Promised to buy Frontier Group Holdings for $5, earn 7% with options
Investors considering buying Frontier Group Holdings Inc (symbol: ULCC) shares but wary of paying the current market price of $9.40 per share may benefit from considering selling a put among the alternative strategies at their disposal. One of his put contracts of particular interest is his January 2025 put with a strike price of $5, with a bid of 35 cents at the time of this writing.Taking that bid as a premium yields a 7% return on a $5 commitment, or an annualized rate of return of 4.7% (the stock options channel uses this as yield boost).
Put sellers do not give investors access to the upside potential of the ULCC as they would if they own shares, as put sellers will ultimately own the shares only in the scenario where the contract is exercised. And the person on the other side of the contract will only benefit from exercising at the $5 strike if doing so yields better results than selling at the current market price. (Do options carry counterparty risk? This and six other common options misconceptions debunked). So unless Frontier Group Holdings Ltd. shares fall 46.8% and the contract is not exercised (resulting in a pre-brokerage cost basis of $4.65 per share, less $5 minus 35 cents), the put seller’s only advantage is to recover that premium at an annual rate of return of 4.7%.
Below is a chart showing Frontier Group Holdings Inc.’s trading history over the past 12 months, with the $5 exercise position highlighted in green against that history.
The chart above and the stock’s historical volatility, combined with fundamental analysis, could be a useful guide in determining whether selling a January 2025 put with a strike price of $5 and a 4.7% annual return is worth the risk. Frontier Group Holdings Inc’s 12-month volatility (taking into account the last 251 trading days’ closing prices and today’s price of $9.40) is calculated to be 57%. For other put option contract ideas with various available expiry dates, please visit: ULCC Stock Options A page on StockOptionsChannel.com.
In mid-afternoon trading on Tuesday, the S&P 500 had 1.73 million put and 1.73 million call volumes, with a put/call ratio of 0.75 as of today, which is above normal compared to the median long-term put/call ratio of 0.65. In other words, if we look at the number of call buyers and then use the long-term median to predict the number of expected put buyers, we find that there are actually more put buyers than expected in options trading today.
Check out the 15 stocks call and put option traders are talking about today.
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The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.
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Investors considering buying Frontier Group Holdings Inc (symbol: ULCC) shares but wary of paying the current market price of $9.40 per share may benefit from considering selling a put among the alternative strategies at their disposal. One of his put contracts of particular interest is his January 2025 put with a strike price of $5, with a bid of 35 cents at the time of this writing.Taking that bid as a premium yields a 7% return on a $5 commitment, or an annualized rate of return of 4.7% (the stock options channel uses this as yield boost).
Put sellers do not give investors access to the upside potential of the ULCC as they would if they own shares, as put sellers will ultimately own the shares only in the scenario where the contract is exercised. And the person on the other side of the contract will only benefit from exercising at the $5 strike if doing so yields better results than selling at the current market price. (Do options carry counterparty risk? This and six other common options misconceptions debunked). So unless Frontier Group Holdings Ltd. shares fall 46.8% and the contract is not exercised (resulting in a pre-brokerage cost basis of $4.65 per share, less $5 minus 35 cents), the put seller’s only advantage is to recover that premium at an annual rate of return of 4.7%.
Below is a chart showing Frontier Group Holdings Inc.’s trading history over the past 12 months, with the $5 exercise position highlighted in green against that history.
The chart above and the stock’s historical volatility, combined with fundamental analysis, could be a useful guide in determining whether selling a January 2025 put with a strike price of $5 and a 4.7% annual return is worth the risk. Frontier Group Holdings Inc’s 12-month volatility (taking into account the last 251 trading days’ closing prices and today’s price of $9.40) is calculated to be 57%. For other put option contract ideas with various available expiry dates, please visit: ULCC Stock Options A page on StockOptionsChannel.com.
In mid-afternoon trading on Tuesday, the S&P 500 had 1.73 million put and 1.73 million call volumes, with a put/call ratio of 0.75 as of today, which is above normal compared to the median long-term put/call ratio of 0.65. In other words, if we look at the number of call buyers and then use the long-term median to predict the number of expected put buyers, we find that there are actually more put buyers than expected in options trading today.
Check out the 15 stocks call and put option traders are talking about today.
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• Tapestry 13F FilerThe views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.
https://www.nasdaq.com/articles/commit-to-purchase-frontier-group-holdings-at-$5-earn-7-using-options Promised to buy Frontier Group Holdings for $5, earn 7% with options