Established New Position in Voya Financial Inc.

Today, a new position was established in Voya Financial Inc.(ticker VOYA) by selling five Jun 2017 100% cash-secured Put options at the $34.00 strike price.  The short Puts were chosen instead of the comparable covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.

As detailed below, there is potential for a +1.6% absolute return in 24 days (equivalent to a +23.9% annualized return-on-investment).

Voya Financial Inc. (VOYA) -- New 100% Cash-Secured Puts Position

This position was established when the price of Voya Financial Inc. was $34.75 (2.2% downside protection to the strike price) and 24 days remaining until the options expiration date.

The implied volatility of the Put options was 23.6 when this position was established; so the $.55 price received per share received when the Puts were sold is a nice premium to receive for these out-of-the-money Put options.    

The transaction was as follows:
05/24/2017  Sold 5 VOYA Jun2017 $34.00 100% cash-secured Put options @ $.55
Note: the price of VOYA was $34.75 today when this transaction was executed.

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

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $17,000.00
= $34.00*500

Net Profit:
(a) Options Income: +$266.80
= ($.55*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If VOYA is above $34.00 strike price at Jun2017 expiration): +$0.00
= ($34.00-$34.00)*500 shares

Total Net Profit (If Voya Financial Inc. stock price is above $34.00 strike price at Jun2017 options expiration): +$266.80
= (+$266.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If VOYA is above $34.00 strike price at Jun2017 options expiration): +1.6%
= +$266.80/$17,000.00
Annualized Return: +23.9%
= (+$266.80/$17,000.00)*(365/24 days)

The downside 'breakeven price' at expiration is at $33.45 ($34.00 - $.55), which is 3.7% below the current market price of $34.75.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the June 16th, 2017 options expiration) for this Voya Financial Inc. short Puts position is 64.5%. This compares with a probability of profit of 50.3% for a buy-and-hold of VOYA shares over the same time period. Using this probability of profit of 64.5%, the expected value annualized return-on-investment (if held until expiration) is +15.4% (+23.9% * 64.5%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $35.30 ($34.75 + $.55).  This is the price above which it would have been more profitable to simply buy-and-hold Voya stock until the June 16th, 2017 options expiration date rather than selling these Put options.

JPMorgan Chase and Co. Position Closed

The May2017 covered calls position in JPMorgan Chase and Co. (ticker JPM) expired upon last Friday's options expiration. Today, the Covered Calls Advisor decided to sell the 400 long shares of JPM.   As detailed below, the result of this JPMorgan Chase position was a +4.4% absolute return in 61 days (equivalent to a +26.1% annualized return-on-investment).  


JPMorgan Chase and Co. (JPM) - Position Closed

The transactions are as follows:
03/23/2017 Bought 400 JPM shares @ $87.21
03/23/2017 Sold 4 JPM Apr2017 $85.00 Call options @ $3.16
Note: a simultaneous buy/write transaction was executed.
04/04/2017 Quarterly ex-dividend of $.50 per share
04/21/2017 4 JPM Call options expired
04/24/2017 Sold 4 JPM May2017 $85.00 Call options @ $2.50
Note: the price of JPM was $86.53 when these Calls were sold
05/19/2017 4 May2017 Call options expired
05/23/2017 Sold 400 JPM shares at $84.90

The overall performance result (including commissions) for this JPM covered calls position was as follows:
Stock Purchase Cost: $34,888.95
= ($87.21*400+$4.95 commission)

Net Profit:
(a) Options Income: +$2,248.90
= ($3.16 + $2.50)*400 shares - 2*$7.55 commissions

(b) Dividend Income: +$200.00
= ($.50 dividend per share x 400 shares)

(c) Capital Appreciation (JPM sold at $84.90): -$928.95
+($84.90-$87.21)*400 - $4.95 commissions

Total Net Profit: +$1,519.95

= (+$2,248.90 +$200.00 -$928.95)

Absolute Return: +4.4%

= +$1,519.95/$34,888.95

Annualized Return: +26.1%

= (+$1,519.95/$34,888.95)*(365/61 days)

May 2017 Option Expiration Results

The Covered Calls Advisor Portfolio had two positions (Devon Energy Corp and JPMorgan Chase & Co.) with May 2017 options expirations.   

For the JPMorgan Chase & Co. covered calls, the price of the stock closed yesterday at $84.78 which was below the $85.00 strike price, so the Covered Calls options expired.  The 400 shares will remain in the Covered Calls Advisor Portfolio until they are either sold or a continuation covered calls position is established by selling four June2017 Call options against the 400 JPMorgan shares now owned.

The Devon Energy short Put options position closed in-the-money, so the maximum possible return-on-investment result was achieved.  The return-on-investment result was +1.5% absolute return (+33.5% annualized return) in 16 days.  Details of this position are provided below.  The cash now available in the Covered Calls Advisor Portfolio from the closing of this Devon Energy position will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new position(s) established with this available cash will be posted on this site on the same day the transactions occur.

Devon Energy Corp. -- 100% Cash-Secured Put Options Position Closed at Expiration
This position was established when the price of Devon Energy Corp. (ticker DVN) was $37.21 (3.3% downside protection to the $36.00 strike price) and 16 days remaining until the options expiration date.

The implied volatility of the Put options was 33.3 when this position was established; so the $.54 price received per share received when the Puts were sold was a good premium to receive for these 3.3% out-of-the-money Put options.    

The transactions were as follows:
05/04/2017  Sold 10 DVN May2017 $36.00 100% cash-secured Put options @ $.54
Note: the price of DVN was $37.21 when this transaction was executed.
05/19/2017 10 May2017 DVN Put options expired
Note: the price of DVN was $38.39 at options expiration

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

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $36,000.00
= $36.00*1,000

Net Profit:
(a) Options Income: +$528.55
= ($.54*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (DVN stock closed above $36.00 strike price at May2017 expiration): +$0.00
= ($36.00-$36.00)*1,000 shares

Total Net Profit: +$528.55
= (+$528.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.5%
= +$528.55/$36,000.00
Annualized Return: +33.5%
= (+$528.55/$36,000.00)*(365/16 days)

Established Covered Calls Position in Goldman Sachs Group Inc.

Today, a covered calls position was established in Goldman Sachs Group Inc. (ticker symbol GS) with a Jun2017 expiration and at the $205.00 strike price.  This position has an upcoming quarterly ex-dividend on May 30th of $.75 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the June 16th options expiration date.  Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, an in-the-money covered calls position was established. 

As detailed below, a potential return-on-investment result is +0.6% absolute return (equivalent to +19.8% annualized return for the next 11 days) if the stock is assigned early (business day prior to May 30th ex-date); OR +0.9% absolute return (equivalent to +11.9% annualized return over the next 29 days) if the stock is assigned on the June 16, 2017 options expiration date.


Goldman Sachs Group Inc. (GS) -- New Covered Calls Position

An ex-dividend occurs on May 30th for $.75.  Although very unlikely, if the current time value (i.e. extrinsic value) of $1.35 [$13.05 option premium - ($216.70 stock price - $205.00 strike price)] remaining in the short call options decays substantially (down to about $.15 or less) by May 29th (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 JPM shares away to capture the dividend payment.


The transactions were:
05/19/2017 Bought 200 GS shares @ $216.70
05/19/2017 Sold 2 GS Jun2017 $205.00 Call options @ $13.05
Note: a simultaneous buy/write transaction was executed.
05/30/2017 Upcoming quarterly ex-dividend of $.75 per share

Two possible overall performance results (including commissions) for this GS covered calls position are as follows:
Stock Purchase Cost: $43,344.95
= ($216.70*200+$4.95 commission)

Net Profit:
(a) Options Income: +$2,603.75
= ($13.05*200 shares) - $6.25 commissions
(b) Dividend Income (If option exercised early on business day prior to May 30th ex-div date): +$0.00; or
(b) Dividend Income (If GS assigned at Jun2017 expiration): +$150.00
= ($.75 dividend per share x 200 shares)

(c) Capital Appreciation (If GS assigned early on May 29th): -$2,344.95
+($205.00-$216.70)*200 - $4.95 commissions; or
(c) Capital Appreciation (If GS assigned at $205.00 at Jun2017 expiration): -$2,344.95
+($205.00-$216.70)*200 - $4.95 commissions

1. Total Net Profit (If option exercised on day prior to May 30th ex-dividend date): +$258.80

= (+$2,603.75 +$0.00 -$2,344.95); or

2. Total Net Profit (If GS assigned at $205.00 at Jun2017 expiration): +$408.80

= (+$2,603.75 +$150.00 -$2,344.95)

1. Absolute Return [If option exercised on May 29th (business day prior to ex-dividend date)]: +0.6%

= +$258.80/$43,344.95

Annualized Return (If option exercised early): +19.8%

= (+$258.80/$43,344.95)*(365/11 days); or

2. Absolute Return (If GS assigned at $205.00 at Jun2017 expiration): +0.9%

= +$408.80/$43,344.95

Annualized Return: +11.9%

= (+$408.80/$43,344.95)*(365/29 days)

Either outcome provides a nice attractive return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $205.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $202.90 ($216.70 -$13.05 -$.75) provides 6.4% downside protection below today's purchase price.

The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls using a dividend capture strategy.  The minimum threshold to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, only eight of the eleven criteria are achieved for this Goldman Sachs position.