Earnings From Shopify Stock. Take a Look At This Option Trade.

(CTN News) – Wednesday is the scheduled time for Shopify (SHOP) to report its earnings before the opening bell; the options market is anticipating an 11% move in either direction.

Today, we will analyze a strategy for capitalizing on the substantial implied volatility that frequently ensues after earnings announcements: selling a cash-secured option on Shopify stock.

The two constituents of a cash-secured put strategy are the establishment of an adequate cash reserve to purchase the stock and the sale of an at-the-money or out-of-the-money put option.

The purpose of the Shopify Stock Option Trade is to

The objective is to either accept assignment and purchase the stock, or allow the put to expire worthless while retaining the premium. The excellent news is that Shopify would be substantially more affordable than its current price.

Similar to covered calls, cash-secured puts are relatively easy to comprehend once one has mastered the fundamentals. It is important to note that option sellers may receive an allotment of 100 shares at the strike price. You have the funds set aside specifically for this type of occasion.

By selling the put option dated May 10 at the strike price of 73, Shopify earns an approximate $2.10 premium per contract.

Upon the put buyer’s request, the put vendor would be obligated to purchase 100 shares of Shopify stock at the 73rd percentile. There is a substantial amount of time before assignment concerns arise, as Shopify is currently trading at approximately 77.40 this morning.

Managing the Enterprise

The trade carries a $7,090 utmost risk. This is contingent upon being allocated shares at a price of 73, with the premium received compensating for that sum. Additionally, the break-even price of 70.90 is established in this manner.

This essentially signifies that the shares were purchased for 77.40, or 8.4% less than their value this morning.

However, what occurs if the stock price fails to fall below 73 by that time? You retain the premium in the event that the put option expires meaningless. Taking into account the respectable 3% return on currency at risk within days, this conclusion was not dreadful. This equates to nearly 270% on an annual basis.

The principal risk associated with the trade is similar to that of owning stocks directly. If the stock falls significantly, the transaction will incur a loss, but the premium paid to sell the put will assist in offsetting a portion of the damage.

Obtaining a return on equities that a trader is willing to hold is easily accomplished via cash-secured puts.

Either the trader is able to acquire Shopify stock at a substantial discount to its current price, or they achieve a 3% return within a few days.

Investors may increase their profits by selling covered puts against the position as a contingency measure in the event that Shopify trades below 73 and the put is issued.

Small and medium-sized businesses can take advantage of Shopify’s cloud-based e-commerce platform by using the service. In terms of earnings per share, it has earned a 98 rating and a remarkable 91 rating in terms of the composite rating. As a member of the Computer Software-Enterprise industry group, it is ranked 12th out of 124 stocks within the sector. It is important to bear in mind that option investing entails inherent risk, including the potential loss of the entire investment.

This is solely for educational purposes and not as trading advice. It is advisable to consult with a financial professional and conduct independent investigation prior to making any investment decisions.

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