatility (63% for puts, 57% for calls) relative to EXEL's historical 43% volatility, indicating higher expected price fluctuations that could impact strategy outcomes.
• Investors must weigh the potential for shares to be put or called away against the attractive premiums, aligning these strategies with their specific risk tolerance and directional view on EXEL.