Interesting DOW Put And Call Options For November 21st

The article analyzes two options strategies for Dow Inc. (DOW) at its current $21.77 price: selling a $20.00 strike put for a potential 29.26% annualized return if it expires worthless (63% probability), or implementing a covered call with a $22.50 strike for an 11.81% total return if called away, or a 30.53% annualized premium return if it expires worthless (53% probability). These 'YieldBoost' strategies offer investors methods to acquire shares at a discount or enhance portfolio returns, with implied volatilities of 50-57% contrasting with DOW's 44% historical volatility, providing specific risk/reward profiles for active management.

Analysis

The analysis focuses on two distinct options strategies for Dow Inc. (DOW), based on its current trading price of $21.77 per share. The first strategy involves selling an out-of-the-money put option at the $20.00 strike price to collect a $1.62 premium. This approach establishes a potential entry point at an effective cost basis of $18.38, an 8% discount to the current market price. The data suggests a 63% probability of this contract expiring worthless, which would yield a 29.26% annualized return on the cash collateral. The second strategy is a covered call, involving the sale of a $22.50 strike call for a $1.84 premium against existing shares. This strategy caps upside but offers a potential total return of 11.81% if the shares are called away. Alternatively, there is a 53% probability of the call expiring worthless, allowing the investor to retain the shares and realize a premium boost equivalent to a 30.53% annualized return. A key contextual factor is the disparity between implied and historical volatility; the implied volatility in the put (50%) and call (57%) contracts is notably higher than DOW's actual trailing twelve-month volatility of 44%, indicating that option premiums may be relatively rich.

Key Decisions for Investors

• For investors bullish on DOW seeking a disciplined entry point, selling the $20.00 strike put offers a method to acquire shares at an effective 8% discount or generate a significant 29.26% annualized yield on cash if the stock remains above the strike.
• Current DOW shareholders with a neutral to moderately bullish outlook could consider the covered call strategy at the $22.50 strike to generate a 30.53% annualized premium yield, but must be willing to cap their potential upside and sell their shares for a total return of 11.81%.