Wednesday, September 10, 2014

Overall Market Meter is "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

Monday, July 21, 2014

July 2014 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained one covered calls position in Citigroup Inc. with a July 2014 expiration.  The stock closed in-the-money upon options expiration last Friday, so the 700 shares were called away.   The resulting annualized return-on-investment from this position was +16.1%.

The history of these Citigroup transactions and the associated return-on-investment result are detailed below as follows:

1.  Citigroup Inc. (C) -- Closed
The transactions were as follows:

3/24/2014 Sold 7 Apr2014 $49.00 Puts @ $.89
Note: The price of Citi was $50.03 when this transaction was executed.
4/19/2014 Seven Citigroup Put options expired
Note: The price of Citi was $48.22 upon Apr2014 options expiration
4/22/2014 Sold 7 Citigroup May2014 $49.00 call options at $.62 to establish a covered calls position
Note: The price of Citi was $48.28 when these Call options were sold
5/01/2014 Ex-dividend $7.00 = ($.01*700 shares)
5/16/2014 Seven Citigroup Call options expired
5/22/2014 Sold 7 Citigroup Jun2014 $48.00 Call options at $.49
Note: the price of Citi was $47.10 when these Calls were sold
06/20/2014 Seven Citigroup Call options expired
Note: the price of Citi was $47.34 upon Jun2014 options expiration
07/03/2014 Sold 7 Citigroup Jul2014 $49.00 Call options @ $.60
07/18/2014 7 Call options assigned and 700 Citi shares sold at $49.00 strike price
Note: the price of Citi was $49.56 at Jul2014 expiration

The overall result (including commissions) is as follows:
100% Cash-Secured Cost Basis: $34,300.00
= $49.00*700

Net Profit:
(a) Options Income: +$1,763.20
= ($.89 + $.62+$.49+$.60)*700 shares - 4*$14.20 commissions
(b) Dividend Income: +$7.00
(c) Capital Appreciation: +$0.00
= ($49.00-$49.00)*700 shares
 
Total Net Profit: +$1,770.20 
= (+$1,763.20 +$7.00 +$0.00)
 
Absolute Return: +5.2%
= +$1,770.20/$34,300.00
Annualized Return-on-Investment: +16.1%
= (+$1,770.20/$34,300.00)*(365/117 days)

Sunday, June 22, 2014

June 2014 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained five positions with June 2014 expirations.  The results for these five positions so far are as follows:

- Four of the five positions (Ensco PLC Class A, Fusion-io Inc., HollyFrontier Corp., and Southwest Airlines) were closed out at expiration. This was the optimal result for these positions in that the maximum potential return-on-investment (ROI) results were actually achieved from when the June positions were established.  The annualized ROIs for these four closed positions are:
Ensco PLC Class A = +3.3% absolute return (equivalent to +33.0% annualized return for the 37 day holding period)
Fusion-io Inc. = +11.8% absolute return (equivalent to +79.8% annualized return for the 54 day holding period)
HollyFrontier Corp. = +1.2% absolute return (equivalent to +14.4% annualized return for the 30 day holding period)
Southwest Airlines = +2.8% absolute return (equivalent to +22.6% annualized return for the 46 day holding period)

The detailed transactions history and results for each of these four closed 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 (most likely in the next week or two). These transactions will be posted on this blog the same day they occur.

- One of the five positions (Citigroup Inc.) ended at expiration with the price of the stock at $47.34 which was below the $48.00 strike price.  So the seven Citigroup call options expired and the 700 long shares of Citigroup were retained in the Covered Calls Advisor Portfolio.  A decision will be made early this week to either sell these shares or to establish a covered calls position by selling July2014 call options against the current long stock holdings. When this decision is made and the accompanying transaction is completed, a post will be made on this blog on the same day with the Citigroup-related transactions details to-date.

Details of the four closed transactions and their associated return-on-investment results are as follows:

1.  Ensco PLC Class A (ESV) -- Closed
The transaction was as follows:
05/16/2014 Sold 4 Jun2014 $50.00 Puts @ $1.70
Note: The price of Ensco was $49.82 when this transaction was executed.
06/20/2014 ESV Jun2014 Puts expired
Note: the price of ESV was $55.08 at the Jun2014 options expiration

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

The overall performance result (including commissions) for this Ensco transaction was as follows:
100% Cash-Secured Cost Basis: $20,000.00
= $50.00*400
Note: the price of Ensco was $49.82 when these Put options were sold.

Net Profit:
(a) Options Income: +$668.05
= ($1.70*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($50.00-$50.00)*400 shares

Total Net Profit:+$668.05 
= (+$668.05 +$0.00 +$0.00)

Absolute Return: +3.3%
= +$668.05/$20,000.00
Annualized Return: +33.0%
= (+$668.05/$20,000.00)*(365/37 days)


2.   Fusion-io Inc. (FIO) -- Closed 
The transactions were as follows:
04/28/2014 Sold 7 Fusion-io Inc. (FIO) May2014 $9.00 Put Options @ $.80
Note: the price of FIO was $8.40 when these Puts were sold.
05/16/2014 FIO put options expired, so 700 shares of FIO were purchased at $9.00
Note: the price of FIO was $8.09 on the May2014 options expiration date
05/21/2014 Sold to Open 7 FIO Jun2014 $9.00 Call options @ $.30
Note: the price of FIO was $8.63 when these call options were sold
06/20/2014 700 shares of FIO stock sold at $9.00 strike price
Note: the price of FIO was $11.69 on the Jun2014 options expiration date

The overall performance results(including commissions) for these FIO transactions was as follows:
100% Cash-Secured Cost Basis: $6,300.00
= $9.00*700

Net Profit:
(a) Options Income: +$743.60
= ($.80+$.30) *700 shares - 2*$13.20 commissions
(b) Dividend Income: +$0.00
(c)  Capital Appreciation (FIO closed above the $9.00 strike price upon Jun2014 expiration):
+$0.00 = ($9.00-$9.00)*700 shares

Total Net Profit (FIO closed above $9.00 strike price at Jun2014 options expiration): +$743.60 = (+$743.60 +$0.00 +$0.00)

Absolute Return (FIO stock was above $9.00 strike price upon Jun2014 expiration stock was called away): +11.8%
= +$743.60/$6,300.00
Annualized Return: +79.8%
= (+$743.60/$6,300.00)*(365/54 days)


3.  HollyFrontier Corporation (HFC) -- Closed 
The transactions were as follows:
5/23/2014 Bought 300 HFC shares @ $49.32
5/23/2014 Sold 3 HFC Jun2014 $47.00 Call Options @ $2.65
Note: the price of HFC was $49.38 today when these options were sold.
5/28/2014 Ex-dividend for special dividend of $.50 per share
6/4/2014 Ex-dividend of $.32 for quarterly dividend of $.32 per share
6/20/2014 300 shares of HFC sold at special-dividend-adjusted $46.50 strike price
Note: the price of HFC was $49.63 on the Jun2014 options expiration date


The overall performance result (including commissions) for this HollyFrontier Corp (HFC) covered calls position was as follows:
Stock Purchase Cost: $14,804.95
= ($49.32*300+$8.95 commission)

Net Profit:
(a) Options Income: +$783.80
= ($2.65*300 shares) - $11.20 commissions
(b) Dividend Income (Stock assigned on Jun2014 options expiration date): +$246.00
= ($.50 + $.32) dividends per share x 300 shares)
(c) Capital Appreciation (Stock assigned at $46.50 at Jun2014 expiration): -$854.95
=+($46.50-$49.32)*300 - $8.95 commissions

Total Net Profit (stock assigned at $46.50 on Jun2014 options expiration date): +$174.85
= (+$783.80 +$246.00 -$854.95)
Absolute Return (stock assigned at $46.50 at Jun2014 options expiration date): +1.2%
= +$174.85/$14,804.95
Annualized Return: +14.4%
= (+$174.85/$14,804.95)*(365/30 days)
 
 
4. Southwest Airlines (LUV) -- Closed
The transactions were as follows:
05/07/2014 Bought 400 LUV shares @ $24.15
05/07/2014 Sold 4 LUV Jun2014 $24.00 Call Options @ $.85
Note: the price of LUV was $24.15 today when these options were sold.
06/03/2014 Ex-dividend of $.04 per share
06/20/2014 400 shares of LUV sold at $24.00 strike price
Note: the price of LUV was $27.29 at Jun2014 options expiration

A possible overall performance result (including commissions) for these Southwest Airlines covered calls is as follows:
Stock Purchase Cost: $9,668.95
= ($24.15*400+$8.95 commission)

Net Profit:
(a) Options Income: +$328.05
= 400*$.85 - $11.95 commissions
(b) Dividend Income: +$16.00 = $.04 per share * 400 shares
(c) Capital Appreciation (LUV assigned at $24.00) = -$68.95
= ($24.00-$24.15)*400 - $8.95 commissions

Total Net Profit (LUV assigned at $24.00): +$275.10
= (+$328.05 +$16.00 -$68.95)

Absolute Return: +2.8%
= +$275.10/$9,668.95
Annualized Return: +22.6%
= (+$275.10/$9,668.95)*(365/46 days)

Friday, May 23, 2014

Established HollyFrontier Corporation Covered Calls -- Example of Possible Early Assignment or Dividend Capture

Today, a new covered calls position was established in HollyFrontier Corp (Ticker Symbol HFC) with a Jun2014 expiration and at the $47.00 strike price. The transactions are as follows:

5/23/2014 Bought 300 HFC shares @ $49.32
5/23/2014 Sold 3 HFC Jun2014 $47.00 Call Options @ $2.65
Note: the price of HFC was $49.38 today when these options were sold.
5/28/2014 Ex-dividend for special dividend of $.50 per share
6/4/2014 Ex-dividend of $.32 for quarterly dividend of $.32 per share

This covered calls investment is a strategic one that explicitly considers the upcoming special dividend of $.50 and also the quarterly dividend of $.32.  If the current time value (i.e. extrinsic value) of $.33 [$2.65 option premium - ($49.32 stock price - $47.00 strike price)] remaining in the short call option decays further prior to the ex-div dates, then there is a possibility that the call options owner will exercise early and will call the stock away to capture the dividend(s). 

As shown below, three potential returns for this position are:
If Early Assignment: +0.5% absolute return (equivalent to +38.9% annualized return for the next 5 days) if the stock is assigned early (day prior to May 28th ex-div date); OR
If Early Assignment: +1.5% absolute return (equivalent to +47.0% annualized return for the next 12 days) if the stock is assigned early (day prior to June 4th ex-div date); OR

If Both Dividends Captured:  +2.2% absolute return (equivalent to +26.7% annualized return over the next 30 days) if the stock is assigned at Jun2014 expiration on June 20th.

As is often the case, early assignment provides a higher annualized return, so this is the Covered Calls Advisor's preferred outcome; but any of these three outcomes would provide a very good return on investment result.  These returns will be achieved as long as the stock is above the $47.00 strike price at Jun2014 expiration.   

In summary, this covered calls investment provides a very nice annualized ROI potential for a conservative (hedged with substantial downside protection and the next earnings announcement is after the Jun2014 options expiration date) investment. 

Three possible overall performance results (including commissions) for this HollyFrontier Corp (HFC) covered calls position are as follows:
Stock Purchase Cost: $14,804.95
= ($49.32*300+$8.95 commission)

Net Profit:
(a) Options Income: +$783.80
= ($2.65*300 shares) - $11.20 commissions
(b) Dividend Income (If option exercised early on day prior to May 28th ex-div date): +$0.00; or
(b) Dividend Income (If option exercised early on day prior to June 4th ex-div date): +$150.00 = $.50*300 shares; or
(b) Dividend Income (If stock assigned on Jun2014 options expiration date): +$246.00
= ($.50 + $.32)  dividends per share x 300 shares)
(c) Capital Appreciation (If stock assigned early on May 27th): -$704.95
+($47.00-$49.32)*300 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned early on June 3rd): -$704.95
+($47.00-$49.32)*300 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $47.00 at Jun2014 expiration): -$704.95
=+($47.00-$49.32)*300 - $8.95 commissions

Total Net Profit (If option exercised on day prior to May 28th ex-div date): +$78.85
= (+$783.80 +$0.00 -$704.95); or
Total Net Profit (If option exercised on day prior to June 4th ex-div date): +$228.85
= (+$783.80 +$150.00 -$704.95); or
Total Net Profit (If stock assigned at $47.00 on Jun2014 options expiration date): +$324.85
= (+$783.80 +$246.00 -$704.95)

1. Absolute Return (If option exercised on day prior to May 28th ex-div date): +0.5%
= +$78.85/$14,804.95
Annualized Return (If option exercised on May 27th): +38.9%
= (+$78.85/$14,804.95)*(365/5 days); OR

2. Absolute Return (If option exercised on day prior to June 4th ex-div date): +1.5%
= +$228.85/$14,804.95
Annualized Return (If option exercised on June 3rd): +47.0%
= (+$228.85/$14,804.95)*(365/12 days); OR

3. Absolute Return (If stock assigned at $47.00 at Jun2014 options expiration date): +2.2%
= +$324.85/$14,804.95
Annualized Return (If stock assigned on Jun2014 options expiration date): +26.7%
= (+$324.85/$14,804.95)*(365/30 days);

Thursday, May 22, 2014

Continuation -- Citigroup Inc. Covered Calls

Upon May2013 options expiration, the $49.00 call options expired.  Today, the covered calls position was re-established at the $48.00 strike price by selling 7 Jun2014 $48.00 call options.  As detailed below, this investment will provide an overall +1.9% absolute return in 89 days (which is equivalent to a +7.9% annualized return) if the stock closes at or above the $48.00 strike price at options expiration on June 20th.
The details of the associated transactions and a potential return-on-investment result are as follows:

1. Citigroup Inc. (C)
The transactions are as follows:
3/24/2014 Sold 7 Apr2014 $49.00 Puts @ $.89
Note: The price of Citi was $50.03 when this transaction was executed.
4/19/2014 Seven Citigroup Put options expired
Note: The price of Citi was $48.22 upon Apr2014 options expiration
4/22/2014 Sold 7 Citigroup May2014 $49.00 call options at $.62 to establish a covered calls position
Note: The price of Citi was $48.28 when these Call options were sold
5/01/2014 Ex-dividend $7.00 = ($.01*700 shares)
5/16/2014 Seven Citigroup Call options expired
5/22/2014 Sold 7 Citigroup Jun2014 $48.00 Call options at $.49
Note: the price of Citi was $47.10 when these Calls were sold

Two possible overall performance results (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $34,300.00
= $49.00*700

Net Profit:
(a) Options Income: +$1,357.40
= ($.89 + $.62+$.49)*700 shares - 3*$14.20 commissions
(b) Dividend Income: +$7.00
(c) Capital Appreciation (If C remains unchanged at current price of $47.10 upon Jun2014 expiration): -$1,330.00
= ($47.10-$49.00)*700 shares; OR
(c) Capital Appreciation (If C closes above the $48.00 strike price at Jun2014 options expiration): -$700.00
= ($48.00-$49.00)*700 shares

Total Net Profit (If Citi remains unchanged at current $47.10 price upon Jun2014 expiration): +$34.40 
= (+$1,357.40 +$7.00 -$1,330.00); OR 
Total Net Profit (If Citi is above $48.00 strike price at Jun2014 options expiration): +$664.40 
= (+$1,357.40 +$7.00 -$700.00)

1.  If Citi remains unchanged at current $47.10 stock price upon Jun2014 options expiration:
Absolute Return: +0.1%
= +$34.40/$34,300.00
Equivalent Annualized Return: +0.4%
= (+$34.40/$34,300.00)*(365/89 days); OR

2. If Citi closes above $48.00 strike price upon Jun2014 options expiration:
Absolute Return: +1.9%
= +$664.40/$34,300.00
Equivalent Annualized Return: +7.9%
= (+$664.40/$34,300.00)*(365/89 days)