December 26th Options Now Available For Lumen Technologies (LUMN)

An analysis of Lumen Technologies Inc (LUMN) options highlights two strategies for investors. Selling a $10.00 strike put for a $0.50 premium offers a 36.50% annualized "YieldBoost" with a 68% chance of expiring worthless, effectively targeting a $9.50 entry price. Concurrently, a covered call using a $13.50 strike call for a $0.45 premium could generate a 25.45% total return if called away, or a 29.54% annualized "YieldBoost" if the option expires worthless, with a 52% probability. The analysis also notes significantly higher implied volatilities (149-154%) compared to LUMN's 73% trailing 12-month actual volatility.

Analysis

The article highlights two distinct options strategies for Lumen Technologies Inc (LUMN), currently trading at $11.12 per share. Selling a $10.00 strike put for a $0.50 premium offers an effective purchase price of $9.50, representing a 36.50% annualized return (YieldBoost) if the option expires worthless. This out-of-the-money (OTM) put has a 68% probability of expiring worthless, allowing the investor to retain the premium.

Conversely, a covered call strategy involves buying LUMN shares and selling a $13.50 strike call for $0.45. This could yield a 25.45% total return if the stock is called away by December 26th. The $13.50 call, approximately 21% OTM, has a 52% chance of expiring worthless, in which case the investor would achieve a 29.54% annualized YieldBoost from the premium while retaining the shares.

A significant observation is the disparity between LUMN's implied volatility and its historical volatility. The implied volatility for the put is 149% and for the call is 154%, both substantially higher than the trailing twelve-month actual volatility of 73%. This suggests the options market is pricing in considerably greater future price fluctuations than the stock has historically exhibited.

Key Decisions for Investors

• Investors interested in acquiring LUMN at a discount should consider selling cash-secured puts at the $10.00 strike, leveraging the 68% probability of premium retention and the 36.50% annualized YieldBoost.
• Existing LUMN shareholders may evaluate selling covered calls at the $13.50 strike to generate income, accepting the 25.45% potential total return if shares are called away, or benefiting from the 29.54% annualized YieldBoost if the option expires worthless.
• The substantial premium in implied volatility over historical volatility suggests that options premiums for LUMN may be elevated, potentially favoring strategies that involve selling options to capture this volatility premium, while acknowledging the inherent risk of increased price movement.