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Tuesday, August 28, 2012

Sold 100% Cash-Secured Puts -- United Continental Holdings Inc.

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in United Continental Holdings Inc.(Symbol UAL) with a Sep2012 expiration.

The transaction was as follows:
08/28/2012 Sold 7 United Continental Holdings Inc.(UAL) Sep2012 $18.00 Put Options @ $.52
Note: the price of UAL was $18.75 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 seven Put options sold.

A possible overall performance results(including commissions) for this UAL transaction would be as follows:
100% Cash-Secured Cost Basis: $12,600.00 = $18.00*700

Net Profit:
(a) Options Income: +$349.80
= ($.52*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UAL above $18.00 at Sep2012 expiration): +$0.00
= ($18.00-$18.00)*700

Total Net Profit (If UAL remains above $18.00 at Sep2012 options expiration): +$349.80  = (+$349.80 +$0.00 +$0.00)

Absolute Return (If UAL above $18.00 at Sep2012 options expiration and Put options thus expire worthless): +2.8%
= +$349.80/$12,600.00
Annualized Return (If stock price above $18.00 at expiration): +40.5%
= (+$349.80/$12,600.00)*(365/25 days)

The downside 'breakeven price' at expiration is at $17.48 ($18.00 - $.52). Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Sep2012 options expiration) for this United Continental (UAL) cash-secured Puts position is 74.8%. This compares with a probability of profit of 50.2% for a buy-and-hold of UAL over the same time period.

The 'crossover price' at expiration is $19.27 ($18.75 + $.52). This is the price above which it would have been more profitable to simply buy-and-hold GM until Sept 21st (the Sep2012 options expiration date) rather than holding the short Put options. The probability of exceeding this crossover price at expiration is 43.0%.

1 comment:

  1. Buenas Tardes
    Estoy siguiendo su blog y me parece muy interesante.
    Veo que en el dia de hoy abrió una Naked Put en UAL
    Soy un novato en las inversiones y estoy utilizando ultimamente los covered call
    Me podría usted indicar que vio en UAl para elegirlo a parte de tener un claro soporte en los 18 $

    Desde ya muchas gracias y saludos desde Argentina