Interesting NI Put And Call Options For December 19th

The article discusses potential options trading strategies for NiSource Inc. (NI), focusing on a $35 put option and a $40 call option. Selling the $35 put offers a potential 0.29% return if it expires worthless, while a covered call strategy using the $40 call provides a possible 3.94% return if the stock is called away, but only a 2.29% return if the option expires worthless. The implied volatility for the put and call options are 29% and 21% respectively, while the actual trailing twelve month volatility is 19%.

Analysis

The article outlines two options-based strategies for NiSource Inc. (NI), which currently trades at $39.35 per share. One strategy involves selling the $35.00 strike put contract, with a bid of 10 cents, potentially enabling share acquisition at an effective cost of $34.90—an 11% discount to the prevailing market price—or yielding a 0.29% return (0.56% annualized YieldBoost) if the option expires worthless, an event with a stated 76% probability. An alternative is a covered call strategy: purchasing NI shares at $39.35 and selling the $40.00 strike call (bid of 90 cents) with a December 19th expiration, which could generate a total return of 3.94% if the stock is called away, or a 2.29% YieldBoost (4.51% annualized) if the call expires worthless, an event with a 50% probability. The implied volatility for the put option stands at 29%, notably higher than the call option's 21% implied volatility and NiSource's actual trailing twelve-month historical volatility of 19%, suggesting put sellers may be compensated for higher perceived risk or demand.

Key Decisions for Investors

• Investors seeking to acquire NiSource Inc. shares below the current market price could evaluate selling the $35.00 strike puts, which offer a potential entry at $34.90 or a 0.56% annualized yield if unassigned, noting the 11% out-of-the-money strike and a 76% probability of the option expiring worthless.
• Current NiSource Inc. shareholders, or those initiating a position, might consider writing $40.00 strike covered calls to generate income, targeting a potential 3.94% return if shares are called away or a 4.51% annualized yield enhancement if the option expires worthless, while acknowledging the corresponding cap on upside potential beyond $40.00.
• The elevated implied volatility of 29% for the $35.00 puts, relative to both the 21% call implied volatility and 19% historical volatility, suggests put sellers are receiving a higher premium, which may be attractive but also reflects greater market-perceived downside risk or demand for protection that warrants careful consideration.