First Week of November 21st Options Trading For LegalZoom.com (LZ)

The article analyzes options strategies for LegalZoom (LZ), currently trading at $10.87, highlighting opportunities for yield enhancement or discounted share acquisition. Selling a $9.00 strike put for $0.20 offers a potential effective purchase price of $8.80 or a 13.51% annualized 'YieldBoost' if the 83% likely scenario of expiring worthless occurs. Alternatively, a covered call strategy selling a $12.00 strike call for $0.50 could yield a 15.00% return if shares are called away, or a 27.96% annualized 'YieldBoost' if the 62% likely scenario of expiring worthless materializes, with implied volatilities generally aligning with the 53% trailing 12-month actual volatility.

Analysis

The analysis focuses on two distinct options strategies for LegalZoom (LZ), which is currently trading at $10.87 per share. The first strategy involves selling-to-open a cash-secured put with a $9.00 strike price for a $0.20 premium. This approach presents two primary outcomes: acquiring LZ shares at an effective cost basis of $8.80, a 17% discount to the current price, or realizing a 13.51% annualized return (YieldBoost) on the cash commitment if the option expires worthless, an event with a calculated 83% probability. The second strategy is a covered call for existing shareholders, involving the sale of a $12.00 strike call for a $0.50 premium. This could generate a 15.00% total return if the stock is called away, or provide a 27.96% annualized yield enhancement if the option expires worthless, which has a 62% probability. Notably, the implied volatility of the call option (53%) is in line with the stock's trailing twelve-month actual volatility (53%), suggesting fair pricing, while the put option's implied volatility is slightly elevated at 57%, potentially indicating a marginal premium for put sellers.

Key Decisions for Investors

• Investors bullish on LegalZoom but seeking a lower entry point could consider selling the $9.00 strike cash-secured put to either acquire shares at an effective 17% discount or generate a 13.51% annualized yield.
• Current LZ shareholders with a moderately bullish outlook may find the covered call strategy at the $12.00 strike attractive for generating immediate income, offering a potential 27.96% annualized yield boost while capping total return at 15.00% if the stock is called away.
• Traders should note the slightly elevated implied volatility on the put side (57%) compared to historical volatility (53%), which could signal a marginally better risk-reward for sellers of puts versus sellers of calls.