Investors in Adient plc (Symbol: ADNT) saw new options become available today, for expiry in December 2024. One of the most important inputs that go into the price an option buyer is willing to pay is the time value, so with 430 days to expiration, the newly available contracts represent a potential opportunity for sellers of puts or calls to obtain a higher premium than would be available for the contracts with a closer expiration. At the Stock Options Channel, our YieldBoost formula has looked up and down the ADNT options chain for the new December 2024 contracts and identified a put and a call contract of particular interest.
The put contract at the $35.00 strike price has a current bid of $4.50. If an investor were to sell-to-open that put contract, they are obligated to buy the stock at $35.00 but will also collect the premium, which puts the cost basis of the stock at $30.50 (before brokerage commissions). For an investor already interested in buying shares of ADNT, that could represent an attractive alternative to paying $36.61/share today.
Because the $35.00 strike represents an approx. 4% discount to the stock’s current trading price (in other words, it is out of the money by that percentage), there is also the possibility that the put contract will expire worthless. The current analytical data (including Greeks and implied Greeks) suggests that the current odds of that happening are 99%. Stock Options Channel will track these odds over time to see how they change and publish a chart of these numbers on our website under the contract details page for that contract. If the contract expires worthless, the premium will represent a 12.86% return on the cash commitment, or 10.91% annualized — at the Stock Options Channel we call this YieldBoost.
Below is a chart showing the trailing 12 month trading history for Adient plc, highlighting in green where the $35.00 strike is positioned relative to that history:
Turning to the call side of the options chain, the $40.00 call contract has a current bid of $5.90. If an investor were to buy shares of ADNT stock at the current price level of $36.61/share and then sell to open the call contract as a “covered call”, they are required to sell the stock at $40.00. Given that the call seller will also collect the premium, calling the stock at expiration in December 2024 (before brokerage commissions) would yield a total return (excluding dividends, if any) of 25.38%. Of course, a lot of upside could potentially be left on the table if ADNT shares really soar, which is why it becomes important to look at the trailing 12-month trading history of Adient plc, as well as study the business fundamentals. Below is a chart showing ADNT’s trailing 12 month trading history, with the $40.00 strike highlighted in red:
Given the fact that the $40.00 strike represents an approximate 9% premium to the stock’s current trading price (in other words, it is out of the money by that percentage), there is also the possibility that the covered call contract would expire worthless, in which case the investor would keep both their shares of stock and the premium collected. The current analytical data (including Greeks and implied Greeks) suggests that the current odds of that happening are 99%. On our website under the contract details page for this contract, the stock options channel will track these odds over time to see how they change and publish a chart of these numbers (the options contract’s trading history will also be charted). If the covered call expires worthless, the premium will represent a boost of 16.12% of additional return to the investor, or 13.68% on an annualized basis, which we refer to as YieldBoost.
Meanwhile, we calculate the actual trailing 12-month volatility (considering the last 251 trading days’ closes as well as today’s price of $36.61) to be 40%. For more bid and call option contracts worth watching, visit StockOptionsChannel.com.
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.