First week of February 2022 Options trading for open loans (LPRO)
IInvestors in Open Lending Corp (ticker: LPRO) saw new options start trading this week, for the February 2022 expiration. One of the main data entering the price that an options buyer is willing to pay is time value. Thus, with 235 days to expiration, new trading contracts represent a potential opportunity for sellers of puts or purchases to obtain a premium to be available for close-expiry contracts. At Stock Options Channel, our YieldBoost formula scoured the LPRO options chain for new February 2022 contracts and identified a sale contract and a purchase contract of particular interest.
The contract to sell at the strike price of $ 40.00 has a current bid of $ 3.80. If an investor were to sell to open that sales contract, they agree to buy the stock at $ 40.00, but will also collect the premium, putting the base price of the shares at $ 36.20 (before broker commissions ). For an investor already interested in purchasing LPRO shares, this could represent an attractive alternative to paying $ 43.38 / share today.
Since the strike price of $ 40.00 represents a discount of around 8% from the current share price (in other words, it is out of the money by that percentage), it is also possible that the sales contract expires worthless. Current analytical data (including Greeks and Greeks implied) suggests that the current chance of this happening is 66%. Stock Options Channel will monitor these quotes over time to see how they evolve, posting a chart of these numbers on our website under the contract detail page for that contract. If the contract expires worthless, the premium would represent a 9.50% return on the cash commitment, or 14.75% annualized – at Stock Options Channel, we call that the YieldBoost.
Below is a chart showing the past twelve month trading history for Open Lending Corp, and highlighting in green where the strike price of $ 40.00 is relative to that history:
As for the options chain call options, the $ 45 strike purchase contract has a current bid of $ 4.40. If an investor were to buy LPRO shares at the current price level of $ 43.38 / share and then sell to open that purchase contract as a “covered call”, they agree to sell the share at $ 45. $. Since the call seller will also receive the premium, this would generate a total return (excluding dividends, if any) of 13.88% if the stock was recalled at the February 2022 expiration (before broker commissions) . Of course, a lot of benefits could be left on the table if LPRO stocks really soar, which is why it becomes important to look at Open Lending Corp’s last twelve months trading history, as well as ” study the fundamentals of the business. Below is a chart showing LPRO’s last twelve months trading history, with the strike price of $ 45 highlighted in red:
Since the strike price of $ 45 represents a premium of around 4% over the current share price (in other words, it is out of the money by that percentage), it is also possible that the covered purchase contract expire worthless, in which case the investor would keep both his shares and the premium received. Current analytical data (including Greeks and Greeks implied) suggests that the current chance of this happening is 45%. On our website, under the contract detail page for that contract, the Stock Options Channel will track these quotes over time to see how they change and publish a chart of those numbers (the option contract’s trading history will be also plotted). If the covered purchase contract expires worthless, the premium would represent a 10.14% increase in additional return to the investor, or 15.75% annualized, which we call the YieldBoost.
The implied volatility in the sales contract example is 52%, while the implied volatility in the sales contract example is 57%.
Meanwhile, we calculate the actual volatility of the past twelve months (taking into account the closing values of the last 251 trading days as well as today’s price of $ 43.38) at 51%. For more put and call option contract ideas worth considering, visit StockOptionsChannel.com.
Best calls for higher yielding stocks with recent secondary securities »
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.