IInvestors in Camping World Holdings Inc (symbol: CWH) saw new options for March 2023 expiry becoming available this week. One of the most important inputs to the price an option buyer is willing to pay is time value, so the newly available contracts with 225 days to expiration present a potential opportunity for put or call sellers to earn a higher premium than this the case would be available for contracts with near expiry. At Stock Options Channel, our YieldBoost formula scanned the CWH options chain for the new March 2023 contracts and identified a put and a call contract of particular interest.
The put contract at a strike price of $27.00 has a current bid of $3.30. If an investor were to sell to open this put contract, they commit to buying the stock at $27.00 but also collect the premium, making the cost basis of the shares $23.70 (before brokerage commissions). For an investor already interested in buying CWH stock, this could present an attractive alternative to today’s $31.10/share.
Since the $27.00 strike price represents a discount of approximately 13% to the stock’s current trading price (in other words, it’s out of the money by that percentage), there’s also a chance that the put contract will expire worthless. The current analytical data (including Greeks and implied Greeks) suggests that the probability of this happening is currently around 70%. Stock Options Channel will track these odds over time to see how they change and will post a chart of these numbers on our website under the contract details page for that contract. Should the contract expire worthless, the premium would represent a return of 12.22% on the cash obligation, or 19.83% on an annualized basis – at Stock Options Channel we call that the yield boost.
Below is a chart showing Camping World Holdings Inc’s trailing twelve month trading history and highlighting in green where the $27.00 strike sits relative to that history:
On the call side of the option chain, the call contract at a strike price of $37.00 has a current bid of $1.70. If an investor were to buy shares of CWH stock at the current price level of $31.10/share and then sell this call contract as a “covered call,” they are committing to sell the stock at $37.00. Considering that the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 24.44% if the stock is called at expiration in March 2023 (before brokerage commissions). Of course, there could potentially still be a lot of upside on the table if CWH stock really does go higher, which is why it’s important to look back at Camping World Holdings Inc’s 12-month trading history and study fundamentals of the business. Below is a chart showing CWH’s past 12-month trading history, with the $37.00 strike highlighted in red:
Given that the $37.00 strike price represents an approximately 19% premium to the stock’s current trading price (in other words, it’s out of the money by that percentage), there’s also a possibility that the covered call contract would expire worthless, in which case the investor would retain both their equity interest and the premium received. The current analytical data (including Greeks and implied Greeks) suggests that the probability of this happening is currently 99%. On our website, under the contract detail page for that contract, the Stock Options Channel tracks these quotes over time to see how they are changing and publishes a chart of these numbers (options contract trading history is also graphed). Should the covered call contract expire worthless, the premium would represent an additional 5.47% return enhancement for the investor, or 8.87% on an annualized basis, which we refer to as the yield boost.
The implied volatility in the put contract example above is 66%.
Meanwhile, we calculate the actual trailing 12-month volatility (considering the closes of the last 252 trading days and today’s price of $31.10) to be 49%. For more put and call option contract ideas worth checking out, visit StockOptionsChannel.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.