Tuesday, January 27, 2015

Established New Short 100% Cash-Secured Puts Position in Avis Budget Group Inc.

Today, the Covered Calls Advisor established a new position in the Avis Budget Group Inc. (ticker symbol CAR) by selling 2 Feb2015 $55.00 Put options.  This advisor has been waiting for the stock to decline below $60 before establishing a position.  With the large decline in the overall market today, this opportunity was realized.  A conservative (8% out-of-the-money) short Puts position  was established because of the increased uncertainty surrounding Avis Budget's 4th quarter earnings report, which will be issued a couple of days prior to the Feb2015 expiration date.  Of course, a potential benefit accompanying this uncertainty is the increased implied volatility (and thus enhanced return-on-investment potential) now available.   

As detailed below, this investment will yield a +1.5% absolute return in 26 days (which is equivalent to a +21.1% annualized return-on-investment) if Avis Budget stock closes above the $55.00 strike price on the Feb 20th options expiration date.


1.  Avis Budget Group Inc. (CAR) -- New Position
The transaction was as follows:
01/27/2015 Sold 2 Avis Budget Group Inc. Feb2015 $55.00 Puts @ $.88
Note: The price of CAR was $59.90 when this transaction was executed.

The Covered Calls Advisor does not use margin, so the detailed information on this position and some potential results shown below reflect the fact that this position was established using 100% cash securitization for the two Put options sold.

A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $11,000.00
= $55.00*200
Note:  the price of CAR was $59.90 when these Put options were sold.

Net Profit:
(a) Options Income: +$165.55
= ($.88*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If CAR is above $55.00 strike price at Feb2015 expiration): +$0.00
= ($55.00-$55.00)*200 shares

Total Net Profit (If CAR is above $55.00 strike price at Feb2015 options expiration): +$165.55
= (+$165.55 +$0.00 +$0.00)

Absolute Return (If CAR is above $55.00 strike price at Feb2015 options expiration): +1.5%
= +$165.55/$11,000.00
Annualized Return (If CAR is above $55.00 at expiration): +21.1%
= (+$165.55/$11,000.00 )*(365/26 days)

The downside 'breakeven price' at expiration is at $54.12 ($55.00 - $.88), which is 9.6% below the current market price of $59.90.
The 'crossover price' at expiration is $60.78 ($59.90 + $.88).  This is the price above which it would have been more profitable to simply buy-and-hold Avis Budget stock until Feb 20th (the Feb2015 options expiration date) rather than selling these Put options.

Wednesday, January 21, 2015

Established Short 100% Cash-Secured Puts Position in Apple Inc

The Covered Calls Advisor established a short position by selling two Apple Inc. (Symbol AAPL) Jan30th, 2015 $112.00 Put options.  This position expires after the Jan 27th earnings report, so the implied volatility of the options was substantially higher than would be the case if there was not an earnings release prior to expiration.  Preliminary indications from several sources presage that iPhone 6 sales exceeded analyst expectations during the December-ending quarter, so an aggressive in-the-money short Puts position was established.
As detailed below, this investment will yield a +1.0% absolute return in 11 days (which is equivalent to a +34.0% annualized return-on-investment) if Apple closes at the $108.50 price when this position was established today.  If it rises to close above the $112.00 strike price, a +4.6% absolute return (equivalent to a +152.5% annualized return-on-investment) will be achieved.
The details are provided below.

1. Apple Inc. (AAPL)
The transaction was as follows:
01/21/2015 Sold 2 Apple Inc. Jan 30, 2015 $112.00 Puts @ $5.20
Note: The price of AAPL was $108.50 when this transaction was executed

The Covered Calls Advisor does not use margin, so the return-on-investment information on this position and some potential results shown below reflect the fact that this position was established using 100% cash securitization for the two Put options sold.

The purchase cost (including commissions) for this transaction was as follows:
100% Cash-Secured Cost Basis: $22,400.00
= $112.00*200
Note:  the price of AAPL was $108.50 when these Put options were sold.

Net Profit:
(a) Options Income: +$1,029.55
= ($5.20*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AAPL closes unchanged at $108.50 at Jan 30th, 2015 expiration): -$800.00
= ($108.50 if price unchanged at expiration -$112.00 cash-secured cost basis)*200 shares; OR
(c) Capital Appreciation (If AAPL closes above $112.00 strike price at Jan 30th, 2015 expiration): +$0.00
= ($112.00 liquidation price if assigned -$112.00 cash-secured cost basis)*200 shares

1. Total Net Profit (If AAPL closes unchanged at $108.50 at Jan 30th, 2015 expiration): +$229.55
= (+$1,029.55 options income +$0.00 dividend income -$800.00 capital appreciation); OR
2. Total Net Profit (AAPL closed above $112.00 strike so the short options expired worthless): +$1,029.55
= (+$1,029.55 options income +$0.00 dividend income +$0.00 capital appreciation)

1. Absolute Return (If AAPL closes unchanged at $108.50 at Jan 30th, 2015 expiration): +1.0%
= +$229.55/$22,400.00
Annualized Return:  +34.0%
=  (+$229.55/$22,400.00)*(365/11 days); OR
2. Absolute Return (If AAPL closes above $112.00 strike price at Jan 30th, 2015 expiration): +4.6%
= +$1,029.55/$22,400.00
Annualized Return:  +152.5%
=  (+$1,029.55/$22,400.00)*(365/11 days)

Continuing Positions -- Alibaba Group ADR, Google Inc., and Williams Companies Inc.

Covered call positions were established in the Covered Calls Advisor portfolio for three companies (Alibaba Group ADR, Google Inc., and Williams Companies Inc.) where, in each instance, the Jan2015 options expired worthless last Friday when the stock prices closed below the strike prices.  Today, for all three positions, covered calls positions were established by selling Call options for the Feb2015 options expiration against the existing long stock positions. The transactions to-date for these positions and the respective potential return-on-investment results are detailed below:

1.  Alibaba Group ADR  (Ticker BABA) --Continuation
The transactions are as follows:
12/16/2014 Sold 2 out-of-the-money Jan2015 $100.00 Put options @ $2.60
Note: The price of Alibaba stock was $105.51 when this transaction was executed.
01/16/2015 2 BABA Jan2015 Put options expired
Note: the price of Alibaba was $96.89 upon Jan2015 options expiration.
01/21/2015 Sold 2 Feb2015 $100.00 Call options @ $4.65
Note: BABA stock was $101.20 when these options were sold.

A possible overall performance result (including commissions) for this Alibaba position would be as follows:
100% Cash-Secured Cost Basis: $20,000.00 = $100.00*200

 Net Profit:
(a) Options Income: +$1,429.10
= ($2.60+$4.65)*200 shares - 2*$10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Alibaba closes above $100.00 at the Feb2015 options expiration): +$0.00
= ($100.00 liquidation price if assigned -$100.00 cash-secured cost basis)*200 shares

Total Net Profit (If Alibaba is above $100.00 strike price upon Feb2015 options expiration): +$1,429.10 
= (+$1,429.10 +$0.00 +$0.00)

Absolute Return (If Alibaba is above $100.00 at Feb2015 options expiration): +7.1%
= +$1,429.10/$20,000.00
Annualized Return (If Alibaba is above $100.00 at expiration): +39.5%
= (+$1,429.10/$20,000.00)*(365/66 days)


2.  Google Inc. (GOOG) -- Continuation

The transactions are as follows:
12/09/2014 Sold 1 Jan2015 $530.00 Put @ $18.20
Note: The price of Google was $522.64 when this transaction was executed.

A possible overall performance result (including commissions) for this Google transaction would be as follows:
100% Cash-Secured Cost Basis: $53,000.00
= $530.00*100
Note:  the price of GOOG was $522.64 when the Put option was sold.
01/16/2015 1 GOOG Jan2015 Put options expired
Note: the price of Google stock was $508.08 upon Jan2015 options expiration.
01/21/2015 Sold 1 Feb2015 $520.00 Call option @ $10.20
Note: Google Inc. stock was $509.22 when this Call option was sold.

Net Profit:
(a) Options Income: +$2,820.60
= ($18.20+$10.20)*100 shares - 2*$9.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If GOOG closes above $520.00 at Feb2015 expiration): -$1,008.95
= ($520.00 liquidation cost if assigned - $530.00 cash-secured cost basis)*100 shares - $8.95 commission

Total Net Profit (If GOOG is above $520.00 strike price at Feb2015 options expiration): +$1,811.65 
= (+$2,820.60 +$0.00 -$1,008.95)

Absolute Return (If GOOG is above $520.00 at Feb2015 options expiration): +3.4%
= +$1,811.65/$53,000.00
Annualized Return (If GOOG is above $520.00 at expiration): +17.1%
= (+$1,811.65/$53,000.00)*(365/73 days)


3.  Williams Companies Inc. (WMB) -- Continuation
The transactions are as follows:
12/31/2014 Sold 3 Williams Companies Inc. Jan2015 $44.00 Puts @ $.90
Note: The price of WMB was $44.96 when this transaction was executed.
01/16/2015 3 WMB Jan2015 Put options expired
Note: the price of Williams Companies was $42.00 upon Jan2015 options expiration.
01/21/2015 Sold 3 Feb2015 $44.00 Call options @ $.98
Note: WMB stock was $42.49 when these options were sold.

Two possible overall performance results (including commissions) for these transactions would be as follows:
100% Cash-Secured Cost Basis: $13,200.00
= $44.00*300
Note:  the price of WMB was $44.96 when these Put options were sold.

Net Profit:
(a) Options Income: +$541.60
= ($.90 + $.98)*300 shares - 2*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If WMB closes at current price of $42.49 at Feb2015 expiration): -$453.00
= ($42.49 if price unchanged at expiration -$44.00 cash-secured cost basis)*300 shares; OR
(c) Capital Appreciation (If WMB is above $44.00 strike price at Feb2015 expiration): +$0.00
= ($44.00 liquidation price if assigned -$44.00 cash-secured cost basis)*300 shares

1. Total Net Profit (If WMB closes at current price of $42.49 at Feb2015 expiration): +$88.60
= (+$541.60 +$0.00 -$453.00); OR
2. Total Net Profit (If WMB is above $44.00 strike price at Jan2015 options expiration): +$541.60
= (+541.60 +$0.00 +$0.00)

1. Absolute Return (If WMB closes at current price of $42.49 at Feb2015 expiration): +0.7%
= +$88.60/$13,200.00
Annualized Return (If WMB closes at current price of $42.49 at Feb2015 expiration): +4.8%
= (+$88.60/$13,200.00)*(365/51 days); OR
2. Absolute Return (If WMB is above $44.00 strike price at Feb2015 options expiration): +4.1%
= +$541.60/$13,200.00
Annualized Return (If WMB above $44.00 at expiration): +29.4%
= (+$541.60/$13,200.00)*(365/51 days)

Tuesday, January 20, 2015

Established Continuing Covered Calls Position in iShares MSCI Germany ETF

Today, three Feb2015 $27.00 call options were sold against the 300 long iShares MSCI Germany ETF shares (ticker symbol EWG) held in the Covered Calls Advisor Portfolio. The transactions to date for this position and a potential return-on-investment result are detailed below:

iShares MSCI Germany ETF (EWG) -- Continuation
The transactions are as follows:
12/02/2014 Sold 3 iShares MSCI Germany ETF Dec2014 $29.00 Puts @ $.70
Note: The price of EWG was $28.57 when this transaction was executed.
12/26/2014 Sold 3 EWG Jan2015 $28.00 Call options @ $.60
Note: the price of EWG was $28.24 when these options were sold.
12/16/2015 Jan2015 EWG Call options expired
12/20/2015 Sold 3 EWG Feb2015 $27.00 Call options @ $1.15
Note: the price of EWG was $27.72 when this transaction was executed.


A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $8,700.00
= $29.00*300


Net Profit:
(a) Options Income: +$701.40
= ($.70+$.60+$1.15)*300 shares - 3*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If EWG is above $27.00 strike price at Feb2015 expiration): -$608.95
= ($27.00-$29.00)*300 shares - $8.95 commissions

Total Net Profit (If EWG is above $27.00 strike price at Feb2015 options expiration): +$92.45 
= (+$701.40 +$0.00 -$608.95)

Absolute Return (If EWG is above $27.00 strike price at Feb2015 options expiration): +1.1%
= +$92.45/$8,700.00
Annualized Return: +4.8%
= (+$92.45/$8,700.00)*(365/80 days)

General Electric Co. Position Closed

The Jan2015 covered calls position in the General Electric Company expired last Friday with the stock below the $24.00 strike price.  Today, the position was closed out by selling the 300 shares in the Covered Calls Advisor portfolio.  As detailed below, this investment yielded a +0.5% absolute return in 14 days (which is equivalent to a +13.9% annualized return-on-investment). The associated transactions and financial results are:

General Electric Company (GE) -- Closed
The transactions were as follows:
01/06/2015 Sold 4 General Electric Co Jan2015 $24.00 Puts @ $.34
Note: The price of GE was $24.00 when this transaction was executed.
01/20/2015 Sold 400 GE shares @ $23.84

The Covered Calls Advisor does not use margin, so the detailed information on this position and the results shown below reflect the fact that this position was established using 100% cash securitization for the four Put options sold.

The overall performance result (including commissions) for this transaction was as follows:
100% Cash-Secured Cost Basis: $9,600.00
= $24.00*400
Note:  the price of GE was $24.00 when these Put options were sold.

Net Profit:
(a) Options Income: +$124.05
= ($.34*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$72.95
= ($23.84-$24.00)*400 shares - $8.95 commission

Total Net Profit: +$51.10
= (+$124.05 +$0.00 -$72.95)

Absolute Return: +0.5%
= +$51.10/$9,600.00
Annualized Return: +13.9%
= (+$51.10/$9,600.00 )*(365/14 days)