October 29 choices now accessible to Tencent Music Leisure Group (TME)
IInvestors in Tencent Music Entertainment Group (symbol: TME) saw new options trading today expiring on October 29th. At Stock Options Channel, our YieldBoost formula scoured the TME options chain for the new October 29th contracts and identified a put and a call contract of particular interest.
The put contract at an exercise price of USD 8.50 has a current bid of 56 cents. If an investor were to sell this put contract to open, they would agree to buy the stock at $ 8.50 but also collect the premium, with the cost base of the stock being set at $ 7.94 (before brokerage commissions). For an investor already interested in buying TME stock, this could be an attractive alternative to paying $ 8.81 / share today.
Also, since the $ 8.50 exercise price represents a discount of approximately 4% on the current trading price of the stock (in other words, it is out of the money by that percentage), there is also the possibility that the put contract could expire worthless. Current analytical data (including Greeks and implied Greeks) suggests that the probability of this happening is currently 100%. Stock Options Channel tracks these odds over time to see how they change and posts a graph of these numbers on our website under the contract details page for that contract. Should the contract expire worthless, the premium would represent a 6.59% return on cash or an annualized 48.09% return – in the Stock Options Channel we call this the YieldBoost.
Below is a chart showing the last twelve months of trading history for Tencent Music Entertainment Group and highlighting in green where the price of $ 8.50 is relative to this history:
On the call side of the option chain, the call contract at an exercise price of USD 9.00 has a current bid of 66 cents. If an investor were to buy shares of TME shares at the current price level of $ 8.81 / share and then sell that call contract as a “covered call”, they are committed to selling the stock for $ 9.00. Considering the call seller also collects the premium, this would result in a total return (excluding dividends, if any) of 9.65% if the stock is called on October 29th (before brokerage commissions). Of course, there could still be a lot of upside potential on the table if TME stock really skyrocketed, which is why it’s important to look at the past twelve months of Tencent Music Entertainment Group’s trading history and study the fundamentals of the business. Below is a graph showing the last twelve months of TME’s trading history, with the $ 9.00 strike highlighted in red:
Given that the strike price of $ 9.00 represents a premium of approximately 2% on the current trading price of the stock (in other words, it is out of the money by that percentage), there is also the possibility that the covered call -Contract expires worthless, in which case the investor would keep both his shares and the premium received. Current analytical data (including Greeks and Implied Greeks) suggest that the probability that this will happen is currently 99%. On our website under the contract detail page for that contract, the Stock Options Channel tracks these odds over time to see how they change and publishes a graph of these numbers (the trading history of the options contract is also recorded). Should the covered call contract expire worthless, the premium would represent an additional return of 7.49% for the investor or 54.69% annualized, which we refer to as YieldBoost.
In the meantime, we calculate the actual volatility of the last twelve months (taking into account the closing values of the last 252 trading days and today’s price of USD 8.81) at 63%. You can find more interesting ideas for put and call options contracts on 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.