Selling a put does not give an investor access to ROOT's upside potential the way owning shares would, because the put seller only ends up owning shares in the scenario where the contract is exercised. And the person on the other side of the contract would only benefit from exercising at the $55 strike if doing so produced a better outcome than selling at the going market price. (Do options carry counterparty risk? This and six other common options myths debunked). So unless Root Inc sees its shares decline 48.9% and the contract is exercised (resulting in a cost basis of $37.50 per share before broker commissions, subtracting the $17.50 from $55), the only upside to the put seller is from collecting that premium for the 14.4% annualized rate of return.
Below is a chart showing the trailing twelve month trading history for Root Inc, and highlighting in green where the $55 strike is located relative to that history:
The chart above, and the stock's historical volatility, can be a helpful guide in combination with fundamental analysis to judge whether selling the January 2027 put at the $55 strike for the 14.4% annualized rate of return represents good reward for the risks. We calculate the trailing twelve month volatility for Root Inc (considering the last 251 trading day closing values as well as today's price of $104.50) to be 143%. For other put options contract ideas at the various different available expirations, visit the ROOT Stock Options page of StockOptionsChannel.com.
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Also see:
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ETFs Holding EVR
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
