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Use Options For a Chance To Buy ABCO at a 23% Discount

Looking back to 76 days ago, Advisory Board Company (Symbol: ABCO) priced a 4,700,000 share secondary stock offering at $43.00 per share. Buyers in that offering made a considerable investment into the company, expecting that their investment would go up over the course of time and based on early trading on Wednesday, the stock is now 19% higher than the offering price.

Investors who did not participate in the offering but would be a buyer of ABCO at a cheaper price, might benefit from considering selling puts among the alternative strategies at their disposal. One interesting put contract in particular, is the September put at the $40 strike, which has a bid at the time of this writing of 75 cents. That would result in a cost basis of $39.25 per share before broker commissions in the scenario where the contract is exercised. If the contract is never exercised, the put seller would still keep the premium, which represents a 1.9% return against the $40.00 purchase commitment, or a 4.2% annualized rate of return (at Stock Options Channel we call this the YieldBoost ).

Secondaries can often present buying opportunities for bullish investors interested in purchasing shares, because the sudden extra supply of stock tends to require that the offering be priced at an attractive discount to where the stock had previously been trading before the offering announcement. That can also introduce near-term volatility which improves the premiums a put seller can achieve. Selling a put does not give an investor access to ABCO'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. The chart below shows the one year performance of ABCO shares, versus its 200 day moving average:

Advisory Board Company Chart

Looking at the chart above, ABCO's low point in its 52 week range is $0.113 per share, with $63.60 as the 52 week high point - that compares with a last trade of $51.19.

According to the ETF Finder at ETF Channel, ABCO makes up 1.46% of the SPDR SSGA Risk Aware ETF (Symbol: RORO) which is trading lower by about 0.2% on the day Wednesday.

Top YieldBoost Puts of of Stocks with Recent Secondaries »

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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