Tuesday, November 25, 2014

November 2014 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained eleven positions with November 2014 expirations.  The results are as follows:

- Eight of the eleven positions (American Airlines, Baidu Ind., Chevron, EMC Inc., iShares MSCI China ETF, Google Inc., and Micron Technology Inc.) were closed out at expiration. This was the optimal result for these positions in that the maximum potential return-on-investment (ROI) results was achieved from when each of these postions was established.  The annualized ROI for these closed positions are:
American Airlines Group = +10.1% absolute return (equivalent to +60.4% annualized return for the 61 day holding period)
Baidu Inc. = +8.7% absolute return (equivalent to +57.4% annualized return for the 55 days holding period)
Chevron Corporation = +1.7% absolute return (equivalent to +11.9% annualized return for the 51 day holding period)
EMC Corp (position #1) = +2.2% absolute return (equivalent to +15.9% annualized return for the 51 days holding period)
EMC Corp (position #2) = +5.1% absolute return (equivalent to +39.9% annualized return for the 47 days holding period)
iShares MSCI China ETF = =1.7% absolute return (equivalent to +19.8% annualized return for the 31 days holding period)
Google Inc = -3.2% absolute return (equivalent to -20.5% annualized return for the 57 days holding period)
Micron Technology Inc. = +4.5% absolute return (equivalent to +35.1% annualized return for the 47 days holding period)

The detailed transactions history and results for each of these positions is detailed below. The cash available from the closing of these positions will be retained in the Covered Calls Advisor Portfolio until new covered calls and/or 100% cash-secured puts positions are established.

- Three of the eleven positions (Agnico Eagle Mines, Goldcorp, and Halliburton) ended at expiration with the price of the stocks below the strike prices.  So the respective options expired and the long shares were retained in the Covered Calls Advisor Portfolio.  A decision will be made soon to either sell these shares or to establish a covered calls position by selling Dec2014 call options against the current long stock holdings. When these decisions are made and the accompanying transactions are completed, a post will be made on this blog on the same day along with the detailed transactions to-date for each stock position.

Details of the eight closed positions summarized above and the associated return-on-investment results are as follows:

1.  American Airlines Group (AAL) -- Closed
The transactions were as follows:
09/23/2014 Sold 4 Oct2014 $35.00 Puts @ $1.44
Note: The price of American Airlines was $35.03 when this transaction was executed.
10/17/2014 3 Oct2014 $35.00 Puts expired
Note: the price of AAL was $33.38 when these Puts expired
10/20/2014 Sold 3 Nov2014 $35.00 Calls @ $2.15
Note: the price of AAL was $34.50 when these options were sold.
11/21/2014 Nov2014 options closed in-the-money and the stock was assigned at the $35.00 strike price

The overall performance result (including commissions) for these AAL transactions was:
100% Cash-Secured Cost Basis: $14,000.00
= $35.00*400
Note: the price of AAL was $35.03 when these Put options were sold.

Net Profit:
(a) Options Income: +$1,412.10
= ($1.44+$2.15) *400 shares - 2*$11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (AAL closed above $35.00 at Nov2014 expiration): +$0.00
= ($35.00-$35.00)*400 shares

Total Net Profit (AAL above $35.00 strike price at Nov2014 options expiration):+$1,412.10
= (+$1,412.10 +$0.00 +$0.00)

Absolute Return (AAL was above $35.00 strike price at Nov2014 options expiration and Put options thus expired worthless): +10.1%
= +$1,412.10/$14,000.00
Annualized Return: +60.4%
= (+$1,412.10/$14,000.00)*(365/61 days)


2. Baidu Inc. (BIDU) -- Closed
The transactions were as follows:
09/29/2014 Sold 1 Oct2014 $215.00 Put @ $4.90
Note: The price of Bidu was $218.99 when this transaction was executed.
10/17/2014 1 Oct2014 $215.00 Put expired
Note: the price of Bidu was $211.73 when this Put option expired
10/20/2014 Sold 1 Nov2014 $220.00 Call @ $8.90
Note: the price of BIDU was $216.50 when this Call option were sold.
11/21/2014 The Nov2014 call options were in-the-money and the stock was assigned at the the $220 strike price.

The overall performance result (including commissions) for these BIDU  transactions would be as follows:
100% Cash-Secured Cost Basis: $21,500.00 = $215.00*100
Note: the price of BIDU was $218.99 when the Put option was sold.

Net Profit:
(a) Options Income: +$1,360.60
= ($4.90+$8.90) *100 shares - 2*$9.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (BIDU closed above $220.00 at Nov2014 expiration): +$500.00
= ($220.00-$215.00)*100 shares

Total Net Profit (BIDU closed above $220.00 strike price at Nov2014 options expiration):+$1,860.60 
= (+$1,360.60 +$0.00 +$500.00)

Absolute Return (BIDU closed above the$220.00 strike price at Nov2014 options expiration): +8.7%
= +$1,860.60/$21,500.00
Annualized Return: +57.4%
= (+$1,860.60/$21,500.00)*(365/55 days)


3.  Chevron Corporation (CVX) -- Closed
The transactions were as follows:
10/01/2014 Bought 300 CVX shares @ $118.54
10/01/2014 Sold 3 CVX Oct2014 $118.00 Call Options @ $2.14
Note: the price of CVX was $118.54 today when these options were sold.
10/17/2014 3 CVX Call options expired
10/22/2014 Sold 3 Nov2014 $115.00 Calls @ $2.40
Note: the price of CVX was $115.46 when these options were sold
11/21/2014 Nov2014 call options assigned since stock about $115.00 strike price

The overall performance result for this CVX position was as follows:
Stock Purchase Cost: $35,570.95
= ($118.54*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,339.60
= 300*($2.14+$2.40) - 2*$11.20 commissions
(b) Dividend Income: +$321.00 = $1.07 * 300 shares
(c) Capital Appreciation (CVX assigned at $115.00) = -$1,070.95
= ($115.00-$118.54)*300 - $8.95 commissions

Total Net Profit (CVX assigned at $115.00): +$589.65
= (+$1,339.60 +$321.00 -$1,070.95)

Absolute Return Upon Assignment (at $115.00): +1.7%
= +$589.65/$35,570.95
Annualized Return: +11.9%
= (+$589.65/$35,570.95)*(365/51 days)


4.  EMC Corp (EMC) -- Closed
The transactions were as follows:
10/02/2014 Bought 400 EMC shares @ $28.27
10/02/2014 Sold 4 EMC Oct2014 $28.00 Call Options @ $.75
Note: the price of EMC was $28.27 today when these options were sold.
10/17/2014 4 Oct12014 Call options expired
10/22/2014 Sold 4 EMC Nov2014 $27.50 Call Options @ $.46
Note: the price of EMC was $26.87 when these options were sold
11/21/2014 Nov2014 call options assigned since stock above $27.50 strike price

The performance result (including commissions) for these EMC covered calls is as follows:
Stock Purchase Cost: $11,316.95
= ($28.27*400+$8.95 commission)

Net Profit:
(a) Options Income: +$460.10
= 400*($.75+$.46) - 2*$11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (EMC assigned at $27.50) = -$208.95
= ($27.50-$28.27)*400 - $8.95 commissions

Total Net Profit (EMC assigned at $27.50): +$251.15
= (+$460.10 +$0.00 -$208.95)

Absolute Return: +2.2%
= +$251.15/$11,316.95
Annualized Return: +15.9%
= (+$251.15/$11,316.95)*(365/51 days)


5. EMC Corp (EMC) -- Closed
The transactions were as follows:
10/07/2014 Bought 400 EMC shares @ $28.33
10/07/2014 Sold 4 EMC Nov2014 $29.00 Call Options @ $.84
Note: the price of EMC was $28.48 today when these options were sold.
11/21/2014 Nov2014 call options closed above the $29.00 strike price, so the EMC stock shares were assigned.

The overall performance result (including commissions) for these EMC covered calls was follows:
Stock Purchase Cost: $11,340.95
= ($28.33*400+$8.95 commission)

Net Profit:
(a) Options Income: +$324.05
= 400*$.84 - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (EMC closed above $29.00 strike price) = +$259.05
= ($29.00-$28.33)*400 - $8.95 commissions

Total Net Profit (EMC closed above $29.00 strike price at Nov2014 options expiration): +$583.10
= ($324.05+$0.00+$259.05)

Absolute Return: Stock Assigned (at $29.00 strike price): +5.1%
= +$583.10/$11,340.95
Annualized Return: +39.9%
= (+$583.10/$11,340.95/$11,316.95)*(365/47 days)


6. iShares MSCI China ETF (FXI) -- Closed
The transactions were as follows:
10/22/2014 Bought 400 FXI shares @ $38.48
10/22/2014 Sold 4 FXI Nov2014 $38.00 Call Options @ $1.18
Note: the price of FXI was $38.48 today when these options were sold.
11/21/2014 Call options closed above $38 strike price at Nov2014 expiration and 400 shares called away

The performance result (including commissions) for these FXI covered calls is as follows:
Stock Purchase Cost: $15,400.95
= ($38.48*400+$8.95 commission)

Net Profit:
(a) Options Income: +$460.05
= 400*$1.18 - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (FXI assigned at $38.00 strike price at Nov2014 expiration)
= -$200.95 
= ($38.00-$38.48)*400 - $8.95 commissions

Total Net Profit (FXI assigned at $38.00): +$259.10
= (+$460.05 +$0.00 -$200.95)

Absolute Return upon Assignment (at $38.00): +1.7%
= +$259.10/$15,400.95
Annualized Return: +19.8%
= (+$259.10/$15,400.95)*(365/31 days)


7.  Google Inc. (GOOG) -- Closed
The transactions were:
09/25/2014 Sold 1 Oct2014 $580.00 Put @ $13.60
Note: The price of Google was $582.05 when this transaction was executed.
10/17/2014 1 Oct2014 Put option expired
10/22/2014 Sold 1 Nov2014 $530.00 Call option @ $18.00
Note: the price of GOOG was $538.20 when this Call option was sold
11/21/2014 the Call option was in-the-money and the stock was assigned at the $530.00 strike price upon Nov2014 expiration

The performance result (including commissions) for this Google transaction was follows:
100% Cash-Secured Cost Basis: $58,000.00 = $580.00*100
Note: the price of GOOG was $582.05 when the Put option was sold.

Net Profit:
(a) Options Income: +$3,140.60
= ($13.60+$18.00)*100 shares - 2*$9.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (GOOG closed above $530.00 at Nov2014 expiration):
-$5,000.00
= ($530.00-$580.00)*100 shares

Total Net Profit (GOOG was above $530.00 strike price at Nov2014 options expiration):
-$1,859.40 
= (+$3,140.60 +$0.00 -$5,000.00)

Absolute Return (GOOG was above $530.00 at Nov2014 options expiration): -3.2%
= -$1,859.40/$58,000.00
Annualized Return (GOOG is above $530.00 at expiration): -20.5%
= (-$1,859.40/$58,000.00)*(365/57 days)


8.  Micron Technology Inc. (MU) -- Closed
The transactions were as follows:
10/07/2014 Sold 4 Micron Technology Inc. Oct2014 $31.00 Puts @ $.47
Note: The price of Micron was $31.93 when this transaction was executed.
10/17/2014 4 Oct2014 $31.00 Puts expired
Note: the price of MU was $28.77 when these Put options expired
10/20/2014 Sold 4 Nov2014 $31.00 Calls @ $.99
Note: the price of MU was $29.35 when these Call options were sold.
11/21/2014 the Call options were in-the-money and the stock was assigned at the $31.00 strike price upon Nov2014 expiration

The overall performance result (including commissions) for these transactions was as follows:
100% Cash-Secured Cost Basis: $12,400.00
= $31.00*400
Note: the price of Micron was $31.93 when these Put options were sold.

Net Profit:
(a) Options Income: +$560.10
= ($.47+$.99)*400 shares - 2*$11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (MU was above $31.00 at Nov2014 expiration): +$0.00
= ($31.00-$31.00)*400 shares

Total Net Profit (MU was above $31.00 strike price at Nov2014 options expiration):+$560.10 
= (+$560.10 +$0.00 +$0.00)

Absolute Return (MU was above $31.00 at Nov2014 options expiration): +4.5%
= +$560.10/$12,400.00
Annualized Return: +35.1%
= (+$560.10/$12,400.00)*(365/47 days)

Saturday, November 8, 2014

Overall Market Meter Remains at "Neutral"

The Covered Calls Advisor recalculated the current values for each of the eight factors used to determine the "Overall Market Meter" rating.  This month, the Overall Market Meter rating remains unchanged at Neutral.

The eight factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next three indicators), and
- growth (the last indicator).


























The current Market Meter average of 3.00 (see blue line at the bottom of the chart above) is precisely in the middle of the Neutral range (Neutral range is from 2.51 to 3.50). 

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Neutral sentiment is to "on-average sell 1% out-of-the-money covered calls for the next options expiration month".

Your comments or questions regarding this post (or the details related to any of the eight factors used in this model) are welcomed. Please email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Wednesday, November 5, 2014

Early Exercise of Boeing Covered Call Position

Today, I received notification that the Covered Calls Advisor's covered call position in Boeing Company (Ticker Symbol BA) with a Nov2014 expiration and at the $120.00 strike price was exercised early. The shares of Boeing had risen to $125.11 as of yesterday's close, so the time value remaining in the call option had declined to the point where the owner of the option decided to exercise his/her option to buy the shares at $120.00 in order to capture today's quarterly ex-dividend payment of $.73 per share.

10/22/2014 Bought 100 BA shares @ $122.579
10/22/2014 Sold 1 BA Nov2014 $120.00 Call Option @ $4.60
Note: the price of BA was $122.90 today when this Call option was sold.
11/4/2014 Short call option assigned; so sold 100 BA shares @ $120.00

The actual return-on-investment result for this closed position was 1.5% absolute return (equivalent to +39.0% annualized return for the 14 day holding period).

As is often the case, early assignment provides a higher annualized return than if the position had been assigned at Nov2014 expiration, so this is the Covered Calls Advisor's preferred outcome.

The details of the overall performance result (including commissions) for this Boeing Co. (BA) covered calls position were as follows:
Stock Purchase Cost: $12,266.85
= ($122.579*100+$8.95 commission)

Net Profit:
(a) Options Income: +$450.30
= ($4.60*100 shares) - $9.70 commissions
(b) Dividend Income (Option exercised early on day prior to Nov 5th ex-div date): +$0.00
(c) Capital Appreciation (stock assigned early on Nov 4th): -$266.85
+($120.00-$122.579)*100 - $8.95 commissions

Total Net Profit (Early exercise on day prior to Nov 5th ex-div date): +$183.45
= (+$450.30 +$0.00 -$266.85)

Actual Return-on-Investment:
1. Absolute Return: +1.5%
= +$183.45/$12,266.85
2. Annualized Return: +39.0%
= (+$183.45/$12,266.85)*(365/14 days)

Thursday, October 30, 2014

Established a December 2014 100% Cash-Secured Puts Position in Micron Technology Inc.

Today, the Covered Calls Advisor established a 100% Cash-Secured Puts position in Micron Technology Inc. (Ticker Symbol MU) with a Dec2014 expiration and at the $30.00 strike price.  As detailed below, this investment will provide a +4.1% absolute return in 52 days (which is equivalent to a +28.8% annualized return) if Micron Technology stock remains at or above $30.00 at options expiration on December 20th.

Details of this transaction along with a potential return-on-investment result are: 

Micron Technology Inc. (MU)
The transaction is as follows:
10/30/2014 Sold 4 Micron Technology Inc. Dec2014 $30.00 Puts @ $1.26
Note: The price of Micron was $31.22 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 four Put options sold.

A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $12,000.00
= $30.00*400
Note:  the price of Micron was $31.22 when these Put options were sold.

Net Profit:
(a) Options Income: +$492.05
= ($1.26*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MU remains above $30.00 at Dec2014 expiration): +$0.00
= ($30.00-$30.00)*400 shares

Total Net Profit (If MU is above $30.00 strike price at Dec2014 options expiration):+$492.05 
= (+$492.05 +$0.00 +$0.00)

Absolute Return (If MU is above $30.00 at Dec2014 options expiration and Put options thus expire worthless): +4.1%
= +$492.05/$12,000.00
Annualized Return (If MU above $30.00 at expiration): +28.8%
= (+$492.05/$12,000.00 )*(365/52 days)

The downside 'breakeven price' at expiration is at $28.74 ($30.00 - $1.26), which is 7.9% below the current market price of $31.22.
The 'crossover price' at expiration is $32.48 ($31.22 + $1.26).  This is the price above which it would have been more profitable to simply buy-and-hold Micron stock until Dec 20th (the Dec2014 options expiration date) rather than holding these short Put options.

Wednesday, October 22, 2014

Established Boeing Co. Covered Calls -- Example of Early Assignment or Dividend Capture Strategy

Today, a new covered call position was established in Boeing Company (Ticker Symbol BA) with a Nov2014 expiration and at the $120.00 strike price. The transactions are as follows:

10/22/2014 Bought 100 BA shares @ $122.579
10/22/2014 Sold 1 BA Nov2014 $120.00 Call Option @ $4.60
Note: the price of BA was $122.90 today when this Call option was sold.
11/05/2014 Ex-dividend of $.73 per share

This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend of $.73 with an ex-dividend date of November 5th.  Although unlikely, if the current time value (i.e. extrinsic value) of $2.021 [$4.60 option premium - ($122.579 stock price - $120.00 strike price)] remaining in the short call option decays to less than $.73 by November 4th (the day prior to the ex-div date), then there is a possibility that the call option owner will exercise early and will call the stock away to capture the dividend. As shown below, two potential returns for this position are:
If Early Assignment: +1.5% absolute return (equivalent to +39.0% annualized return for the next 14 days) if the stock is assigned early (day prior to Nov 5th ex-div date); OR
If Dividend Capture:  +2.1% absolute return (equivalent to +24.6% annualized return over the next 31 days) if the stock is assigned at Nov2014 expiration on November 21st.

As is often the case, early assignment provides a higher annualized return, so this is the Covered Calls Advisor's preferred outcome; but either outcome would provide a very good return.  These returns will be achieved as long as the stock is above the $120.00 strike price at assignment -- a 2.1% of downside protection.  Alternatively, if the stock declines below the strike price, the breakeven price of $117.249 ($122.579-$.73-$4.60) provides a nice 4.3% downside protection. 

In summary, this covered calls investment provides a very nice annualized ROI potential for such a conservative (hedged with good downside protection and with no upcoming earnings announcement prior to Nov2014 options expiration) investment. 

Two possible overall performance results (including commissions) for this Boeing Co. (BA) covered calls position are as follows:
Stock Purchase Cost: $12,266.85
= ($122.579*100+$8.95 commission)

Net Profit:
(a) Options Income: +$450.30
= ($4.60*100 shares) - $9.70 commissions
(b) Dividend Income (If option exercised early on day prior to Nov 5th ex-div date): +$0.00
(b) Dividend Income (If stock assigned at Nov2014 expiration): +$73.00
= ($.73 dividend per share x 100 shares); or
(c) Capital Appreciation (If stock assigned early on Nov 4th): -$266.85
+($120.00-$122.579)*100 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $120.00 at Nov2014 expiration): -$266.85
+($120.00-$122.579)*100 - $8.95 commissions

Total Net Profit (If option exercised on day prior to Nov 5th ex-div date): +$183.45
= (+$450.30 +$0.00 -$266.85); or
Total Net Profit (If stock assigned at $120.00 at Nov2014 expiration): +$256.45
= (+$450.30 +$73.00 -$266.85)

1. Absolute Return (If option exercised on day prior to Nov 5th ex-div date): +1.5%
= +$183.45/$12,266.85
Annualized Return (If option exercised early): +39.0%
= (+$183.45/$12,266.85)*(365/14 days); OR

2. Absolute Return (If stock assigned at $120.00 at Nov2014 expiration): +2.1%
= +$256.45/$12,266.85
Annualized Return (If stock assigned): +24.6%
= (+$256.45/$12,266.85)*(365/31 days);