Investors in the iShares 20+ Year Treasury Bond ETF (Symbol: TLT) now have access to a fresh set of options contracts, with September 2nd expiration dates beginning to trade this week.
The YieldBoost formula from Stock Options Channel has scanned the TLT options chain for the new September 2nd contracts and flagged one put and one call contract as particularly noteworthy.
On the put side, the $81.00 strike price contract currently carries a bid of 55 cents, representing an opportunity for investors willing to commit to purchasing shares at that level.
An investor selling to open that put contract would collect the premium, bringing the effective cost basis of the shares down to $80.45 per share before broker commissions are factored in.
The $81.00 strike sits approximately 1% below TLT’s current trading price of $81.52, making it out-of-the-money and giving the contract a 60% probability of expiring worthless based on current analytical data including greeks and implied greeks.
Should the put contract expire worthless, the collected premium would represent a 0.68% return on the cash commitment, which translates to an annualized YieldBoost of 16.52% according to Stock Options Channel’s proprietary formula.
Turning to the call side of the options chain, the $82.00 strike call contract carries a current bid of 44 cents, sitting approximately 1% above the current trading price and therefore also out-of-the-money.
An investor who purchases TLT shares at $81.52 and simultaneously sells to open that covered call contract would be committing to sell the stock at $82.00, driving a total return of 1.13% if the stock is called away at expiration before broker commissions.
Current analytical data suggests a 62% probability that the covered call contract expires worthless, in which case the investor keeps both the shares and the premium, representing a 0.54% return or 13.13% annualized YieldBoost.
The implied volatility for the put contract stands at 12%, while the call contract shows implied volatility of 10%, compared to the actual trailing twelve month volatility of 9% calculated using the last 251 trading day closing values and the current price of $81.52.
Investors considering either strategy should weigh the upside potential they may surrender by selling covered calls, particularly if TLT shares experience significant movement before the September 2nd expiration date.
Stock Options Channel will continue tracking the odds on both contracts over time, publishing updated charts on its website under the respective contract detail pages for ongoing reference.
