Thursday, June 22, 2017

Established New Position in Voya Financial Inc.

Today, a new position was established in Voya Financial Inc.(ticker VOYA) by selling seven July 21, 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 30 days (equivalent to a +19.2% 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 $35.04 (3.0% downside protection to the strike price) and 30 days remaining until the options expiration date.

The implied volatility of the Put options was 23.5 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 (i.e. strike price below the current stock price).    

The transaction was as follows:
06/22/2017  Sold 7 VOYA July 21, 2017 $34.00 100% cash-secured Put options @ $.55
Note: the price of VOYA was $35.04 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 seven Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $23,800.00
= $34.00*700 shares

Net Profit:
(a) Options Income: +$375.50
= ($.55*700 shares) - $9.50 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If VOYA is above $34.00 strike price at July 21st expiration): +$0.00
= ($34.00-$34.00)*700 shares

Total Net Profit (If Voya Financial Inc. stock price is above $34.00 strike price at July 21st options expiration): +$375.50
= (+$375.50 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Voya Financial Inc. stock price is above $34.00 strike price at July 21st options expiration) : +1.6%
= +$375.50/$23,800.00
Annualized Return: +19.2%
= (+$375.50/$23,800.00)*(365/30 days)

The downside 'breakeven price' at expiration is at $33.45 ($34.00 - $.55), which is 4.5% below the current market price of $35.04.

The probability of making a profit (if held until the July 21, 2017 options expiration) for this Voya Financial Inc. short Puts position is 68.6%. 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 68.6%, the expected value annualized return-on-investment (if held until expiration) is +13.2% (+19.2% * 68.6%), a satisfactory risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $35.59 ($35.04 + $.55).  This is the price above which it would have been more profitable to simply buy-and-hold Voya stock until the July 21st, 2017 options expiration date rather than selling these Put options.

Tuesday, June 20, 2017

Established New Position in Range Resources Corp.

During the first half hour of  trading this morning, a good-til-cancelled order was placed to sell ten July 21st, 2017 Range Resources Corp. (ticker RRC) Put options at the $20.00 strike price for $.45 per share.  At 11:00am, the order was executed when the stock was at $21.44.

As detailed below, there is potential for a +2.2% absolute return in 32 days (equivalent to a +25.0% annualized return-on-investment).

Range Resources Corp. (RRC) -- New 100% Cash-Secured Puts Position
This position was established when the price of Range Resources Corp. was $21.44 (6.7% downside protection to the strike price) and 32 days remaining until the July 21st options expiration date.

With the recent decline in the price of oil and gas being accompanied by a swift decline in energy-related stocks, the implied volatility of options in Range Resources have increased substantially from an average of 33.0 during the last quarter to 41.2 this morning when this position was established; so the $.45 price per share received when the Puts were sold is an attractive premium to receive for these out-of-the-money Put options.    

The transaction was as follows:
06/20/2017  Sold 10 RRC July 21, 2017 $20.00 100% cash-secured Put options @ $.45

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 ten Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $20,000.00
= $20.00*1,000

Net Profit:
(a) Options Income: +$438.55
= ($.45*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If RRC is above $20.00 strike price at July 21,2017 expiration): +$0.00
= ($20.00-$20.00)*1,000 shares

Total Net Profit (If Range Resources stock price is above $20.00 strike price at July 21st options expiration): +$438.55
= (+$438.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If RRC is above $20.00 strike price at July 21st, 2017 options expiration): +2.2%
= +$438.55/$20,000.00
Annualized Return: +25.0%
= (+$438.55/$20,000.00)*(365/32 days)

The downside 'breakeven price' at expiration is at $19.55 ($20.00 - $.45), which is 8.8% below the current market price of $21.44.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the July 21st, 2017 options expiration) for this Range Resources Corp. short Puts position is 74.1%. This compares with a probability of profit of 50.4% for a buy-and-hold of RRC shares over the same time period. Using this probability of profit of 74.1%, the expected value annualized return-on-investment (if held until expiration) is +18.5% (+25.0% * 74.1%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $21.89 ($21.44 + $.45).  This is the price above which it would have been more profitable to simply buy-and-hold Range Resources stock until the July 21st, 2017 options expiration date rather than selling these Put options.

Monday, June 19, 2017

Continuation of Quanta Services Inc. and Twenty-First Century Fox Inc. Covered Calls Positions

The Covered Calls Advisor Portfolio held six positions at the June 2017 options expiration.  Three of these positions (Antero Resources Corp., D R Horton Inc., and Voya Financial Inc.) were assigned upon expiration and the maximum return-on-investment results were achieved as shown in this prior post: Link
For the other three positions (Devon Energy Corp., Quanta Services Inc, and Twenty-First Century Fox), the price of the equities closed below their strike prices so the options expired worthless and the long shares were retained in the Portfolio.  Today, covered calls were established for two of these companies (Quanta Services and Twenty-First Century Fox) by selling July 21st, 2017 Call options against the stock holdings.  As detailed below, the results if the stocks are assigned upon expiration are:
  • Quanta Services Inc. -- A +1.9% absolute return (equivalent to +17.6% annualized return-on-investment) over 40 days
  • Twenty-First Century Fox Inc. -- A +3.1% absolute return (equivalent to +15.4% annualized return-on-investment) over 74 days

1. Quanta Services Inc. (PWR) -- Continuing Covered Calls Position
The transactions have been as follows:
05/08/2017  Sold 6 PWR Jun2017 $33.00 100% cash-secured Put options @ $.65
Note: the price of PWR was $34.27 today when this transaction was executed.
06/16/2017 6 PWR Jun2017 Put options expired and 600 shares of PWR were purchased at $33.00 strike price
Note: the price of PWR was $32.10 upon the market close last Friday at Jun2017 expiration
06/19/2017 Sold 6 PWR July 21, 2017 $33.00 Call options @ $.55
Note: the price of PWR was $32.28 when these Call options were sold

Two possible overall performance results (including commissions) would be as follows:
Cost Basis: $19,804.95
= $33.00*600 + $4.95 commission

Net Profit:
(a) Options Income: +$702.30
= ($.65 + $.55) *600 shares - 2*$8.85 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PWR stock is unchanged at $32.28 at July 21, 2017 expiration): -$432.00
= ($32.28-$33.00)*600 shares; or
(c) Capital Appreciation (If PWR is above $33.00 strike price at July 21, 2017 expiration): +$0.00
= ($33.00-$33.00)*600 shares

1. Total Net Profit (If Quanta Services stock price is unchanged at $32.28 at July 21, 2017 options expiration): +$381.15; or
= (+$381.15 options income +$0.00 dividend income +$0.00 capital appreciation)
2. Total Net Profit (If Quanta Services stock price is above $33.00 strike price at July 21, 2017 options expiration): +$381.15
= (+$381.15 options income +$0.00 dividend income +$0.00 capital appreciation)

1. Absolute Return (If PWR is above $33.00 strike price at Jun2017 options expiration): +1.9%
= +$381.15/$19,800.00
Annualized Return: +17.6%
= (+$381.15/$19,800.00)*(365/40 days); or
2. Absolute Return (If PWR is above $33.00 strike price at Jun2017 options expiration): +1.9%
= +$381.15/$19,800.00
Annualized Return: +17.6%
= (+$381.15/$19,800.00)*(365/40 days)


2. Twenty-First Century Fox Inc. (FOXA) -- Continuing Covered Calls Position
The transactions have been as follows:
05/08/2017  Sold 10 FOXA Jun2017 $28.00 100% cash-secured Put options @ $.65
Note: the price of FOXA stock was $28.88 today when this transaction was executed.
06/16/2017 10 FOXA Jun2017 Put options expired and 1,000 shares of FOXA were purchased at $28.00 strike price
Note: the price of FOXA was $27.45 upon the market close last Friday at Jun2017 expiration
06/19/2017 Sold 10 FOXA July 21, 2017 $27.00 Call options @ $1.25
Note: the price of FOXA was $27.76 when these Call options were sold

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $28,004.95
= $28.00*1,000 + $4.05 commission

Net Profit:
(a) Options Income: +$1,877.10
= ($.65 +$1.25) *1,000 shares - 2*$11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FOXA is above $27.00 strike price at July 21, 2017 expiration): -$1,000.00
= ($27.00-$28.00)*1,000 shares

Total Net Profit: +$877.10
= (+$1,877.10 options income +$0.00 dividend income -1,000.00 capital appreciation)

Absolute Return: +3.1%
= +$877.10/$28,004.95
Annualized Return: +15.4%
= (+$877.10/$28,004.95)*(365/74 days)

Saturday, June 17, 2017

June 2017 Option Expiration Results

The Covered Calls Advisor Portfolio had six positions with June 16th, 2017 options expirations.  Three positions (Antero Resources Corp., D R Horton Inc., and Voya Financial Inc.) closed in-the-money, so the maximum possible return-on-investment result was achieved.  Details of the transactions and results for each of these positions are provided below.

The return-on-investment results for each position was:
  • Antero Resources Corp.:  +2.2% absolute return (+22.2% annualized return) in 36 days
  • D R Horton Inc.:  +1.1% absolute return (+37.6% annualized return) in 11 days  
  • Voya Financial Inc.:  +1.6% absolute return (+23.9% annualized return) in 24 days 
The cash now available in the Covered Calls Advisor Portfolio from the closing of these three positions 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.  

The other three positions (Devon Energy Corp., Quanta Services Inc., and Twenty-First Century Fox Inc.) closed yesterday with their stock price below their strike prices, so those shares will remain in the Covered Calls Advisor Portfolio (see holdings in right sidebar) until they are either sold or a continuation covered calls position is established. 

The details for each of the closed positions is as follows:

1.  Antero Resources Corp. -- 100% Cash-Secured Put Options Position Closed at Expiration
The Covered Calls Advisor had a position in Antero Resources Corp. (ticker symbol AR) by selling ten Jun2017 Put options at the $20.00 strike price. This position was a conservative one since it was established when the price of Antero Resources was $20.86 (4.1% downside protection to the strike price) and 36 days remaining until the options expiration date.

The implied volatility of the Put options was 30.6 when this position was established; so the $.45 price per share received when the Puts were sold was a nice premium to receive for these 4.1% out-of-the-money Put options.    

The transactions were as follows:
05/12/2017  Sold 10 AR Jun2017 $20.00 100% cash-secured Put options @ $.45
Note: the price of Antero was $20.86 when this transaction was executed.
06/16/2017 Put options expired with AR stock price of $22.60 above the $20.00 strike price

The Covered Calls Advisor does not use margin, so the detailed information on this position and the result 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: $20,000.00
= $20.00*1,000
Note: the price of AR was $20.86 when these options were sold

Net Profit:
(a) Options Income: +$438.55
= ($.45*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Antero stock is above $20.00 strike price at Jun2017 expiration): +$0.00
= ($20.00-$20.00)*1,000 shares

Total Net Profit: +$438.55
= (+$438.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +2.2%
= +$438.55/$20,000.00
Annualized Return: +22.2%
= (+$438.55/$20,000.00)*(365/36 days)




2.  D R Horton Inc. -- 100% Cash-Secured Put Options Position Closed at Expiration
The transactions were as follows:
06/06/2017  Sold 5 DHI Jun2017 $33.00 100% cash-secured Put options @ $.39
Note: the price of DHI was $33.10 when this transaction was executed.
06/16/2017 Put options expired with DHI stock price of $33.65 above the $33.00 strike price

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $16,500.00
= $33.00*500
Note: the price of DHI was $33.10 when these options were sold

Net Profit:
(a) Options Income: +$186.80
= ($.39*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($33.00-$33.00)*500 shares

Total Net Profit: +$186.80
= (+$186.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return:: +1.1%
= +$186.80/$16,500.00
Annualized Return: +37.6%
= (+$186.80/$16,500.00)*(365/11 days)




3.  Voya Financial Inc. -- 100% Cash-Secured Put Options Position Closed at Expiration
The transactions were 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.
06/16/2017 Put options expired with VOYA stock price of $36.95 above the $34.00 strike price

The overall performance result (including commissions) was 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: +$0.00
= ($34.00-$34.00)*500 shares

Total Net Profit: +$266.80
= (+$266.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.6%
= +$266.80/$17,000.00
Annualized Return: +23.9%
= (+$266.80/$17,000.00)*(365/24 days)