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Agree To Purchase Cooper Companies At $220, Earn 1.7% Annualized Using Options

By Market News Video Staff, Monday, May 20, 11:52 AM ET
Play Video: How To Sell A PUT

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Investors considering a purchase of Cooper Companies, Inc. (NYSE:COO) shares, but tentative about paying the going market price of $292.20/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the November put at the $220 strike, which has a bid at the time of this writing of $1.85. Collecting that bid as the premium represents a 0.8% return against the $220 commitment, or a 1.7% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

Selling a put does not give an investor access to COO's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. And the person on the other side of the contract would only benefit from exercising at the $220 strike if doing so produced a better outcome than selling at the going market price. (Do options carry counterparty risk? This and six other common options myths debunked). So unless Cooper Companies, Inc. sees its shares fall 24.5% and the contract is exercised (resulting in a cost basis of $218.15 per share before broker commissions, subtracting the $1.85 from $220), the only upside to the put seller is from collecting that premium for the 1.7% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for Cooper Companies, Inc. , and highlighting in green where the $220 strike is located relative to that history:

The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the November put at the $220 strike for the 1.7% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Cooper Companies, Inc. (considering the last 250 trading day closing values as well as today's price of $292.20) to be 26%. For other put options contract ideas at the various different available expirations, visit the COO Stock Options page of

In mid-afternoon trading on Monday, the put volume among S&P 500 components was 1.43M contracts, with call volume at 1.77M, for a put:call ratio of 0.81 so far for the day, which is unusually high compared to the long-term median put:call ratio of .65. In other words, there are lots more put buyers out there in options trading so far today than would normally be seen, as compared to call buyers. Find out which 15 call and put options traders are talking about today.

This Article's Word Cloud:   Companies   Cooper   November   Options   Stock   YieldBoost   about   among   annualized   benefit   buyers   call   chart   compared   considering   contract   exercised   fillColor   from   going   history   market   month   only   options   other   owning   premium   price   rate   ratio   represents   return   seller   selling   share   shares   strike   than   that   there   this   today   trading   trailing   twelve   upside   volatility   which   would
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