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Friday, October 19, 2018

Established New Covered Calls Position in Alphabet Inc.

Today, a new Covered Calls position was established in Alphabet Inc. (although it's still more often still referred to as Google) with a November 16th, 2018 options expiration date. Despite the recent decline in the stock market, including Alphabet stock, the Covered Calls Advisor is now bullish on both Alphabet and Alibaba's long-term prospects and intends to continue establishing monthly Covered Calls positions in both companies. 

As detailed below, two potential return-on-investment results are: (1) +3.3% absolute return in 29 days (equivalent to a +41.9% annualized return-on-investment) if the stock closes at $1,104.78 (same as today's purchase price); and (2) +4.7% absolute return in 29 days (equivalent to a +59.7% annualized return-on-investment) if the stock closes above the $1,120.00 strike price on the Nov. 16th options expiration date.  These high potential returns are largely attributable to the elevated implied volatility of the Call option (32.9) since there is a quarterly earnings release upcoming prior to the options expiration date.

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

1. Alphabet Inc. (GOOGL) -- New Covered Calls Position
The transactions were as follows:
10/19/2018 Bought 100 shares of Alphabet Inc. stock @ $1,104.78 per share 
10/19/2018 Sold 1 Alphabet Nov 16th, 2018 $1,120.00 Call option @ $35.58 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: $106,925.62
= ($1,104.78 - $35.58)* 100 shares + $5.62 commission

Net Profit Components:
(a) Options Income: +$3,558.00
= ($35.58* 100 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If GOOGL stock price remains unchanged at $1,104.78 strike price at Nov 16th expiration): +$0.00
= ($1,104.78 -$1,104.78)* 100 shares; OR
(c) Capital Appreciation (If GOOGL stock is above $1,104.78 strike price at Nov 16th expiration): +$1,517.05
= ($1,120.00 -$1,104.78)* 100 shares - $4.95 commission

(a) Total Net Profit (If stock price unchanged at $1,104.78 at Nov. 16th options expiration): +$3,558.00
= (+$3,558.00 options income +$0.00 dividend income +$0.00 capital appreciation); OR
(b) Total Net Profit (If stock price is above $1,120.00 strike price at Nov. 16th options expiration): +$5,075.05
= (+$3,558.00 options income +$0.00 dividend income +$1,517.05 capital appreciation)

(a) Absolute Return (If stock price unchanged at $1,104.78 at Nov. 16th options expiration): +3.3%
= +$3,558.00/$106,925.62
Equivalent Annualized Return: +41.9%
= (+$3,558.00/$106,925.62)*(365/29 days); OR
(b) Absolute Return (If stock price is above $1,120.00 strike price at Nov. 16th options expiration): +4.7%
= +$5,075.05/$106,925.62
Equivalent Annualized Return: +59.7%
= (+$5,075.05/$106,925.62)*(365/29 days)

The downside 'breakeven price' at expiration is at $1,069.20 ($1,104.78 - $35.58), which is 3.2% below the current market price of $1,104.78.

Friday, October 12, 2018

Established New Covered Calls Position in Alibaba Group Holding Ltd.

Yesterday, a new Covered Calls position was established in Alibaba Group Holding Ltd. with an October 19th, 2018 options expiration date. Despite the large decline in the stock market for the past two days, the Covered Calls Advisor remains bullish on Alibaba's long-term prospects and intends to continue the pattern of prior months by establishing Covered Calls positions in Alibaba. 

As detailed below, two potential return-on-investment results are: (1) +1.3% absolute return in 9 days (equivalent to a +54.7% annualized return-on-investment) if the stock closes at $139.74 (same as the purchase price); and (2) +5.1% absolute return in 9 days (equivalent to a +208.6% annualized return-on-investment) if the stock closes above the $145.00 strike price on the Oct. 19th options expiration date.  

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

1. Alibaba Group Holding Ltd. (BABA) -- New Covered Calls Position
The transactions were as follows:
10/11/2018 Bought 200 shares of Alibaba stock @ $139.74 per share 
10/11/2018 Sold 2 Alibaba Oct 19th, 2018 $145.00 Call options @ $1.86 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: $27,582.29
= ($139.74 - $1.86)* 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$372.00
= ($1.86* 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock price remains unchanged at $139.74 strike price at Oct 19th expiration): +$0.00
= ($139.74 -$139.74)* 200 shares; OR
(c) Capital Appreciation (If BABA stock is above $145.00 strike price at Oct 19th expiration): +$1,047.05
= ($145.00 -$139.74)* 200 shares - $4.95 commission

(a) Total Net Profit (If stock price unchanged at $139.74 at Oct. 19th options expiration): +$372.00
= (+$372.00 options income +$0.00 dividend income +$0.00 capital appreciation); OR
(b) Total Net Profit: +$1,419.05
= (+$372.00 options income +$0.00 dividend income +$1,047.05 capital appreciation)

(a) Absolute Return: +1.3%
= +$372.00/$27,582.29
Equivalent Annualized Return: +54.7%
= (+$372.00/$27,582.29)*(365/9 days); OR
(b) Absolute Return: +5.1%
= +$1,419.05/$27,582.29
Equivalent Annualized Return: +208.6%
= (+$1,419.05/$27,582.29)*(365/9 days)

The downside 'breakeven price' at expiration is at $137.88 ($139.74 - $1.86), which is 1.3% below the current market price of $139.74.

Monday, September 24, 2018

September 21, 2018 Options Expiration Results

The Covered Calls Advisor Portfolio had three Covered Calls positions with September 21st, 2018 options expirations:
  • One Covered Calls position (Metlife Inc.) closed at the  monthly options expiration in-the-money (stock price above the options strike price), so those shares were assigned (sold) at the strike price. 
  • Two positions (Alibaba Group and Lam Research Inc.) closed with their stock prices below the strike price, so the options expired and the long stock positions now remain in the Covered Calls Advisor Portfolio.  Within the next few days, these stocks will either be sold or next month Call options will be sold against the stock to re-establish Covered Calls positions.  As always, all transactions will be posted on this blog on the same day they occur. 
The return-on-investment result for the completed Metlife position was +4.5% absolute return (+13.7% annualized return) over the 119 days investment period.

The cash now available in the Covered Calls Advisor Portfolio from the closing of this 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.  

So far in 2018, thirty-eight of forty-one (92.7%) positions were closed at a profit.  This far exceeds the Covered Calls Advisor's overall long-term goal of having at least two-thirds (67%) of positions closed out at a profit.  None of the remaining three positions (Alibaba Group, Lam Research Inc., and U.S. Steel Corp.) have yet to be closed out, but instead are currently held as open long stock positions in the Covered Calls Advisor Portfolio.  For the thirty-eight positions closed out so far in 2018, the average annualized return-on-investment is +28.8%.  

The details for the Metlife Inc. position are as follows:

Metlife Inc. (MET) -- Covered Calls Position Closed
The transactions details have been as follows:
05/25/2018 Bought 500 MET shares @ $47.63
05/25/2018 Sold 5 MET June 15, 2018 $47.50 Call options @ $.99
Note: a simultaneous buy/write transaction was executed.
06/15/2018 5 MET 6/15/2018 $47.50 Call options expired with stock price below the strike price
08/03/2018 Ex-dividend of $.42 per share
08/06/2018 Sold 5 MET 8/17/2018 $46.50 Call options @ $.33
08/17/2018 5 MET 8/17/2018 $46.50 Call options expired
Note: the price of MET stock was $45.94 upon options expiration
08/20/2018 Sold 5 MET 9/21/2018 $47.50 Call options @ $.52
Note: the price of MET stock was $46.37 when these Calls were sold
09/21/2018  MET stock closed above the $47.50 strike price, so 5 Call options expired and 500 shares were sold at $47.50

The overall performance result (including commissions) for this MET Covered Calls position is as follows:
Stock Purchase Cost Basis: $23,328.30
= ($47.63 -$.99) *500 shares +$8.30 commission

Net Profit:
(a) Options Income: +$903.40
= ($.99 +$.33 +$.52) *500 shares - $16.60 commissions
(b) Dividend Income: +$210.00
= $.42 per share x 500 shares
(c) Capital Appreciation: -$69.95
=+($47.50-$47.63)*500 - $4.95 commission
Total Net Profit: +$1,043.45
= (+$903.40 +$210.00 -$69.95)

Absolute Return: +4.5%
= +$1,043.45/$23,328.30
Annualized Return: +13.7%
= (+$1,043.45/$23,328.30)*(365/119 days)