USB July 11th Options Begin Trading

An investor selling-to-open a put contract for USB at a $41.00 strike price, currently bid at 11 cents, commits to buying the stock at $41.00, effectively lowering the cost basis to $40.89 while potentially yielding a 0.27% return if the contract expires worthless, representing a 2.28% annualized "YieldBoost," according to Stock Options Channel data suggesting a 67% probability of this outcome. The implied volatility in this put contract is 40%, compared to the stock's trailing twelve-month volatility of 30%.

Analysis

The article details a specific options strategy for U.S. Bancorp (USB), involving the sale of a put contract at a $41.00 strike price while the stock is trading at $43.35 per share. This out-of-the-money put, approximately 5% below the current market price, has a bid of 11 cents. If an investor sells this put, they collect the premium, effectively lowering their potential cost basis for USB shares to $40.89 (before commissions) if the option is assigned. Current analytical data, including greeks and implied greeks, suggest a 67% probability that this put contract will expire worthless. Should this occur, the collected premium would represent a 0.27% return on the cash commitment, translating to an annualized yield of 2.28%, termed "YieldBoost" by Stock Options Channel. A key observation is the disparity between the implied volatility of this put contract, at 40%, and USB's actual trailing twelve-month volatility, calculated at 30% based on the last 250 trading days. This higher implied volatility suggests that options might be relatively richly priced, which could favor option sellers.

Key Decisions for Investors

• Investors interested in acquiring U.S. Bancorp shares at a price below the current market level could consider selling the $41.00 strike put, as this strategy offers a potential entry point at an effective cost of $40.89 or generates income if the option expires worthless.
• The notable premium in implied volatility (40%) over historical volatility (30%) for USB options suggests that selling options, such as this put, may be more advantageous than buying them at current levels.
• While the 67% probability of the option expiring worthless offers a modest 0.27% immediate return (2.28% annualized), investors must be comfortable with the obligation to purchase USB shares at $41.00 if the stock price falls below this strike by expiration.