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);

Established Two New Positions in iShares MSCI China ETF (FXI)

Today, two new positions were added in iShares MSCI China ETF (Symbol FXI) -- one covered calls position with a November 2014 expiration and a short 100% cash-secured Puts position with a December 2014 expiration.
 
The details of the associated transactions and potential return-on-investment results are as follows:

1. iShares MSCI China ETF (FXI)
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.

Two possible overall 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 (If FXI assigned at $38.00 strike price at Nov2014 expiration)
= -$200.95 
= ($38.00-$38.48)*400 - $8.95 commissions

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

Absolute Return if Assigned (at $38.00): +1.7%
= +$259.10/$15,400.95
Annualized Return If Assigned (ARIA): +19.8%
= (+$259.10/$15,400.95)*(365/31 days)
 

2. iShares MSCI China ETF (FXI)
The transaction is as follows:
10/22/2014 Sold 4 iShares MSCI China ETF Dec2014 $38.00 Puts @ $1.25
Note: The price of FXI was $38.48 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: $15,200.00
= $38.00*400
Note:  the price of FXI was $38.48 when these Put options were sold.

Net Profit:
(a) Options Income: +$488.05
= ($1.25*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI remains above $38.00 at Dec2014 expiration): +$0.00
= ($38.00-$38.00)*400 shares

Total Net Profit (If FXI is above $38.00 strike price at Dec2014 options expiration):+$488.05 
= (+$488.05 +$0.00 +$0.00)

Absolute Return (If FXI is above $38.00 at Dec2014 options expiration and Put options thus expire worthless): +3.2%
= +$488.05/$15,200.00
Annualized Return (If FXI above $38.00 at expiration): +19.5%
= (+$488.05/$15,200.00)*(365/60 days)

The downside 'breakeven price' at expiration is at $36.75 ($38.00 - $1.25), which is 4.5% below the current market price of $38.48.
The 'crossover price' at expiration is $39.73 ($38.48 + $1.25).  This is the price above which it would have been more profitable to simply buy-and-hold FXI until Dec 19th (the Dec2014 options expiration date) rather than holding these short Put options.

Established Continuing Covered Call Positions -- Chevron, EMC, Google, and Halliburton

Last Friday with Oct2014 Options expiration, options expired in Chevron Corporation (Symbol CVX), EMC Corporation (EMC), Google Inc. (GOOG), and Halliburton Co. (HAL).  Today, November 2014 call options were sold to continue positions in each of these four stocks by establishing covered calls.

The transactions to date for each of these positions and some possible resulting return-on-investment results are as follows:

1.  Chevron Corporation (CVX) -- Continuation
The transactions are 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

A possible overall performance result for this CVX position is 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 (If CVX assigned at $115.00) = -$1,070.95
= ($115.00-$118.54)*300 - $8.95 commissions

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

Absolute Return if Assigned (at $118.00): +1.7%
= +$589.65/$35,570.95
Annualized Return If Assigned (ARIA): +11.9%
= (+$589.65/$35,570.95)*(365/51 days)

2.  EMC Corp (EMC) -- Continuation
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

A possible overall 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 (If EMC assigned at $27.50) = -$208.95
= ($27.50-$28.27)*400 - $8.95 commissions

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

Absolute Return if Assigned (at $28.00): +2.2%
= +$251.15/$11,316.95
Annualized Return If Assigned (ARIA): +15.9%
= (+$251.15/$11,316.95)*(365/51 days)

3.  Google Inc. (GOOG) -- ContinuationThe transaction is as follows:
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
A possible overall performance result (including commissions) for this Google transaction would be as 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 (If GOOG closes above $530.00 at Nov2014 expiration):
-$5,000.00
= ($530.00-$580.00)*100 shares

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

Absolute Return (If GOOG is above $530.00 at Nov2014 options expiration and Put option thus expire worthless): -3.2%
= -$1,859.40/$58,000.00
Annualized Return (If GOOG is above $580.00 at expiration): -20.5%
= (-$1,859.40/$58,000.00)*(365/57 days)


4. Halliburton Co. (HAL) -- Continuation
The transactions were as follows:
09/25/2014 Bought 300 HAL shares @ $64.10
09/25/2014 Sold 3 HAL Oct2014 $63.50 Call Options @ $1.94
Note: the price of HAL was $64.10 today when these options were sold.
10/17/2014  3 Oct2014 Call options expired
10/22/2014 Sold 3 Nov2014 $55 Call options @ $2.58
Note: the price of HAL was $56.13 when these options were sold

A possible overall performance result (including commissions) for these Halliburton covered calls is as follows:
Stock Purchase Cost: $19,238.95
= ($64.10*300+$8.95 commission)

Net Profit:
(a) Options Income: +$1,333.60
= 300*($1.94+$2.58) - 2*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HAL assigned at $55.00) = -$2,738.95
= ($55.00-$64.10)*300 - $8.95 commissions

Total Net Profit (If HAL assigned at $55.00): -$1,405.35
= (+$1,333.60 +$0.00 -$2,738.95)

Absolute Return if Assigned (at $55.00): -7.3%
= -$1,405.35/$19,238.95
Annualized Return If Assigned (ARIA): -46.8%
= (-$1,405.35/$19,238.95)*(365/57 days)

Monday, October 20, 2014

Established Continuing Covered Call Positions -- Agnico Eagle Mines, American Airlines, Bidu Inc., and Micron Technology

Last Friday with Oct2014 Options expiration, options expired in Agnico Eagle Mines Ltd.(Symbol AEM), American Airlines Group (AAL), Bidu Inc. (BIDU), and Micron Technology Inc. (MU).  Today, November 2014 call options were sold to continue positions in each of these four stocks by establishing covered calls.

The transactions to date for each of these positions and some possible resulting return-on-investment results are as follows:

1.  Agnico Eagle Mines Ltd. (AEM) -- Continuation
The transactions are as follows:
09/24/2014 Sold 3 Oct2014 $30.00 Puts @ $1.10
Note: The price of Agnico Eagle was $30.03 when this transaction was executed.
10/17/2014 3 Oct2014 $30.00 Puts expired
Note: the price of AEM was $28.72 when these Puts expired
10/20/2014 Sold 3 Nov2014 $30.00 Calls @ $1.75
Note: the price of AEM was $29.55 when these options were sold.

Two possible overall performance results (including commissions) for this Agnico Eagle Mines transaction would be as follows:
100% Cash-Secured Cost Basis: $9,000.00 = $30.00*300
Note: the price of AEM was $30.03 when these Put options were sold.

Net Profit:
(a) Options Income: +$832.60
= ($1.10+$1.75)*300 shares - 2*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AEM close at current market price of $29.55 at Nov2014 expiration): -$135.00
= ($29.55-$30.00)*300 shares; OR
(c) Capital Appreciation (If AEM close above $30.00 at Nov2014 expiration): +$0.00
= ($30.00-$30.00)*300 shares

1.  Total Net Profit (If AEM closes at current market price of $29.55 at Nov2014 options expiration):+$697.60 
= (+$832.60 +$0.00 -$135.00); OR
2. Total Net Profit (If AEM is above $30.00 strike price at Nov2014 options expiration):+$832.60 
= (+$832.60 +$0.00 +$0.00)

1. Absolute Return (If AEM is at $29.55 current market price at Nov2014 options expiration and Put options thus expire worthless): +7.8%
= +$697.60/$9,000.00
Annualized Return (If AEM is unchanged at $29.55 at Nov2014 expiration): +47.2%
= (+$697.60/$9,000.00)*(365/60 days); OR
2. Absolute Return (If AEM is above $30.00 at Nov2014 options expiration and Put options thus expire worthless): +9.3%
= +$832.60/$9,000.00
Annualized Return (If AEM is above $30.00 at Nov2014 expiration): +56.3%
= (+$832.60/$9,000.00)*(365/60 days)


2.  American Airlines Group (AAL) -- Continuation
The transactions are 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.

Two possible overall performance results (including commissions) for these AAL transactions would be as follows:
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 (If AAL closes unchanged at $34.50 at Nov2014 expiration):
-$200.00
= ($34.50-$35.00)*400 shares; OR
(c) Capital Appreciation (If AAL closes above $35.00 at Nov2014 expiration): +$0.00
= ($35.00-$35.00)*400 shares

1.  Total Net Profit (If AAL is above $35.00 strike price at Nov2014 options expiration):+$1,212.10 
= (+$1,412.10 +$0.00 -$200.00); OR
2. Total Net Profit (If AAL is above $35.00 strike price at Nov2014 options expiration):+$1,412.10 
= (+$1,412.10 +$0.00 +$0.00)

1.  Absolute Return (If AAL is unchanged at $34.50 at Nov2014 options expiration and Put options thus expire worthless): +8.7%
= +$1,212.10/$14,000.00
Annualized Return (If AAL is above $35.00 at Nov2014 expiration): +51.8%
= (+$1,212.10/$14,000.00)*(365/61 days); OR
2. Absolute Return (If AAL is unchanged at $34.50 at Nov2014 options expiration and Put options thus expire worthless): +10.1%
= +$1,412.10/$14,000.00
Annualized Return (If AAL is above $35.00 at Nov2014 expiration): +60.4%
= (+$1,412.10/$14,000.00)*(365/61 days)


3. Bidu Inc. (BIDU) -- Continuation
The transactions are 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.

Two possible overall performance results (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 (If BIDU closes unchanged at $216.50 at Nov2014 expiration):
+$150.00
= ($216.50-$215.00)*100 shares; OR
(c) Capital Appreciation (If BIDU closes above $220.00 at Nov2014 expiration): +$500.00
= ($220.00-$215.00)*100 shares

1. Total Net Profit (If BIDU is at current price of $216.50 at Nov2014 options expiration):+$1,510.60 
= (+$1,360.60 +$0.00 +$150.00); OR
2. Total Net Profit (If BIDU is above $220.00 strike price at Nov2014 options expiration):+$1,860.60 
= (+$1,360.60 +$0.00 +$500.00)

1. Absolute Return (If BIDU is unchanged at $216.50 at Nov2014 options expiration): +7.0%
= +$1,510.60/$21,500.00
Annualized Return (If BIDU is above $220.00 at Nov2014 expiration): +46.6%
= (+$1,510.60/$21,500.00)*(365/55 days); OR
2. Absolute Return (If BIDU is unchanged at $216.50 at Nov2014 options expiration: +8.7%
= +$1,860.60/$21,500.00
Annualized Return (If BIDU is above $220.00 at Nov2014 expiration): +57.4%
= (+$1,860.60/$21,500.00)*(365/55 days)The transaction is as follows:


4.  Micron Technology Inc. (MU) -- Continuation
The transaction is 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.

Two possible overall performance results (including commissions) for these transactions would be 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 (If MU is unchanged at $29.35 at Nov2014 expiration): -$660.00
= ($29.35-$31.00)*400 shares; OR
(c) Capital Appreciation (If MU is above $31.00 at Nov2014 expiration): +$0.00
= ($31.00-$31.00)*400 shares

1.  Total Net Profit (If MU is unchanged at $29.35 at Nov2014 options expiration): -$99.90 
= (+$560.10 +$0.00 -$660.00); OR
2. Total Net Profit (If MU is above $31.00 strike price at Oct2014 options expiration):+$560.10 
= (+$560.10 +$0.00 +$0.00)

1. Absolute Return (If MU is unchanged at $29.35 at Nov2014 options expiration): -0.8%
= -$99.90/$12,400.00
Annualized Return (If MU above $31.00 at Nov2014 expiration): -6.3%
= (-$99.90/$12,400.00)*(365/47 days); OR

2. Absolute Return (If MU is above $29.35 at Nov2014 options expiration and Put options thus expire worthless): +4.5%
= +$560.10/$12,400.00
Annualized Return (If MU above $31.00 at Nov2014 expiration): +35.1%
= (+$560.10/$12,400.00)*(365/47 days)