Interesting GILD Put And Call Options For September 26th

The article details two options strategies for Gilead Sciences (GILD): selling an out-of-the-money $108.00 put contract, which offers a potential 25.01% annualized return if it expires worthless, and a covered call strategy using the $112.00 strike call, which could yield a 5.42% total return by September 26th if the stock is called away. Both strategies are presented with over 50% probability of the options expiring worthless, providing investors with defined income generation or a discounted entry point for GILD shares.

Analysis

The provided information details two distinct options-based strategies for Gilead Sciences (GILD), focusing on income generation and strategic stock acquisition. The first strategy involves selling an out-of-the-money cash-secured put at a $108.00 strike price for a $3.70 premium. This approach offers bullish investors an alternative to direct stock purchase at the current $108.95 price, effectively lowering the cost basis to $104.30 if assigned. Should the option expire worthless, a scenario with a stated 57% probability, the seller realizes a 3.43% return on the cash commitment, or an annualized 25.01%. The second strategy is a covered call, selling a $112.00 strike call for a $2.86 premium against an existing stock position. This yields a total return of 5.42% if the stock is called away by the September 26th expiration, but caps any upside beyond $112.00. Critically, implied volatility for the put is 35% and the call is 28%, both of which are elevated compared to the trailing twelve-month actual volatility of 26%. This volatility differential suggests that option premiums are currently rich, particularly for puts, which enhances the risk/reward profile for option sellers.

Key Decisions for Investors

• For investors bullish on GILD but seeking a more conservative entry, selling the $108.00 strike put offers a dual benefit: either acquiring shares at a discounted cost basis of $104.30 or generating a significant 25.01% annualized yield on cash if the option expires worthless.
• Current GILD shareholders could consider writing the $112.00 strike covered call to generate a 2.63% income boost (19.16% annualized) while retaining the stock, though they must accept capping potential gains at a 5.42% total return if the stock is called away.
• Given that implied volatility for both puts (35%) and calls (28%) is trading above the stock's 26% historical volatility, conditions are favorable for sellers of options, making premium-collection strategies such as these more attractive than outright option purchases.