No. of Recommendations: 2
This is a continuation of the previous thread on HSY, now a few days old so I'm not sure that people are still following it.
The implied interest on Jan 16 2026 LEAPS looks interesting, i.e. very low, see below. If I screwed something up I'm sure I'll be told about it:
At the time of writing, Nov 2 2023, HSY is at 190 and for reference VIX at 16.2.
Jan 16 2026 strike 95 call: bid 95.50 ask 99.90, guess a fill near middle at 97.70
Paralleling Engr27 explanation of implied interest in another thread:
190-97.70= 92.30 is the amount "borrowed" to control a share
To exercise the call (at expiration) would cost 95
So 92.30 is borrowed and 95 is repaid in 806 days
(95/92.30)^(365/806)= 1.013, so the implied annual interest rate is 1.3%
Here's another way to get the same result:
You'll need $95 in cash to buy at the strike at expiration, so set aside $95 now (assume for simplicity that you get no interest on it).
The Ask plus the Strike, 97.70+95=192.70, is the cash needed to control those shares using options through Jan 2026.
The cash needed for simply buying a share now is 190, so you're paying an extra 192.70-190=2.70 to control those shares through Jan 2026 using options.
Why are you paying more?
You're paying 2.70 more because you're effectively borrowing $92.30 upfront and keeping it for 806 days, and this has a cost i.e. $2.70.
What's the effective annualized interest rate associated with this cost?
You're borrowing 92.30 for 806 days and paying 2.70 for that privelege.
So you're paying 2.70/92.30=0.029 or 2.92% total interest over the 806 days.
Annualizing this yields (1+0.029)^(365/806)-1= 0.013 or 1.3% implied annual interest rate, which agrees with the above.
