Tuesday, October 25, 2011

Sold 100% Cash-Secured Puts -- Valero Energy Corp.

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in Valero Energy Corp.(VLO) with a Nov2011 expiration.

With total capacity of approximately 3.0 million barrels per day, Valero Energy Corp. is the largest petroleum refiner and marketer in the U.S. The company has the industry's most complex and sophisticated refining system. Most of its 16 refineries throughout the U.S., Canada and Aruba are able to process heavy, low-quality crude oil. The company has a growing network of retail outlets in the Great Plains, Southwest and Northeast.

VLO rates well above the minimum total points necessary for purchase on the CCAP 'Buy Alerts' spreadsheet (See below that Total Points of 18.24 is above this advisor's required threshold of 16.0), so it was decided to establish a position in VLO with a Nov2011 expiration.

Note: Click on chart above for larger image.

Valero Energy Corp. (VLO) -- New Position
The transaction was as follows:
10/25/2011 Sold 4 Valero Energy Corp.(VLO) Nov2011 $22.00 Put Options @ $1.75
Note: the price of VLO stock was $21.26 today when these puts were sold.

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.

Two possible overall performance results(including commissions) for this Valero Energy Corp.(VLO) transaction would be as follows:
100% Cash-Secured Cost Basis: $8,800.00
= $22.00*400

Net Profit:
(a) Options Income: +$688.05
= ($1.75*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If stock price unchanged at $21.26 and thus stock assigned at $22.00 at expiration): -$304.95
= ($21.26-$22.00)*500 - $8.95 commissions
(c) Capital Appreciation (If VLO stock above $22.00 at Nov2011 expiration): -$8.95
= ($22.00-$22.00) -$8.95 commissions

Total Net Profit(If stock price unchanged at $21.26): +$383.10
= (+$688.05 +$0.00 -$304.95)
Total Net Profit(If stock price above $22.00 at Nov2011 options expiration): +$679.10
= (+$688.05 +$0.00 -$8.95)

1. Absolute Return if Unchanged at $21.26: +4.4%
= +$383.10/$8,800.00
Annualized Return If Unchanged (ARIU): +63.6%
= (+$383.10/$8,800.00)*(365/25 days)

2. Absolute Return (If stock price above $22.00 at Nov2011 options expiration and put options thus expire worthless): +7.7%
= +$679.10/$8,800.00
Annualized Return (If stock price above $22.00 at expiration): +112.7%
= (+$679.10/$8,800.00)*(365/25 days)