Interesting BHVN Put And Call Options For November 21st

The article details two options strategies for Biohaven Ltd (BHVN) stock: selling the $12.50 strike put, which offers a potential 21.33% annualized yield if it expires worthless with a 70% probability, and selling the $15.00 strike covered call, which could yield a 19.70% total return if the stock is called away. These strategies present opportunities for income generation or discounted share acquisition, notably with implied volatilities of 118-120% significantly exceeding BHVN's trailing 12-month actual volatility of 71%.

Analysis

The options market for Biohaven Ltd. (BHVN) currently presents a significant volatility premium, with implied volatilities for near-the-money puts and calls at 120% and 118% respectively, substantially higher than the stock's actual trailing twelve-month volatility of 71%. This pricing environment makes option-selling strategies particularly noteworthy. For investors interested in acquiring the stock at a discount, selling the $12.50 put contract offers an effective cost basis of $11.55 per share, compared to the current market price of $13.91. This out-of-the-money put has a 70% probability of expiring worthless, which would result in a 7.60% return on the cash commitment, or an annualized yield of 21.33%. Alternatively, for current shareholders, a covered call strategy using the $15.00 strike could generate a total return of 19.70% if the shares are called away by the November 21st expiration. While this caps upside potential, there is a 40% probability of the option expiring worthless, in which case the investor retains the shares and the premium, representing an 11.86% return boost, or 33.29% annualized.

Key Decisions for Investors

• Given the significant premium of implied volatility (118-120%) over historical volatility (71%), investors should favor strategies that sell options, such as covered calls or cash-secured puts, to capitalize on the elevated premiums.
• For investors seeking to acquire BHVN shares, selling the $12.50 out-of-the-money put offers a disciplined entry strategy, establishing a position at an effective cost basis of $11.55 or generating a 21.33% annualized yield.