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Tuesday, November 13, 2018

Established Covered Calls in Blackstone Group L.P.

Today, a new Covered Calls positions was entered in Blackstone Group L.P. (ticker BX) for the December 21st, 2018 options expiration and at the $34.00 strike price when the stock was at $33.61.  

As detailed below, two potential return-on-investment results are:
  • +3.5% absolute return in 39 days (equivalent to a +32.8% annualized return-on-investment) if the price of BX is unchanged upon the Dec 21st options expiration; OR
  • +4.7% absolute return in 39 days (equivalent to a +43.6% annualized return-on-investment) if the price of BX increases above the $34.00 strike price on the expiration date 


  • Blackstone Group L.P. (BX) -- New Covered Calls Position
    The transactions were as follows:
    11/13/2018 Bought 300 shares of Blackstone Group @ $33.61 
    11/13/2018 Sold 3 BX Dec 21st, 2018 $34.00 Call options @ $1.14 per share
    Note: this was a simultaneous Buy/Write transaction.  There is good liquidity with 2,565 Open Interest contracts and the Implied Volatility of these Call options was 31.0 when this transaction was executed. 

    Two possible overall performance result (including commissions) would be as follows:
    Covered Calls Cost Basis: $9,747.96
    = ($33.61 - $1.14)* 300 shares + $6.96 commission

    Net Profit Components:
    (a) Options Income: +$342.00
    = ($1.14* 300 shares)
    (b) Dividend Income: +$0.00
    (c) Capital Appreciation (If BX is unchanged at $33.61 purchase price at Dec 21st expiration): +$0.00
    = ($33.61 -$33.61)* 300 shares; OR
    (c) Capital Appreciation (If BX is above $34.00 strike price at Dec 21st expiration): +$112.05
    = ($34.00 -$33.61)* 300 shares - $4.95 commission

    (a) Total Net Profit (If BX price unchanged at $33.61 at expiration): +$342.00
    = (+$342.00 options income +$0.00 dividend income -$0.00 capital appreciation); OR
    (b) Total Net Profit (If BX shares assigned at expiration): +$454.05
    = (+$342.00 options income +$0.00 dividend income +$112.05 capital appreciation)

    (a) Absolute Return (If BX price unchanged at expiration): +3.5%
    = +$342.00/$9,747.96
    Equivalent Annualized Return: +32.8%
    = (+$342.00/$9,747.96)*(365/39 days); OR
    (b) Absolute Return (If BX shares assigned at expiration): +4.7%
    = +$454.05/$9,747.96
    Equivalent Annualized Return: +43.6%
    = (+$454.05/$9,747.96)*(365/39 days)

    The downside 'breakeven price' at expiration is at $32.47 ($33.61 - $1.14), which is 3.4% below the current market price of $33.61.

    The 'crossover price' at expiration is $34.75 ($33.61 + $1.14).  This is the price above which it would have been more profitable to buy-and-hold Blackstone Group stock until the December 21st, 2018 options expiration date.

    Tuesday, October 30, 2018

    Established New Covered Calls Position in Citigroup Inc.

    Today, a new Covered Calls position was established in Citigroup Inc. (ticker symbol C) with a November 16th, 2018 options expiration date and at the $65.00 strike price. Five hundred shares were purchased at $64.48 and 4 Call options were sold at $1.52 for a net debit cost basis of $62.06 ($64.48 - $1.52).  This position has an expected upcoming quarterly ex-dividend this Friday of $.45 per share, so the potential return for this position includes this dividend.  Quarterly earnings were reported recently, so the next earnings report will not be until mid January.

    Two potential return-on-investment results are: (1) +3.1% absolute return in 18 days (equivalent to a +63.4% annualized return-on-investment) if the stock closes at $64.48 (same as today's purchase price); and (2) +3.9% absolute return in 18 days (equivalent to a +79.9% annualized return-on-investment) if the stock closes above the $65.00 strike price on the Nov. 16th options expiration date.  These high potential returns are largely a result of the elevated implied volatility of the Call options (36.3) which is attributable largely to the recent steep decline the the overall stock market in general and also with Citi stock in particular.

    Today's transactions and two potential results are detailed below:

    1. Citigroup Inc. (C) -- New Covered Calls Position
    The transactions were as follows:
    10/30/2018 Bought 500 shares of Citigroup Inc. stock @ $64.48 per share 
    10/30/2018 Sold 5 Citi Nov 16th, 2018 $65.00 Call options @ $1.52 per share
    Note: this was a simultaneous Buy/Write transaction

    There are a multitude of possible outcomes, but two possible overall performance results (including commissions) are as follows:
    Covered Calls Cost Basis: $31,488.30
    = ($64.48 - $1.52)* 500 shares + $8.30 commissions

    Net Profit Components:
    (a) Options Income: +$760.00
    = ($1.52 * 500 shares)
    (b) Dividend Income: +$225.00
     = $.45 per share x 500 shares 
    (c) Capital Appreciation (If Citigroup stock price remains unchanged at $64.48 purchase price at Nov 16th expiration): +$0.00
    = ($64.48 -$64.48)* 500 shares; OR
    (c) Capital Appreciation (If Citigroup stock is above $65.00 strike price at Nov 16th expiration): +$255.05
    = ($65.00 -$64.48)* 500 shares - $4.95 commission

    (a) Total Net Profit (If Citi stock price unchanged at $64.48 at Nov. 16th options expiration): +$985.00
    = (+$760.00 options income +$225.00 dividend income +$0.00 capital appreciation); OR
    (b) Total Net Profit (If stock price is above $65.00 strike price at Nov. 16th options expiration): +$1,240.05
    = (+$760.00 options income +$225.00 dividend income +$255.05 capital appreciation)

    (a) Absolute Return (If Citi stock price unchanged at $64.48 at Nov. 16th options expiration): +3.1%
    = +$985.00/$31,488.30
    Equivalent Annualized Return: +63.4%
    = (+$985.00/$31,488.30)*(365/18 days); OR
    (b) Absolute Return (If stock price is above $65.00 strike price at Nov. 16th options expiration): +3.9%
    = +$1,240.05/$31,488.30
    Equivalent Annualized Return: +79.9%
    = (+$1,240.05/$31,488.30)*(365/18 days)

    The downside 'breakeven price' at expiration is at $62.51 ($64.48 - $1.52 -$.45 ex-div), which is 3.1% below the current market price of $64.48.

    Tuesday, October 23, 2018

    Continuation of Two Alibaba Covered Calls Positions

    Yesterday, both Covered Calls positions in Alibaba Group Holding Ltd. (ticker BABA) were continued by selling November 16th, 2018 $155.00 Call options against the current Alibaba shares owned.  The Covered Calls Advisor considers Alibaba as a core hold and is continuing the pattern of prior months by establishing monthly Covered Calls positions in Alibaba. 

    The two Alibaba holdings are now as follows:
    • Position #1 -- Long 200 shares BABA stock and short 2 Nov 16, 2018 $155.00 Call options
    • Position #2 -- Long 200 shares BABA stock and short 2 Nov 16, 2018 $155.00 Call options
    These two positions differ in their original cost basis as well as the options income that has been received to-date.  The return-on-investment results for each position will be calculated and posted on this blog whenever the positions are closed out.