November 14th Options Now Available For US Bancorp (USB)

The article details two options strategies for US Bancorp (USB) at its current price of $47.63: selling a cash-secured put and a covered call. Selling the $45.00 strike put for $0.50 offers an effective acquisition price of $44.50 (a 6% discount) and a 9.42% annualized return if the put expires worthless (69% probability). Alternatively, a covered call strategy by selling the $50.00 strike call for $0.53 on existing shares could yield a 6.09% return if exercised, or a 9.44% annualized return if the call expires worthless (60% probability), with both strategies utilizing implied volatilities (43% for put, 38% for call) that exceed USB's 29% historical volatility.

Analysis

The current options market for US Bancorp (USB), trading at $47.63, presents two distinct income-generating strategies based on elevated implied volatility relative to its historical performance. Selling a cash-secured put at the $45.00 strike yields a $0.50 premium, creating an effective purchase price of $44.50, a 6% discount to the current market price. This strategy has a 69% probability of expiring worthless, which would translate to a 9.42% annualized return on the cash collateral. Alternatively, for existing shareholders, selling a covered call at the $50.00 strike for a $0.53 premium caps the total return at 6.09% if the stock is called away by the November 14th expiration. There is a 60% probability of this call expiring worthless, in which case the premium provides a 9.44% annualized yield boost. A key analytical observation is the significant premium in implied volatility (43% for the put, 38% for the call) compared to the actual trailing twelve-month volatility of 29%, indicating that options sellers are currently being well-compensated for taking on price risk.

Key Decisions for Investors

• For investors bullish on USB seeking a disciplined entry point, selling the $45.00 strike put offers a method to either acquire shares at a 6% discount to the current price or generate a 9.42% annualized yield.
• Current USB shareholders with a neutral to moderately bullish outlook could consider the covered call strategy at the $50.00 strike to generate a 9.44% annualized yield, but must be willing to cap their total return at 6.09% and forgo any upside beyond $50.00.
• Given that implied volatility of 38-43% significantly exceeds USB's 29% historical volatility, strategies that involve selling options premium, like those presented, are currently more attractive than buying options.