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Tuesday, August 14, 2018

Covered Calls Position Established in Alibaba Group Holding Ltd.

Today, a new Covered Calls positions was established in Alibaba Group Holding Ltd. with a September 21st, 2018 options expiration date.  A slightly in-the-money position was established given the Covered Calls Advisor's current Overall Market Meter sentiment of Slightly Bearish.

The Covered Calls Advisor intended to continue the pattern of prior months by establishing Covered Calls positions in Alibaba.  The stock price has declined by about ten percent in the last month, so I decided to take advantage of the spike in implied volatility to 37.0 in the Call options when this position was established today.  There is also an earnings report on August 23rd which contributes to the elevated implied volatility.

As detailed below, a potential return-on-investment result is +4.4% absolute return in 39 days (equivalent to a +40.9% annualized return-on-investment).

Today's transactions and a potential result are detailed below:

1. Alibaba Group Holding Ltd. (BABA) -- New Covered Calls Position
The transactions were as follows:
08/14/2018 Bought 200 shares of Alibaba stock @ $172.96 per share 
08/14/2018 Sold 2 Alibaba Sept 21st, 2018 $170.00 Call options @ $10.10 per share
Note: this was a simultaneous Buy/Write transaction

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $32,578.29
= ($172.96 - $10.10)* 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$2,020.00
= ($10.10* 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is above $170.00 strike price at Sept 21st expiration): -$596.95
= ($170.00 -$172.96)* 200 shares - $4.95 commission

Total Net Profit: +$1,423.05
= (+$2,020.00 options income +$0.00 dividend income -$596.95 capital appreciation)

Absolute Return: +4.4%
= +$1,423.05/$32,578.29
Equivalent Annualized Return: +40.9%
= (+$1,423.05/$32,578.29)*(365/39 days)

The downside 'breakeven price' at expiration is at $162.86 ($172.96 - $10.10), which is 5.8% below the current market price of $172.96.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the September 21st, 2018 options expiration) for this Alibaba Covered Calls position is 58.7%, so the expected value annualized ROI of this investment (if held until expiration) is +24.0% (+40.9% * 58.7%), a very nice result for this in-the-money Covered Calls position.

The 'crossover price' at expiration is $180.10 = $172.96 + [$10.10 - ($172.96 - $170.00)].
This is the price above which it would have been more profitable to simply buy-and-hold Alibaba stock until the Sept 21st, 2018 options expiration date rather than establishing this Covered Calls position.

Wednesday, July 25, 2018

Established Covered Calls in Blackstone Group L.P.

Today, a new Covered Calls position was established in Blackstone Group L.P. (ticker BX) for the August 17th, 2018 options expiration and at the $36.00 strike price when the stock was at $35.91.  Based on the Covered Calls Advisor's current Slightly Bearish sentiment, the closest at-the-money position was established.

As detailed below, a potential return-on-investment is +3.0% absolute return in 24 days (equivalent to a +45.9% annualized return-on-investment) if Blackstone stock closes above the $36.00 strike price on the Aug 17th options expiration date.

Blackstone Group L.P. (BX) -- New Covered Calls Position
The implied volatility of the Call options was 25.2 when this position was established.  There is an ex-dividend this Friday (7/27) of $.58 which is included in the return-on-investment calculations below.

The transactions were as follows:
07/25/2018 Bought 500 shares of Blackstone Group stock @ $35.91 per share 
07/25/2018 Sold 5 BX August 17th, 2018 $36.00 Call options @ $.41 per share
07/27/2018 BX has $.58 per share ex-dividend

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $17,758.30
= ($35.91 - $.41)* 500 shares + $8.30 commissions

Net Profit Components:
(a) Options Income: +$205.00
= ($.41* 500 shares)
(b) Dividend Income: +$290.00
= $.58 ex-div per share  x 500 shares 
(c) Capital Appreciation (If BX stock is above $36.00 strike price at Aug 17th expiration): +$40.05
= ($36.00 -$35.91)* 500 shares - $4.95 commission

Total Net Profit: +$535.05
= (+$205.00 options income +$290.00 dividend income +$40.05 capital appreciation)

Absolute Return: +3.0%
= +$535.05/$17,758.30
Equivalent Annualized Return: +45.8%
= (+$535.95/$17,758.30)*(365/24 days)

Tuesday, July 24, 2018

Continuation Covered Calls Position in Deere & Co.

At the July 20th, 2018 options expiration, the two 100% Cash-Secured Put Options sold in Deere & Co. (ticker DE) expired with the stock price below the strike price.  So, the two Put options expired and 200 shares of John Deere stock was purchased at the $138.00 strike price.  Today, the Covered Calls Advisor continued this position and established a Covered Calls position by selling 2 Aug 17th, 2018 $140.00 Call options against the current long 200 shares held in Deere.

As detailed below, two potential return-on-investment results are:
  • +3.8% absolute return in 43 days (equivalent to a +32.5% annualized return-on-investment) if the price of Deere & Co. stock is unchanged at $137.32 at the August 17th options expiration; OR
  • +5.8% absolute return in 43 days (equivalent to a +49.0% annualized return-on-investment) if the price of John Deere stock increases above the $140.00 strike price on the Aug 17th expiration date 


  • Deere & Co. (DE) -- Continuation Covered Calls Position
    The transaction were as follows:
    07/05/2018  Sold 2 DE July 20, 2018 $138.00 100% cash-secured Put options @ $2.68
    07/20/2018 Two July 20th Put options expired with stock price below the strike price, so 200 shares of Deere stock were purchased at $138.00
    07/24/2018 Sold 2 Aug 17, 2018 $140.00 Call options @ $3.35
    Note: the price of Deere stock was $137.32 when these Calls were sold.

    Two possible overall performance result (including commissions) would be as follows:
    100% Cash-Secured Cost Basis: $27,600.00
    = $138.00*200 shares

    Net Profit:
    (a) Options Income: +$1,193.42
    = ($2.68 +$3.35) *200 shares - 2*$6.29 commissions
    (b) Dividend Income: +$0.00
    (c) Capital Appreciation (If Deere stock is unchanged at $137.32 at Aug 17,2018 expiration): -$136.00
    = ($137.32-$138.00)*200 shares; OR
    (c) Capital Appreciation (If Deere stock is above $140.00 strike price at August 17th,2018 expiration): +$400.00
    = ($140.00-$138.00)*200 shares

    1. Total Net Profit (If Deere stock price is unchanged at $137.32 at Aug 17th options expiration): +$1,057.42
    = (+$1,193.42 options income +$0.00 dividend income -$136.00 capital appreciation); OR
    2. Total Net Profit (If Deere stock price is above $140.00 strike price at Aug 17th options expiration): +$1,593.42
    = (+$1,193.42 options income +$0.00 dividend income +$400.00 capital appreciation)

    1. Absolute Return (If Deere stock is unchanged at $137.32 at Aug 17th options expiration): +3.8%
    = +$1,057.42/$27,600.00
    Annualized Return: +32.5%
    = (+$1,057.42/$27,600.00)*(365/43 days); OR
    2. Absolute Return (If Deere stock is above $140.00 strike price at Aug 17th, 2018 options expiration): +5.8%
    = +$1,593.42/$27,600.00
    Annualized Return: +49.0%
    = (+$1,593.42/$27,600.00)*(365/43 days)