Interesting FTNT Put And Call Options For December 5th

The article details two options strategies for Fortinet Inc. (FTNT) stock, currently trading at $85.11: a cash-secured put at the $77 strike, which could yield an annualized 20.70% if it expires worthless, and a covered call at the $89 strike, offering an 8.51% total return if the stock is called away. It highlights that implied volatilities for these options (49% for the put, 53% for the call) exceed FTNT's 44% trailing 12-month actual volatility, suggesting potential pricing discrepancies or elevated market expectations for future price movement.

Analysis

The article outlines two options-based strategies for Fortinet Inc. (FTNT), currently trading at $85.11, designed for yield enhancement or potential discounted stock acquisition. A cash-secured put at the $77.00 strike, approximately 10% out-of-the-money, offers a potential cost basis of $75.12 if assigned, or an annualized 20.70% return if the contract expires worthless, with a 77% probability of the latter outcome.

Conversely, a covered call strategy using the $89.00 strike, roughly 5% out-of-the-money, could generate an 8.51% total return by the December 5th expiration if shares are called away. If the call expires worthless, which has a 56% probability, the premium collected would represent an annualized 33.38% boost to returns.

A key observation is the implied volatility for both the put (49%) and the call (53%) significantly exceeds FTNT's trailing twelve-month actual volatility of 44%. This disparity suggests the market is pricing in higher expected future price movements or a premium for options liquidity, potentially creating favorable conditions for options sellers.

Key Decisions for Investors

• Consider utilizing cash-secured puts on FTNT at the $77 strike for investors seeking a discounted entry point or yield enhancement, given the 20.70% annualized return potential if the option expires worthless.
• For current FTNT shareholders, evaluate implementing a covered call strategy at the $89 strike to generate additional income, noting the 8.51% potential return if shares are called away by December 5th.
• Monitor FTNT's fundamental outlook and price action, especially given the higher implied volatility relative to historical volatility, which may indicate elevated market expectations for future price swings.