Interesting PM Put And Call Options For April 17th

Philip Morris International (PM) is trading at $172.17 and the article outlines two option strategies: selling a $170 put (bid $6.90) which nets a $163.10 effective cost basis and is estimated to expire worthless with 55% odds, producing a 4.06% cash return (16.11% annualized). Alternatively, writing a covered call at the $175 strike (bid $6.50) against shares bought at $172.17 would yield a 5.42% total return if called at the April 17 expiration, with a 53% chance of expiring worthless and a 3.78% premium boost (14.99% annualized). Implied volatilities are ~27–28% (trailing 12-month volatility 27%); figures exclude broker commissions and potential dividends.

Analysis

Market structure: Short-dated option income demand benefits option sellers, cash-rich income buyers and brokers (collecting spreads), while directional option buyers lose edge at current IV (~27–28%). Selling the Apr17 $170 put (collect $6.90 → net entry $163.10) or buying stock + selling Apr17 $175 call (collect $6.50 → 5.42% return if called) monetizes near-term income; flows into PM options increase open interest and tighten bid/ask but raise assignment risk for sellers. International revenue exposure means FX and regional policy moves will shift realized returns faster than U.S.-centric peers.

Risk assessment: Key tail risks are regulatory (menthol bans, large excise hikes) and litigation that can produce >20% shocks within 1–3 months and spike IV to 40–60%, blowing up short premium positions. Near-term (days–weeks) risk is rapid IV repricing; short-term (weeks–months) risk is earnings/FX; long-term (quarters–years) risk is secular cigarette volume declines and tax/regulatory regime change. Hidden dependency: option P/L is highly sensitive to IV changes (27% → 40% doubles option value) and to FX swings in emerging market revenues.

Trade implications: Tactical: favorable risk/reward for selling Apr17 $170 puts or buying shares and selling Apr17 $175 calls if willing to own shares at $163.10 (put) or cap upside at $175 (call). Size these as 1–2% portfolio each, cap aggregate delta exposure, and buy cheap protective spreads (e.g., 1x $155–$165 put spread) if short premium. Avoid initiating if IV >35% or ahead of regulatory/earnings catalysts; close/roll if premium decays to 50% or underlying moves 4–6%.

Contrarian angles: Market underprices regulatory tail and FX sensitivity — implied vol ~27% looks low versus 40–50% realized during prior shocks; selling premium without protective hedges is asymmetric. Opportunity: sell premium with defined-risk hedges (put spreads) or buy long-dated OTM puts (12–24 month) as cheap insurance vs a >20% regulatory shock. Consider relative trades vs Altria (MO) where U.S.-specific litigation/menthol risks are concentrated.

Key Decisions for Investors

• Sell Apr17 1x PM $170 put (collect $6.90) size up to 1–2% portfolio exposure per leg; targeted net-entry $163.10 if assigned. Risk controls: buy-to-close if PM falls >6% pre-expiry or if trade P/L loses 50% of premium; do not initiate if IV >35%.
• Buy 100 shares PM and sell Apr17 $175 call (covered call), size 0.5–2% portfolio; target realized return 5.42% to Apr17. Roll or close if PM >$178 or if you want to retain upside; exit if IV spikes >40% or regulatory news within 10 trading days.
• If short premium, purchase a defined-risk protection: buy Apr17 PM $155–$165 put spread to cap tail loss; limit hedge cost to ≤100% of collected premium (approx max $6.90). This converts naked short put into limited-loss trade and protects vs IV repricing.
• Relative play: establish 1–2% long PM / short MO pair (1:1 equities) over 6–12 months to express international exposure and lower U.S.-regulatory concentration in MO. Close or rebalance on major regulatory announcements (FDA/EU) or if PM/MO spread moves >10%.