Saturday, February 18, 2017

February 2017 Option Expiration Results

The Covered Calls Advisor Portfolio (CCAP) for the February 2017 options expiration benefited from the ongoing bull market and good results from those companies in the portfolio that released earnings reports during the past month. 

Twelve of the thirteen Feb2017 positions closed in-the-money at expiration, so the maximum possible return-on-investment result was achieved for each of these twelve positions: Alibaba Group Holdings, Amazon.com Inc., Capital One Financial, Celgene Corporation, Citigroup Inc., Energy Transfer Equity LP, Facebook Inc., Hanes Brands Inc., Hawaiian Holdings Inc., HCA Holdings Inc., JetBlue Airways Corp., and Metlife Inc.

For the other position (Las Vegas Sands Corp.), the price of the stock closed at $52.03 (below the $52.50 strike price). So the short Put options were assigned and 500 shares were purchased at $52.50. The shares will remain in the Covered Calls Advisor Portfolio until they are either sold or a continuation covered calls position is established by selling Mar2017 call options against the shares owned.

I.  For the twelve closed positions:
The return-on-investment results for each position was:
  • Alibaba Group Holdings = +2.6% absolute return (+26.7% annualized return)
  • Amazon.com Inc. = +2.3% absolute return (+22.9% annualized return)
  • Capital One Financial = +0.8% absolute return (+24.9% annualized return)
  • Celgene Corporation = +2.1% absolute return (+30.1% annualized return)
  • Citigroup Inc. = +5.8% absolute return (+68.5% annualized return)
  • Energy Transfer Equity LP = +3.7% absolute return (+70.3% annualized return)
  • Facebook Inc. = +1.6% absolute return (+30.1% annualized return)
  • Hanes Brands Inc. = +3.1% absolute return (+29.8% annualized return)
  • Hawaiian Holdings Inc. = +1.4% absolute return (+15.4% annualized return)
  • HCA Holdings Inc. = +2.0% absolute return (+39.1% annualized return)
  • JetBlue Airways Corp. = +1.9% absolute return (+33.9% annualized return)
  • Metlife Inc. = +1.3% absolute return (+25.0% annualized return)
The cash now available in the Covered Calls Advisor Portfolio from the closing of these positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new positions established with this available cash will be posted on this site on the same day the transactions occur.  As examples of how return-on-investment results are calculated, one short 100% Cash-Secured Put options position (Alibaba) and one Covered Calls position (Capital One Financial) are presented in detail below.  


1. Alibaba Group Holdings -- 100% Cash-Secured Put Options Position Closed at Expiration
The transactions were as follows:
01/12/2017 Sold 4 Feb2017 $92.50 Puts @ $2.46
Note: The price of Alibaba was $95.13 when this transaction was executed.
02/17/2017 4 short BABA options expired
Note: the price of BABA was $100.52 upon options expiration 

The overall performance result (including commissions) for these short Alibaba Put options was:
Investment (100% Cash-Secured Basis): $37,000.00
= $92.50*400 shares

Net Profit:
(a) Options Income: +$974.25
= 400*$2.46 - $9.75 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation = +$0.00 (short Put options expired)

Total Net Profit: +$974.25
= (+$974.25 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +2.6%
= +$974.25/$37,000.00
Annualized Return: +26.7%
= (+$974.25/$37,000.00)*(365/36 days)

2. Capital One Financial -- Covered Calls Position Closed at Expiration
The transactions were as follows:
02/06/2017  Bought 300 Capital One Financial shares @ $87.78
02/06/2017 Sold 3 COF Feb2017 $85.50 Call options @ $2.63
Note: this was a simultaneous buy/write transaction.
02/09/2017 Ex-dividend of $120.00 ($.40 per share x 300 shares)
02/17/2017 3 COF Call options were in-the-money at the Feb2017 options expiration, so 300 shares of COF were sold at the $85.50 strike price
Note: the closing price of COF was $91.81 upon the options expiration

The overall performance result (including commissions) was as follows:
Bought 300 shares COF: $26,340.95
= $87.78*300 + $6.95 commission

Net Profit:
(a) Options Income: +$786.90
= ($2.63*300 shares) - $2.10 commissions
(b) Dividend Income: +$120.00
= $.40 per share * 300 shares
(c) Capital Appreciation (COF was above $85.50 strike price at Feb2017 expiration): -$690.95
= ($85.50-$87.78)*300 shares - $6.95 commissions

Total Net Profit (COF was above $85.50 strike price at Feb2017 options expiration): +$215.95
= (+$786.90 options income +$120.00 dividends -$690.95 capital appreciation)

Absolute Return: +0.8%
= +$215.95/$26,340.95
Annualized Return: +24.9%
= (+$215.95/$26,340.95)*(365/12 days)


II. For the one continuing position:
The position that ended at Feb2017 options expiration with the price of the stock below the strike price was Las Vegas Sands Corp (500 shares of  LVS stock).

This position in Las Vegas Sands is included in the listing of the current Covered Calls Advisor Portfolio shown in the right sidebar on this page. For this position, the long shares will remain in the Portfolio until they are either sold or new Covered Calls are established by selling associated Mar2017 options against the stock currently held.   In either case, transactions and overall position results will be posted on this site on the same day they occur.

Thursday, February 16, 2017

Established New Position in Hawaiian Holdings Inc.

Today, a new position was established in Hawaiian Holdings Inc.(ticker HA) by selling ten March 2017 100% cash-secured Put options at the $50 strike price.  The short Puts were chosen instead of the comparable covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.

As detailed below, there is potential for a +2.9% absolute return in 30 days (equivalent to a +34.8% annualized return-on-investment).

Hawaiian Holdings Inc. (HA) -- New 100% Cash-Secured Puts Position
This position was established when the price of Hawaiian Holdings was $50.65 (1.3% downside protection to the strike price) and 30 days remaining until the options expiration date.

The implied volatility of the Put options was 29.3 when this position was established; so the $1.45 price received per share received when the Puts were sold is a nice premium to receive for these 1.3% out-of-the-money Put options.    

The transaction was as follows:
02/16/2017  Sold 5 HA Mar2017 $50.00 100% cash-secured Put options @ $1.45
Note: the price of HA was $50.65 when this transaction was executed.

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

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $24,993.05
= $50.00*500 - $6.95 commission
Note: the price of HA was $50.65 when these options were sold

Net Profit:
(a) Options Income: +$714.55
= ($1.45*500 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HA is above $50.00 strike price at Mar2017 expiration): +$0.00
= ($50.00-$50.00)*500 shares

Total Net Profit (If Hawaiian Holdings stock price is above $50.00 strike price at Mar2017 options expiration): +$714.55
= (+$714.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If HA is above $50.00 strike price at Mar2017 options expiration): +2.9%
= +$714.55/$24,993.05
Annualized Return: +34.8%
= (+$714.55/$24,993.05)*(365/30 days)

The downside 'breakeven price' at expiration is at $48.55 ($50.00 - $1.45), which is 4.1% below the current market price of $50.65.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Mar 17th, 2017 options expiration) for this Hawaiian Holdings short Puts position is 58.2%. This compares with a probability of profit of 50.3% for a buy-and-hold of HA shares over the same time period. Using this probability of profit of 58.2%, the expected value annualized return-on-investment (if held until expiration) is +20.3% (+34.8% * 58.2%), an attractive risk/reward profile for this investment.  

The 'crossover price' at expiration is $52.10 ($50.65 + $1.45).  This is the price above which it would have been more profitable to simply buy-and-hold HA stock until the Mar2017 options expiration date rather than selling these Put options.

Established a 100% Cash-Secured Puts Position in Noble Energy, Inc.

Today, the Covered Calls Advisor established a 100% Cash-Secured Puts position in Noble Energy, Inc.(Ticker Symbol NBL) with a Mar2017 expiration.  As detailed below, this investment will provide a +2.9% absolute return in 30 days (which is equivalent to a +35.2% annualized return) if Noble Energy stock closes at or above $37.50 at options expiration on Mar 17th.  Ten slightly in-the-money Put options were sold with the strike price of $37.50 near the stock price of $37.45 when these options were sold.
Note: This potential result exceeds the Covered Calls Advisor's desired threshold of >20% annualized return-on-investment.  

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

Noble Energy, Inc. (NBL)
The transaction is as follows:
02/16/2017 Sold 10 Mar2017 $37.50 Puts @ $1.10
Note: The price of Noble Energy was $37.45 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 ten Put options sold.

A possible overall performance result (including commissions) for this Noble Energy transaction would be as follows:
100% Cash-Secured Cost Basis: $37,506.95 = $37.50*1,000 + $6.95 commission

Net Profit:
(a) Options Income: +$1,086.05
= ($1.10*1,000 shares) - $13.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If NBL closes above $37.50 at Mar2017 expiration): +$0.00
= ($37.50-$37.50)*1,000 shares

Total Net Profit (If NBL is above $37.50 strike price at Mar2017 options expiration):+$1,086.05 
= (+$1,086.05 +$0.00 +$0.00)

Absolute Return: +2.9%
= +$1,086.05/$37,506.95
Annualized Return: +35.2%
= (+$1,086.05/$37,506.95)*(365/30 days)

The downside 'breakeven price' at expiration is at $36.40 ($37.50 - $1.10), which is 2.8% below the current market price of $37.45.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Mar 17th, 2017 options expiration) for this Noble Energy short Puts position is 50.7%. This compares with a probability of profit of 50.3% for a buy-and-hold of Noble Energy stock over the same time period. Using this probability of profit of 50.7%, the Expected Value annualized ROI of this investment (if held until expiration) is +17.8% (+35.2% * 50.7%).
 
The 'crossover price' at expiration is $38.55 ($37.45 + $1.10).  This is the price above which it would have been more profitable to simply buy-and-hold Noble Energy stock until Mar 17th (the Mar2017 options expiration date) rather than holding these short Put options.

Tuesday, February 14, 2017

Established New Position in Dick's Sporting Goods Inc.

Today, the Covered Calls Advisor established a new position in Dick's Sporting Goods Inc. (ticker symbol DKS) by selling five Mar2017 Put options at the $48.00 strike price. This position is a conservative one since it was established when the price of DKS was $50.91 (5.7% downside protection to the strike price) and 32 days remaining until the options expiration date.

As detailed below, the Dick's Sporting Goods Inc. investment will yield a +3.3% absolute return in 32 days (which is equivalent to a +37.5% annualized return-on-investment) if Dick's stock closes above the $48.00 strike price on the Mar 17th options expiration date. 

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

The implied volatility of the Put options was 45 when this position was established; so the $1.60 price per share received when the Puts were sold is a nice premium to receive for these 5.7% out-of-the-money Put options.     

1. Dick's Sporting Goods Inc. (DKS) --
The transaction was as follows:
02/14/2017  Sold 5 DKS 100% cash-secured $48.00 Put options with Mar2017 expirations @ $1.60
Note: the price of Dick's stock was $50.91 today when this transaction was executed.

A potential performance result (including commissions) could be as follows:
100% Cash-Secured Cost Basis: $24,006.95
= $48.00*500 shares + $6.95 commission

Net Profit:
(a) Options Income: +$789.55
= ($1.60 * 500 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If DKS closes above $48.00 strike price at Mar2017 expiration): +$0.00
= ($48.00 -$48.00)*500 shares

Total Net Profit: +$789.55
= (+$789.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +3.3%
= +$789.55/$24,006.95
Annualized Return: +37.5%
= (+$789.55/$24,006.95)*(365/32 days)

The downside 'breakeven price' at expiration is at $46.40 ($48.00 - $1.60), which is 8.9% below the current market price of $50.91.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the March 17th, 2017 options expiration) for this Dick's Sporting Goods short Puts position is 70%. This compares with a probability of profit of 50.3% for a buy-and-hold of Dick's stock over the same time period. Using this probability of profit of 70%, the expected value annualized return-on-investment (if held until expiration) is +26.3% (+37.5% maximum potential annualized return on investment * 70%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $52.51 ($50.91 + $1.60).  This is the price above which it would have been more profitable to simply buy-and-hold Dick's Sporting Goods Inc. stock until the Feb2017 options expiration date rather than selling these Put options.