First week of April 14 Trading options for Automatic Data Processing (ADP)
IInvestors at Automatic Data Processing Inc. (Ticker: ADP) saw new options start trading this week, for the April 14 expiry. To Stock Options Channelour YieldBoost formula scoured the ADP options chain for April 14 new contracts and identified one put contract and one call contract of particular interest.
The put contract at the strike price of $160.00 has a current bid of $1.00. If an investor were to sell to open this put contract, they agree to buy the stock at $160.00, but will also collect the premium, placing the cost base of the stock at $159.00 (before brokerage commissions ). For an investor already interested in buying shares of ADP, this could represent an attractive alternative to paying $201.85/share today.
Since the strike price of $160.00 represents a discount of approximately 21% from the current stock price (in other words, it is out of play of this percentage), it is also possible that the contract of sale expires worthless. Current analytical data (including Greeks and implied Greeks) suggests that the current chance of this happening is 99%. Stock Options Channel will track these odds over time to see how they change, publishing a table of these numbers on our website under the contract detail page for this contract. If the contract expires worthless, the premium would represent a return of 0.62% on the cash commitment, or 4.15% annualized – at Stock Options Channel, we call this the Yield increase.
Below is a chart showing the last twelve months trading history for Automatic Data Processing Inc., and highlighting in green where the strike price of $160.00 falls in relation to that history:
On the call side of the options chain, the call contract at the strike price of $210.00 has a current bid of $3.90. If an investor were to buy shares of ADP at the current price level of $201.85/share and then sell to open this purchase contract as a “covered call”, they are committing to selling the stock. at $210.00. Assuming the call seller will also collect the premium, this would result in a total return (excluding dividends, if any) of 5.97% if the stock is called at the April 14 expiry (before broker commissions) . Of course, a lot of upside could potentially be left on the table if ADP stock really does soar, which is why it becomes important to look at Automatic Data Processing Inc‘s past twelve months trading history. ., as well as studying the fundamentals of the business. Below is a chart showing ADP’s trading history over the last twelve months, with the $210.00 strike highlighted in red:
Considering that the strike price of $210.00 represents a premium of approximately 4% to the current stock price (in other words, it is out of the price by that percentage), it It is also possible for the covered call contract to expire worthless, in which case the investor would keep both his shares and the premium collected. Current analytical data (including Greeks and implied Greeks) suggests that the current chance of this happening is 68%. On our website under contract detail page for this contract, Stock Options Channel will track these odds over time to see how they change and publish a chart of these numbers (the option contract’s trading history will also be charted). If the covered call contract expires worthless, the premium would represent a 1.93% increase in incremental return to the investor, or 12.83% annualized, what we call the Yield increase.
The implied volatility in the example sell contract is 44%, while the implied volatility in the example buy contract is 24%.
Meanwhile, we calculate that the actual volatility for the last twelve months (considering the closing values of the last 254 trading days as well as the current price of $201.85) is 21%. For more put and call options contract ideas worth considering, 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.