First Week of August 15th Options Trading For Align Technology (ALGN)

The article discusses potential options strategies for Align Technology Inc (ALGN) involving selling put options at the $180 strike and covered call options at the $185 strike. Selling the $180 put offers a potential 5.83% return (38.02% annualized) if the contract expires worthless, which analytical data suggests has a 59% probability. A covered call strategy using the $185 call offers a potential 8.13% return if the stock is called away, or a 6.07% return (39.55% annualized) if the contract expires worthless, with a 46% probability of that outcome.

Analysis

The article details two specific options strategies for Align Technology Inc (ALGN), whose shares are currently trading at $181.26. The first strategy involves selling-to-open a put contract at the $180.00 strike price with a bid of $10.50. This action commits the seller to potentially purchase ALGN shares at $180.00, but the collected premium reduces the effective cost basis to $169.50, representing an attractive entry point for investors already interested in the stock. Analytical data suggests a 59% probability of this put expiring worthless, which would yield a 5.83% return on the cash commitment, or an annualized 38.02%. The second strategy is a covered call, involving purchasing ALGN shares at $181.26 and selling-to-open a call contract at the $185.00 strike, with a bid of $11.00. This could result in an 8.13% total return if the stock is called away by the August 15th expiration. There is a 46% chance, according to current data, that this call option expires worthless, in which case the investor retains the shares and the premium, representing a 6.07% yield boost, or 39.55% annualized. The implied volatility for the put is 54% and for the call is 46%, both exceeding the stock's actual trailing twelve-month volatility of 40%, indicating potentially favorable conditions for option sellers due to richer premiums.

Key Decisions for Investors

• Investors considering acquiring Align Technology (ALGN) shares could evaluate selling the $180 strike put option, aiming for a lower effective purchase price of $169.50 if assigned or a 38.02% annualized return on cash if the option expires worthless.
• Existing ALGN shareholders seeking to generate income might consider selling the $185 strike covered call, which offers a potential 8.13% return if called away or a 39.55% annualized yield enhancement if the call expires worthless, while acknowledging the cap on upside potential above $185.
• Given that current implied volatilities for ALGN options (54% for puts, 46% for calls) are higher than its 40% historical volatility, strategies involving selling options may offer enhanced premium collection opportunities.
• Investors should carefully assess the stated probabilities of expiration (59% for the $180 put, 46% for the $185 call) and their own risk tolerance and outlook for ALGN before implementing these specific option trades.