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Commit To Buy Rudolph Technologies At $22.50, Earn 7.7% Annualized Using Options

By Market News Video Staff, Thursday, October 17, 11:07 AM ET
Play Video: How To Sell A PUT


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Investors eyeing a purchase of Rudolph Technologies, Inc. (NYSE:RTEC) shares, but tentative about paying the going market price of $27.27/share, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the February 2020 put at the $22.50 strike, which has a bid at the time of this writing of 60 cents. Collecting that bid as the premium represents a 2.7% return against the $22.50 commitment, or a 7.7% annualized rate of return (at Stock Options Channel we call this the YieldBoost).

Selling a put does not give an investor access to RTEC'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 $22.50 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 Rudolph Technologies, Inc. sees its shares fall 18% and the contract is exercised (resulting in a cost basis of $21.90 per share before broker commissions, subtracting the 60 cents from $22.50), the only upside to the put seller is from collecting that premium for the 7.7% annualized rate of return.

Below is a chart showing the trailing twelve month trading history for Rudolph Technologies, Inc., and highlighting in green where the $22.50 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 February 2020 put at the $22.50 strike for the 7.7% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Rudolph Technologies, Inc. (considering the last 251 trading day closing values as well as today's price of $27.27) to be 33%. For other put options contract ideas at the various different available expirations, visit the RTEC Stock Options page of StockOptionsChannel.com.

In mid-afternoon trading on Thursday, the put volume among S&P 500 components was 1.08M contracts, with call volume at 1.39M, for a put:call ratio of 0.77 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:   February   Options   RTEC   Rudolph   Stock   Technologies   YieldBoost   about   among   annualized   benefit   buyers   call   cents   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   which   would
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