Today, a new covered calls position was established in MetLife Inc. (ticker symbol MET) with an Oct2012 expiration and at the $33.00 strike price. The transactions are as follows:
09/26/2012 Bought 600 MET shares @ $33.80
09/26/2012 Sold 6 MET Oct2012 $33.00 Call Options @ $1.47
Note: the price of MET shares was $33.81 today when these options were sold.
A possible overall performance result (including commissions) for this MetLife Inc. (MET) covered calls position is as follows:
Stock Purchase Cost: $20,288.95
= ($33.80*600+$8.95 commission)
(a) Options Income: +$868.55
= ($1.47 X 600 shares) - $13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MET assigned at $33.00 upon expiration): -$488.95
=+($33.00-$33.80)*600 - $8.95 commissions
Total Net Profit (If MET assigned at $33.00 at Oct2012 expiration): +$310.00
= (+$868.55 +$0.00 -$558.55)
Absolute Return (If MET assigned at $33.00 at Oct2012 expiration): +1.5%
Annualized Return (If stock assigned): +22.3%
= (+$310.00/$20,288.95)*(365/25 days)
The downside 'breakeven price' at expiration is at $32.33 ($33.80 - $1.47). Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held 25 days until Oct2012 options expiration) for this MetLife Inc. covered calls position is 70.3%. This compares with a probability of profit of 50.8% for a buy-and-hold of MET over the same time period.
The 'crossover price' at expiration is $34.47 ($33.00 + $1.47). This is the price above which it would have been more profitable to simply buy-and-hold MET stock until October 20, 2012 (the Oct2012 options expiration date) rather than establishing the covered calls position. The probability of exceeding this crossover price at expiration is 42.1%.