A recent analysis highlights an out-of-the-money put option on Tripadvisor (TRIP) at the $17.00 strike, with a 65-cent bid, offering a potential cost basis of $16.35 if assigned. This strategy, termed 'YieldBoost,' provides a 3.82% return on cash (27.91% annualized) if the option expires worthless, a scenario with a 53% probability. It is presented as an attractive alternative for investors seeking to acquire TRIP shares below the current $17.44 market price or generate income, leveraging the option's 65% implied volatility against the stock's 56% trailing actual volatility.
The analysis centers on a specific options strategy for Tripadvisor (TRIP), proposing the sale of an out-of-the-money put contract at a $17.00 strike price. With TRIP's shares trading at $17.44, selling this put for a 65-cent premium presents two potential outcomes for an investor. Firstly, it offers a method to acquire the stock at an effective cost basis of $16.35 per share, representing a discount to the current market price, should the stock be assigned. Secondly, if the stock price remains above $17.00 at expiration, the contract would expire worthless, providing the seller with a 3.82% return on the cash commitment, which annualizes to 27.91%. The probability of this latter scenario is calculated at 53%. A key factor underpinning this strategy's potential return is the discrepancy between the option's implied volatility of 65% and the stock's actual trailing twelve-month volatility of 56%, suggesting the option premium is relatively rich compared to historical price movements, which is advantageous for option sellers.
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