Tuesday, December 31, 2013

Continuation -- Noble Corp. Covered Calls

Upon Dec2013 options expiration, the 100% cash-secured puts position in Noble Corp (Ticker Symbol NE) expired with NE closing at $36.32 which was below the $37.00 strike price.  So, 300 shares of NE were assigned to the Covered Calls Advisor Portfolio.  Today, a covered calls position was established at the $37.00 strike price by selling 3 Jan2014 $37.00 call options.  As detailed below, this investment will provide an overall +5.2% absolute return in 75 days (which is equivalent to a +25.4% annualized return) if the stock closes at or above $37.00 at options expiration on January 17th.
The details of the associated transactions and a potential return-on-investment result are as follows:

1. Noble Corp. (NE)
The transactions were as follows:
11/04/2013 Sold 3 Dec2013 $37.00 Noble Corp 100% Cash-Secured Put Options @ $1.24
Note: the price of NE was $37.32 when these options were sold
12/20/2013 Purchased 300 NE shares assigned at $37.00 strike price
Note: the price of NE was $36.32 at Dec2013 options expiration
12/31/2013 Sold 3 Jan2014 $37.00 Noble Corp Call Options @ $.80
Note: the price of NE was $36.97 when these options were sold

A possible overall performance result (including commissions) for these Noble Corp covered calls is as follows:
Stock Purchase Cost: $11,108.95
= ($37.00*300+$8.95 commission)

Net Profit:
(a) Options Income: +$589.60
= 300*($1.24+$.80) - 2*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If NE assigned at $37.00) = -$8.95
= ($37.00-$37.00)*300 - $8.95 commissions

Total Net Profit (If NE assigned at $37.00): +$580.65
= (+$589.60 +$0.00 -$8.95)

Absolute Return if Assigned (at $37.00): +5.2%
= +$580.65/$11,108.95
Annualized Return If Assigned (ARIA): +25.4%
= (+$580.65/$11,108.95)*(365/75 days)

Sunday, December 29, 2013

December 2013 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained four positions with December 2013 expirations.  A summary of the results is as follows:

-  Two of the four positions (Citigroup Inc. and ProShares UltraShort 20+ Year Treasury ETF) were closed out at expiration.  This was the optimal result for these two positions in that the maximum potential return-on-investment (ROI) results from when the positions were established were actually achieved.  The annualized ROIs for these closed positions are:
Citigroup Inc. = +2.4% absolute return (equivalent to +17.2% annualized return for the 50 day holding period)
ProShares UltraShort 20+ Year Treasury ETF = +2.0% absolute return (equivalent to +21.6% annualized return for the 34 day holding period)


The detailed transactions history and results for these two closed positions is detailed below.  The cash available from the closing of these positions will be retained in the Covered Calls Advisor Portfolio until new covered calls and/or 100% cash-secured puts positions are established (most likely in the next week or two).  These transactions will be posted on this blog the same day they occur.

- Two of the four positions ended at expiration with long stock positions (Agnico Eagle Mines LTD and Noble Corp).  The three Noble Corp. 100% cash-secured Puts were assigned at their $37.00 strike price since NE closed at Dec2013 options expiration at $36.32, below the $37.00 strike price.  The covered calls position in Agnico Eagle Mines its options expire since the stock price closed on Dec2013 expiration Friday at $25.19, well below the Dec2013 options' $27.50 strike price.  So, the Covered Calls Advisor Portfolio (CCAP) now owns 600 long shares in Agnico Eagle and 300 long shares in Noble Corp  A decision will be made either sell these shares or to continue with covered calls positions by selling Jan2014 call options against the current long stock holdings.  When these decisions are made and the accompanying transactions are completed, a post will be made on this blog on the same day with the transaction details.

Details of the transactions and associated return-on-investment results for the two closed positions are as follows:

1. Citigroup Inc. (Symbol C) -- Closed
The transactions were as follows:
11/01/2013 Bought 400 Citigroup Inc. Shares at $48.72
11/04/2013 Sold 4 Citi Dec2013 $48.00 Call Options at $1.92
Note: the price of Citi was $48.92 when these call options were sold

The overall performance result (including commissions) for these Citigroup covered calls was as follows:
Stock Purchase Cost: $19,496.95
= ($48.72*400+$8.95 commission)

Net Profit:
(a) Options Income: +$756.05
= 400*$1.92 - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation = -$296.95
= ($48.00-$48.72)*400 - $8.95 commissions

Total Net Profit: +$459.10
= (+$756.05 +$0.00 -$296.95)

Absolute Return: +2.4%
= +$459.10/$19,496.95
Annualized Return: +17.2%
= (+$459.10/$19,496.95)*(365/50 days)


2. ProShares UltraShort 20+ Year Treasury ETF (TBT) -- Closed
The transaction was as follows:
11/18/2013 Sold 3 Dec2013 $75.00 Puts @ $1.51
Note: The price of TBT was $75.65 when this transaction was executed.

The overall performance result (including commissions) for this ProShares UltraShort 20+ Year Treasury ETF transaction was as follows:
100% Cash-Secured Cost Basis: $22,500.00 = $75.00*300
Note:  the price of TBT was $75.00 when these Put options were sold.

Net Profit:
(a) Options Income: +$453.00
= ($1.51*300 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (TBT closed above $75.00 at Dec2013 expiration): +$0.00
= ($75.00-$75.00)*300 shares

Total Net Profit:+$453.00 
= (+$453.00 +$0.00 +$0.00)

Absolute Return: +2.0%
= +$453.00/$22,500.00
Annualized Return: +21.6%
= (+$453.00/$22,500.00)*(365/34 days)

Monday, November 18, 2013

Established a 100% Cash-Secured Puts Position in ProShares UltraShort 20+ Year Treasury ETF

Today, the Covered Calls Advisor established a 100% Cash-Secured Puts position in ProShares UltraShort 20+ Year Treasury ETF (Ticker Symbol TBT) with a Dec2013 expiration and at the $75.00 strike price.  As detailed below, this investment will provide a +2.0% absolute return in 34 days (which is equivalent to a +21.6% annualized return) if TBT closes at or above $75.00 at options expiration on Dec 21st.

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

ProShares UltraShort 20+ Year Treasury ETF (TBT)
The transaction is as follows:
11/18/2013 Sold 3 Dec2013 $75.00 Puts @ $1.51
Note: The price of TBT was $75.65 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 three Put options sold.

A possible overall performance result (including commissions) for this ProShares UltraShort 20+ Year Treasury ETF transaction would be as follows:
100% Cash-Secured Cost Basis: $22,500.00 = $75.00*300
Note:  the price of TBT was $75.00 when these Put options were sold.

Net Profit:
(a) Options Income: +$453.00
= ($1.51*300 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT remains above $75.00 at Dec2013 expiration): +$0.00
= ($75.00-$75.00)*300 shares

Total Net Profit (If TBT is above $75.00 strike price at Dec2013 options expiration):+$453.00 
= (+$453.00 +$0.00 +$0.00)

Absolute Return (If TBT is above $75.00 at Dec2013 options expiration and Put options thus expire worthless): +2.0%
= +$453.00/$22,500.00
Annualized Return (If TBT above $75.00 at expiration): +21.6%
= (+$453.00/$22,500.00)*(365/34 days)

The downside 'breakeven price' at expiration is at $73.49 ($75.00 - $1.51), which is 2.9% below the current market price of $75.65.
The 'crossover price' at expiration is $76.51 ($75.00 + $1.51). This is the price above which it would have been more profitable to simply buy-and-hold the ProShares UltraShort 20+ Year Treasury ETF until Dec 21st (the Dec2013 options expiration date) rather than holding these short Put options.

November 2013 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained seven positions with November 2013 expirations.  The options closed in-the-money for all seven positions (Aetna Inc., Hertz Global Holdings Inc., iShares MSCI China ETF, Noble Corp., 2 positions in ProShares UltraShort 20+ Year Treasury ETF, and Transocean Inc.), so all seven positions were closed out upon Nov2013 options expiration.  This was the optimal result in that the maximum potential return-on-investment (ROI) results were achieved for each investment. 

The annualized ROIs for these closed positions are:
1. Aetna Inc. = +1.6% absolute return (equivalent to +24.0% annualized return for the 24 day holding period)
2. Hertz Global Holdings Inc. = +3.6% absolute return (equivalent to +54.9% annualized return for the 24 day holding period)
3. iShares MSCI China ETF = +1.5% absolute return (equivalent to +23.1% annualized return for the 23 day holding period)

4. Noble Corp. = +5.9% absolute return (equivalent to +33.8% annualized return for the 64 day holding period)
5. ProShares UltraShort 20+ Year Treasury ETF = +4.4% absolute return (equivalent to +35.8% annualized return for the 45 day holding period)
6. ProShares UltraShort 20+ Year Treasury ETF = +2.8% absolute return (equivalent to +33.4% annualized return for the 31 day holding period)

7. Transocean Inc. = +3.3% absolute return (equivalent to +12.0% annualized return for the 100 day holding period)

The detailed transactions history and results for each of the seven closed positions is provided below.  The cash available from the closing of these positions will be retained in the Covered Calls Advisor Portfolio until new covered calls and/or 100% cash-secured puts positions are established (most likely in the next week).  These transactions will be posted on this blog the same day they occur.

1. Aetna Inc.(AET) -- Closed
The transactions were as follows:
10/24/2013 Bought 300 AET shares @ $61.61
10/24/2013 Sold 3 AET Nov2013 $60.00 Call Options @ $2.65
11/15/2013 3 AET options assigned and 300 shares of AET sold for $60.00
Note: price of AET was $65.08 upon Nov2013 options expiration

The performance result (including commissions) for these Aetna Inc. covered calls was as follows:
Stock Purchase Cost: $18,491.95
= ($61.61*300+$8.95 commission)

Net Profit:
(a) Options Income: +$783.80
= 300*$2.65 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (AET assigned at $60.00) = -$491.95
= ($60.00-$61.61)*300 - $8.95 commissions

Total Net Profit (AET assigned at $60.00): +$291.85
= (+$783.80 +$0.00 -$491.95)

Absolute Return (AET Assigned at $60.00): +1.6%
= +$291.85/$18,491.95
Annualized Return: +24.0%
= (+$291.85/$18,491.95)*(365/24 days)



2. Hertz Global Holdings Inc.(HTZ) -- Closed
The transaction was as follows:
10/24/2013 Sold 7 Hertz (HTZ) Nov2013 $23.00 Put Options @ $.85
Note: the price of HTZ was $23.33 when these Puts were sold.
11/15/2013 7 HTZ Put options expired
Note: price of HTZ was $23.68 upon Nov options expiration
The overall performance result (including commissions) for this HTZ transaction was as follows:
100% Cash-Secured Cost Basis: $16,100.00
= $23.00*700

Net Profit:
(a) Options Income: +$580.80
= ($.85*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (HTZ above $23.00 at Nov2013 expiration): +$0.00
= ($23.00-$23.00)*700 shares

Total Net Profit (HTZ above $23.00 strike price at Nov2013 options expiration): +$580.80
= (+$580.80 +$0.00 +$0.00)

Absolute Return (HTZ above $23.00 at Nov2013 options expiration and Put options thus expire worthless): +3.6%
= +$580.80/$16,100.00
Annualized Return: +54.9%
= (+$580.80/$16,100.00)*(365/24 days)


3. iShares MSCI China ETF (FXI) -- Closed
The transactions were as follows:
10/25/2013 Bought 600 FXI shares @ $36.40
10/25/2013 Sold 6 FXI Nov2013 $36.00 Call Options @ $.95
11/15/2013 6 FXI Call options in-the-money at Nov2013 expiration and thus 600 FXI shares sold at $36.00
Note: price of FXI was $38.44 at Nov2013 expiration

The overall performance result (including commissions) for these iShares MSCI China ETF covered calls was as follows:
Stock Purchase Cost: $21,848.95
= ($36.40*600+$8.95 commission)

Net Profit:
(a) Options Income: +$566.55
= 600*$.95 - $13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (FXI assigned at $36.00) = -$248.95
= ($36.00-$36.40)*600 - $8.95 commissions

Total Net Profit (FXI assigned at $36.00): +$317.60
= (+$566.55 +$0.00 -$248.95)

Absolute Return (FXI assigned at $36.00): +1.5%
= +$317.60/$21,848.95
Annualized Return: +23.1%
= (+$317.60/$21,848.95)*(365/23 days)


4. Noble Corp.(NE) -- Closed
The transactions were as follows:
09/13/2013 Bought 300 NE shares @ $38.91
09/13/2013 Sold 3 NE Oct2013 $38.00 Call Options @ $2.10
10/18/2013 Oct2013 options expired
Note: the price of NE was $37.98 upon Oct2013 options expiration
10/21/2013 Sold 3 NE Nov2013 Call options @ $.97
Note: the price of NE was $38.02 when these options were sold.
11/01/2013 Ex-dividend of $.25 per share
11/15/2013 3 NE options were in-the-money at Nov2013 expiration, so the 300 NE shares were sold at $38.00
The overall performance result (including commissions) for these Noble Corp covered calls was as follows:
Stock Purchase Cost: $11,681.95
= ($38.91*300+$8.95 commission)

Net Profit:
(a) Options Income: +$898.60
= 300*($2.10+$.97) - 2*$11.20 commissions
(b) Dividend Income: +$75.00 = $.25 *300 shares
(c) Capital Appreciation (NE assigned at $38.00) = -$281.95
= ($38.00-$38.91)*300 - $8.95 commissions

Total Net Profit (NE assigned at $38.00): +$691.65
= (+$898.60 +$75.00 -$281.95)

Absolute Return (Assignment at $38.00): +5.9%
= +$691.65/$11,681.95
Annualized Return: +33.8%
= (+$691.65/$11,681.95)*(365/64 days)


5. ProShares UltraShort 20+ Year Treasury ETF (TBT) -- Closed
The transaction is as follows:
10/02/2013 Sold 7 Oct2013 $74.00 Puts @ $1.33
Note: The price of TBT was $74.93 when this transaction was executed.
10/18/2013 Oct2013 Put options expired and 700 shares of TBT purchased at $74.00
Note: the price of TBT was $73.78 upon Oct2013 options expiration
10/21/2013 Sold 7 TBT Nov2013 Call options @ $1.98
11/15/2013 7 TBT Nov2013 call options expired in-the-money, so 700 shares sold for $74.00 at Nov2013 options expiration.
Note: TBT was priced at $76.45 at Nov2013 options expiration

The overall performance result (including commissions) for this ProShares UltraShort 20+ Year Treasury ETF position would was as follows:
100% Cash-Secured Cost Basis: $51,800.00 = $74.00*700

Net Profit:
(a) Options Income: +$2,288.60
= ($1.33+$1.98)*700 shares - 2*$14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (TBT above $74.00 at Nov2013 expiration): +$0.00
= ($74.00-$74.00)*700 shares

Total Net Profit (TBT closed above $74.00 strike price at Nov2013 options expiration): +$2,288.60
= (+$2,288.60 +$0.00 +$0.00)

Absolute Return (TBT closed above $74.00 at Nov2013 options expiration): +4.4%
= +$2,288.60/$51,800.00
Annualized Return: +35.8%
= (+$2,288.60/$51,800.00)*(365/45 days)


6. ProShares UltraShort 20+ Year Treasury ETF (TBT) -- Closed
The transaction is as follows:
10/17/2013 Sold 3 Nov2013 $74.00 Puts @ $2.10
Note: The price of TBT was $74.00 when this transaction was executed.
11/15/2013 TBT options expired at Nov2013 expiration
Note: the price of TBT was $76.45 upon Nov2013 options expiration date.

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 three Put options sold.

The overall performance result (including commissions) for this ProShares UltraShort 20+ Year Treasury ETF transaction was as follows:
100% Cash-Secured Cost Basis: $22,200.00 = $74.00*300
Note: the price of TBT was $74.00 when these Put options were sold.

Net Profit:
(a) Options Income: +$630.00
= ($2.10*300 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (TBT closed above $74.00 at Nov2013 expiration): +$0.00
= ($74.00-$74.00)*300 shares

Total Net Profit (TBT above $74.00 strike price at Nov2013 options expiration):+$630.00
= (+$630.00 +$0.00 +$0.00)

Absolute Return (TBT closed above $74.00 at Nov2013 options expiration and Put options thus expired worthless): +2.8%
= +$630.00/$22,200.00
Annualized Return (TBT closed above $74.00 at expiration): +33.4%
= (+$630.00/$22,200.00)*(365/31 days)


7. Transocean Inc.(RIG) -- Closed
08/08/2013 Bought 200 RIG shares @ $48.76
08/08/2013 Sold 2 RIG Sep2013 $48.00 Call Options @ $1.65
08/21/2013 Ex-dividend of $.56 per share
09/20/2013 2 RIG Sep2013 $48.00 Calls expired 10/17/2013
Sold 2 RIG Nov2013 $47.00 Call Options @ $.75
Note: the price of RIG was $45.82 when these options were sold
11/13/2013 Ex-dividend of $.56 per share
11/15/2013 2 RIG options were in-the-money and 200 RIG shares were sold at the $47.00 strike price
Note: price of RIG was $54.44 upon Nov2013 options expiration.
The overall performance results (including commissions) for this Transocean Inc. (RIG) covered calls position are as follows:
Stock Purchase Cost: $9,760.95
= ($48.76*200+$8.95 commission)

Net Profit:
(a) Options Income: +$459.10
= ($1.65+$.75)*200 shares - 2*$10.45 commissions
(b) Dividend Income: +$224.00 = ($.56 x 2 dividend per share x 200 shares);
(c) Capital Appreciation (stock assigned at $47.00 at Nov2013 expiration): -$360.95
= +($47.00-$48.76)*200 - $8.95 commissions

Total Net Profit (RIG assigned at $47.00 at Nov2013 expiration): +$322.15
= (+$459.10 +$224.00 -$360.95)

Absolute Return (RIG assigned at $47.00 at Nov2013 expiration): +3.3%
= +$322.15/$9,760.95
Annualized Return: +12.0%
= (+$322.15/$9,760.95)*(365/100 days)

Monday, November 4, 2013

Established Three New Positions

Today, three new Dec2013 positions were established by the Covered Calls Advisor as follows:

1. Citigroup Inc. (Ticker Symbol C)
11/01/2013 Bought 400 Citigroup Inc. Shares at $48.72
11/04/2013 Sold 4 Citi Dec2013 $48.00 Call Options at $1.92
Note: the price of Citi was $48.92 when these call options were sold

2. iPath S&P500 VIX Short-Term Futures ETN (VXX) 100% Cash-Secured Put Options
11/04/2013 Sold 7 Dec2013 $14.00 VXX 100% Cash-Secured Put Options @ $1.87
Note: the price of VXX was $12.77 when these options were sold.

3. Noble Corp. (Ticker Symbol NE)
11/04/2013 Sold 3 Dec2013 $37.00 Noble Corp 100% Cash-Secured Put Options @ $1.24
Note: the price of NE was $37.32 when these options were sold

Thursday, October 31, 2013

Established Holly Frontier Corporation Covered Calls -- Example of Early Assignment or Dividend Capture Strategy

Today, a new covered calls position was established in Agnico Eagle Mines Ltd. (Ticker Symbol AEM) with a Dec2013 expiration and at the $27.50 strike price. The transactions are as follows:

10/31/2013 Bought 600 AEM shares @ $29.086
10/31/2013 Sold 6 AEM Dec2013 $27.50 Call Options @ $2.72
Note: the price of AEM was $29.20 today when these options were sold.
11/27/2013 Ex-dividend of $.22 per share

This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend of $.22 with an ex-dividend date of November 27th.  Although unlikely, if the current time value (i.e. extrinsic value) of $1.134 [$2.72 option premium - ($29.086 stock price - $27.50 strike price)] remaining in the short call option decays to less than $.22 by November 26th (the day prior to the ex-div date), then there is a possibility that the call options owner will exercise early and will call the stock away to capture the dividend. As shown below, two potential returns for this position are:
If Early Assignment: +3.8% absolute return (equivalent to +51.8% annualized return for the next 27 days) if the stock is assigned early (day prior to Nov 27th ex-div date); OR
If Dividend Capture:  +4.6% absolute return (equivalent to +32.2% annualized return over the next 52 days) if the stock is assigned at Dec 2013 expiration on December 20th.

As is often the case, early assignment provides a higher annualized return, so this is the Covered Calls Advisor's preferred outcome; but either outcome would provide a very good return.  These returns will be achieved as long as the stock is above the $27.50 strike price at assignment -- a nice 4.7% of downside protection.  Alternatively, if the stock declines below the strike price, the breakeven price of $26.146 ($29.086-$.22-$2.72) provides a very substantial 9.4% downside protection. 

In summary, this covered calls investment provides a very nice annualized ROI potential for such a conservative (hedged with substantial downside protection and the next earnings announcement is after the December options expiration date) investment. 

Two possible overall performance results (including commissions) for this Agnico Eagle(AEM) covered calls position are as follows:
Stock Purchase Cost: $17,460.55
= ($29.086*600+$8.95 commission)

Net Profit:
(a) Options Income: +$1,618.55
= ($2.72*600 shares) - $13.45 commissions
(b) Dividend Income (If option exercised early on day prior to Nov 27th ex-div date): +$0.00
(b) Dividend Income (If stock assigned at Dec2013 expiration): +$132.00 = ($.22 dividend per share x 600 shares); or
(c) Capital Appreciation (If stock assigned early on Nov 26th): -$949.75
+($27.50-$29.086)*600 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $27.50 at Dec2013 expiration): -$949.75
+($27.50-$29.086)*600 - $8.95 commissions

Total Net Profit (If option exercised on day prior to Nov 27th ex-div date): +$668.80
= (+$1,618.55 +$0.00 -$949.75); or
Total Net Profit (If stock assigned at $27.50 at Dec2013 expiration): +$800.80
= (+$1,618.55 +$132.00 -$949.75)

1. Absolute Return (If option exercised on day prior to Nov 27th ex-div date): +3.8%
= +$668.80/$17,460.55
Annualized Return (If option exercised early): +51.8%
= (+$668.80/$17,460.55)*(365/27 days); OR

2. Absolute Return (If stock assigned at $27.50 at Dec2013 expiration): +4.6%
= +$800.80/$17,460.55
Annualized Return (If stock assigned): +32.2%
= (+$800.80/$17,460.55)*(365/52 days);

Saturday, October 26, 2013

Established iShares MSCI China ETF Covered Calls

Yesterday, a new covered calls position was established in iShares MSCI China ETF  (Ticker Symbol FXI).  This FXI position was established at the $36.00 strike price and with a Nov2013 expiration. As detailed below, this investment will provide a +1.5% absolute return in 23 days (which is equivalent to a +23.1% annualized return) if FXI closes at or above $36.00 at options expiration on Nov 15th.  The current Greek value of Delta for this option of 58.1% provides a good estimate of the probability that the stock price will be above the $36.00 strike price at Nov2013 options expiration. Thus, the resulting expected value of the annualized ROI for this investment is +13.4% = (+23.1%x 58.1%).

The details of the associated transactions and a potential return-on-investment result are as follows:

1. iShares MSCI China ETF (FXI)
The transactions were as follows:
10/25/2013 Bought 600 FXI shares @ $36.40
10/25/2013 Sold 6 FXI Nov2013 $36.00 Call Options @ $.95

A possible overall performance result (including commissions) for these iShares MSCI China ETF covered calls is as follows:
Stock Purchase Cost: $21,848.95
= ($36.40*600+$8.95 commission)

Net Profit:
(a) Options Income: +$566.55
= 600*$.95 - $13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI assigned at $36.00) = -$248.95
= ($36.00-$36.40)*600 - $8.95 commissions

Total Net Profit (If FXI assigned at $36.00): +$317.60
= (+$566.55 +$0.00 -$248.95)

Absolute Return if Assigned (at $36.00): +1.5%
= +$317.60/$21,848.95
Annualized Return If Assigned (ARIA): +23.1%
= (+$317.60/$21,848.95)*(365/23 days)

The downside 'breakeven price' at expiration is at $35.45 ($36.40 - $.95), which is 2.6% below the current market price of $36.40.

The 'crossover price' at expiration is $37.35 ($36.40 + $.95). This is the price above which it would have been more profitable to simply buy-and-hold iShares MSCI China ETF until November 15th (the Nov2013 options expiration date) rather than establishing this covered calls position.

Thursday, October 24, 2013

Established Covered Calls Position in Aetna Inc.

Today, a new covered calls position was established in Aetna Inc.  (Ticker Symbol AET).  This AET position was established at the $60.00 strike price and with a Nov2013 expiration. As detailed below, this investment will provide a +1.6% absolute return in 24 days (which is equivalent to a +24.0% annualized return) if the stock closes at or above $60.00 at options expiration on Nov 15th.  The current Greek value of Delta for this option of 65.6% provides a good estimate of the probability that the stock price will be above the $60.00 strike price at Nov2013 options expiration. Thus, the resulting expected value of the annualized ROI for this investment is +15.7% = (+24.0% x 65.6%).

The details of the associated transactions and a potential return-on-investment result are as follows:

Aetna Inc.(AET)
The transactions were as follows:
10/24/2013 Bought 300 AET shares @ $61.61
10/24/2013 Sold 3 AET Nov2013 $60.00 Call Options @ $2.65

A possible overall performance result (including commissions) for these Aetna Inc. covered calls is as follows:
Stock Purchase Cost: $18,491.95
= ($61.61*300+$8.95 commission)

Net Profit:
(a) Options Income: +$783.80
= 300*$2.65 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AET assigned at $60.00) = -$491.95
= ($60.00-$61.61)*300 - $8.95 commissions

Total Net Profit (If AET assigned at $60.00): +$291.85
= (+$783.80 +$0.00 -$491.95)

Absolute Return if Assigned (at $60.00): +1.6%
= +$291.85/$18,491.95
Annualized Return If Assigned (ARIA): +24.0%
= (+$291.85/$18,491.95)*(365/24 days)

The downside 'breakeven price' at expiration is at $58.96 ($61.61 - $2.65), which is 4.3% below the current market price of $61.61.

The 'crossover price' at expiration is $62.65 ($60.00 + $2.65). This is the price above which it would have been more profitable to simply buy-and-hold Aetna until November 15th (the Nov2013 options expiration date) rather than establishing this covered calls position.

Established a 100% Cash-Secured Puts Position in Hertz Global Holdings Inc.

Today, a new 100% cash-secured Puts position was established in Hertz Global Holdings Inc. (Ticker Symbol HTZ) with a Nov2013 expiration and at the $23.00 strike price.  As detailed below, this investment will provide a +3.6% absolute return in 24 days (which is equivalent to a +54.9% annualized return) if the stock closes at or above $23.00 at options expiration on Nov 15th.  The current Greek value of Delta for this option of 57.0% provides a good estimate of the probability that the stock price will be above the $23.00 strike price at Nov2013 options expiration. Thus, the resulting expected value of the annualized ROI for this investment is +31.3% = (+54.9% x 57.0%).

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

Hertz Global Holdings Inc.

The transaction was as follows:
10/24/2013 Sold 7 Hertz (HTZ) Nov2013 $23.00 Put Options @ $.85
Note: the price of HTZ was $23.33 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 HTZ transaction would be as follows:
100% Cash-Secured Cost Basis: $16,100.00
= $23.00*700

Net Profit:
(a) Options Income: +$580.80
= ($.85*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HTZ remains above $23.00 at Nov2013 expiration): +$0.00
= ($23.00-$23.00)*700 shares

Total Net Profit (If HTZ is above $23.00 strike price at Nov2013 options expiration): +$580.80
= (+$580.80 +$0.00 +$0.00)

Absolute Return (If HTZ above $23.00 at Nov2013 options expiration and Put options thus expire worthless): +3.6%
= +$580.80/$16,100.00
Annualized Return (If stock price above $25.00 at expiration): +54.9%
= (+$580.80/$16,100.00)*(365/24 days)

The downside 'breakeven price' at expiration is at $22.15 ($23.00 - $.85), which is 5.1% below the current market price of $23.33.
The 'crossover price' at expiration is $24.18 ($23.33 + $.85). This is the price above which it would have been more profitable to simply buy-and-hold Hertz until Nov 15th (the Nov2013 options expiration date) rather than investing in these short Put options.

Monday, October 21, 2013

Continuation -- Noble Corp. Covered Calls

This past Friday was Oct2013 options expiration and the covered calls position in Noble Corp (Ticker Symbol NE) expired with NE closing at $37.98 which was below the $38.00 strike price, thus leaving 300 long shares of NE in the Covered Calls Advisor Portfolio.  Today, a new covered calls position was established at the $38.00 strike price and with an Nov2013 expiration.  As detailed below, this investment will provide an overall +5.9% absolute return in 64 days (which is equivalent to a +33.8% annualized return) if the stock closes at or above $38.00 at options expiration on Nov 15th.
The details of the associated transactions and a potential return-on-investment result are as follows:

1. Noble Corp. (NE)
The transactions were as follows:
09/13/2013 Bought 300 NE shares @ $38.91
09/13/2013 Sold 3 NE Oct2013 $38.00 Call Options @ $2.10
10/18/2013 Oct2013 options expired
Note: the price of NE was $37.98 upon Oct2013 options expiration
10/21/2013 Sold 3 NE Nov2013 Call options @ $.97
Note: the price of NE was $38.02 when these options were sold.
11/01/2013 Ex-dividend of $.25 per share

A possible overall performance result (including commissions) for these Noble Corp covered calls is as follows:
Stock Purchase Cost: $11,681.95
= ($38.91*300+$8.95 commission)

Net Profit:
(a) Options Income: +$898.60
= 300*($2.10+$.97) - 2*$11.20 commissions
(b) Dividend Income: +$75.00 = $.25 *300 shares
(c) Capital Appreciation (If NE assigned at $38.00) = -$281.95
= ($38.00-$38.91)*300 - $8.95 commissions

Total Net Profit (If NE assigned at $38.00): +$691.65
= (+$898.60 +$75.00 -$281.95)

Absolute Return if Assigned (at $38.00): +5.9%
= +$691.65/$11,681.95
Annualized Return If Assigned (ARIA): +33.8%
= (+$691.65/$11,681.95)*(365/64 days)

Continuation Position -- ProShares UltraShort 20+ Year Treasury ETF

Upon Oct2013 options expiration last Friday, the short Put options position in ProShares UltraShort 20+ Year Treasury ETF (Ticker Symbol TBT) expired with TBT at $73.78, so 700 shares of TBT were assigned to the Covered Calls Advisor Portfolio at $74.00 per share.  Today, a covered calls position at the Nov2013 $74.00 strike price was established by selling 7 call options against the 700 TBT shares now owned.  As detailed below, this investment will provide a +4.4% absolute return for the 45 days of this investment (which is equivalent to a +35.8% annualized return) if TBT closes at or above $74.00 at options expiration on Nov 15th.

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

ProShares UltraShort 20+ Year Treasury ETF (TBT)
The transaction is as follows:
10/02/2013 Sold 7 Oct2013 $74.00 Puts @ $1.33
Note: The price of TBT was $74.93 when this transaction was executed.
10/18/2013 Oct2013 Put options expired and 700 shares of TBT purchased at $74.00
Note: the price of TBT was $73.78 upon Oct2013 options expiration
10/21/2013 Sold 7 TBT Nov2013 Call options @ $1.98

A possible overall performance result (including commissions) for this ProShares UltraShort 20+ Year Treasury ETF position would be as follows:
100% Cash-Secured Cost Basis: $51,800.00 = $74.00*700

Net Profit:
(a) Options Income: +$2,288.60
= ($1.33+$1.98)*700 shares - 2*$14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT remains above $74.00 at Nov2013 expiration): +$0.00
= ($74.00-$74.00)*700 shares

Total Net Profit (If TBT is above $74.00 strike price at Nov2013 options expiration): +$2,288.60 
= (+$2,288.60 +$0.00 +$0.00)

Absolute Return (If TBT closes above $74.00 at Nov2013 options expiration): +4.4%
= +$2,288.60/$51,800.00
Annualized Return: +35.8%
= (+$2,288.60/$51,800.00)*(365/45 days)

Sunday, October 20, 2013

October 2013 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained five positions with October 2013 expirations.  A summary of the results is as follows:

-  Three of the five positions (Foot Locker Inc., Marathon Petroleum Corp, and PulteGroup Inc.) were closed out at expiration.  This was the optimal result for these three positions in that the maximum potential return-on-investment (ROI) results from when the positions were established were actually achieved.  The annualized ROIs for these three closed positions are:
Foot Locker Inc. = +2.5% absolute return (equivalent to +25.4% annualized return for the 37 day holding period)
Marathon Petroleum Corp. = +2.9% absolute return (equivalent to +14.0% annualized return for the 75 day holding period)
PulteGroup Inc. = +3.7% absolute return (equivalent to +22.4% annualized return for the 61 day holding period)


The detailed transactions history and results for each of the three closed positions is detailed below.  The cash available from the closing of these positions will be retained in the Covered Calls Advisor Portfolio until new covered calls and/or 100% cash-secured puts positions are established (most likely in the next week or two).  These transactions will be posted on this blog the same day they occur.

- Two of the five positions ended at expiration with long stock positions (Noble Corp and ProShares UltraShort 20+ Year Treasury ETF).  The seven ProShares UltraShort 20+ Year Treasury ETF 100% cash-secured Puts were assigned at their $74.00 strike price since TBT closed at Oct2013 options expiration last Friday at $73.78, slightly below the $74.00 strike price.  The covered calls position in Noble Corp had its options expire since the stock price closed Friday at $37.98, also slightly below the Oct2013 options' $38.00 strike price.  So, the Covered Calls Advisor Portfolio (CCAP) now owns 700 long shares in ProShares UltraShort 20+ Year Treasury ETF and 300 long shares in Noble Corp  A decision will be made early this week to either sell these shares or to continue with covered calls positions by selling Nov2013 call options against the current long stock holdings.  When these decisions are made and the accompanying transactions are completed, a post will be made on this blog on the same day with the transaction details.

Details of the transactions and associated return-on-investment results for the three closed positions are as follows:

1. Foot Locker Inc.(FL) -- Closed
The transactions were as follows:
09/13/2013 Bought 300 FL shares @ $32.67
09/13/2013 Sold 3 FL Oct2013 $32.00 Call Options @ $1.35
Note: Oct2013 options expiration is 10/18/2013 and next FL ex-dividend of $.20 per share is on 10/16/2013.
10/16/2013 Ex-dividend = $60.00 ($.20/share * 300 shares)
10/18/2013 FL Oct2013 options exercised and stock sold at $32.00 per share strike price
Note: the price of FL stock was $33.80 upon Oct2012 options expiration.

The overall return-on-investment performance result for this Foot Locker covered calls position was as follows:
Stock Purchase Cost: $9,809.95
= ($32.67*300+$8.95 commission)

Net Profit:
(a) Options Income: +$393.80
= ($1.35*300 shares) - $11.20 commissions
(b) Dividend Income (Stock assigned at Oct2013 expiration): +$60.00
= ($.20 dividend per share x 300 shares)
(c) Capital Appreciation: -$209.95
+($32.00-$32.67)*300 - $8.95 commissions

Total Net Profit (Stock assigned at $32.00 at Oct2013 expiration): +$243.85
= (+$393.80 +$60.00 -$209.95)

Absolute Return: +2.49%
= +$243.85/$9,809.95
Annualized Return: +24.5%
= (+$243.85/$9,809.95)*(365/37 days)

2. Marathon Petroleum Corp. -- Closed
The transaction is as follows:
8/5/2013 Sold 2 Aug2013 $70.00 Puts @ $1.25
Note: The price of MPC was $70.96 when this transaction was executed.
8/17/2013 MPC Puts assigned; so purchased 200 MPC shares @ $70.00 per share
8/19/2013 Ex-dividend = $84.00 ($.42 per share * 200 shares)
8/19/2013 Sold 2 MPC Sep2013 $67.50 Calls @ $2.10
9/23/2013 MPC options expired
9/26/2013 Sold 2 MPC Oct2013 $67.50 Calls @ $.90
10/18/2013 MPC options exercised and stock sold at $67.50 strike price
Note: price of MPC was $70.74 at Oct2013 expiration

The performance result (including commissions) for this MPC covered calls position was as follows:
100% Cash-Secured Cost Basis: $14,000.00
= $70.00*200
Note: the price of MPC was $70.96 when these Put options were sold.

Net Profit:
(a) Options Income: +$818.65
= ($1.25+$2.10+$.90)*200 shares) - 3*$10.45 commissions
(b) Dividend Income: +$84.00 ($.42 * 200 shares)
(c) Capital Appreciation: -$500.00
= ($67.50-$70.00)*200 shares

Total Net Profit: +$402.65
= (+$818.65 +$84.00 -$500.00)

Absolute Return: +2.9%
= +$402.65/$14,000.00
Annualized Return on Investment (AROI): +14.0%
= (+$402.65/$14,000.00)*(365/75 days)


3. PulteGroup Inc. -- Closed
The transactions were as follows:
08/20/2013 Bought 300 PHM shares @ $16.08
08/20/2013 Sold 3 PHM Oct2013 $15.00 Call Options @ $1.75
10/18/2013 PHM options exercised and stock sold at $15.00 strike price.
Note: the price of PHM was $16.58 at expiration.
The overall performance result (including commissions) for these Pulte covered calls was as follows:
Stock Purchase Cost: $4,832.95
= ($16.08*300+$8.95 commission)

Net Profit:
(a) Options Income: +$513.80
= 300*$1.75 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation = -$332.95
= ($15.00-$16.08)*300 - $8.95 commissions

Total Net Profit: +$180.85
= (+$513.80 +$0.00 -$332.95)

Absolute Return: +3.7%
= +$180.85/$4,832.95
Annualized Return: +22.4%
= (+$180.85/$4,832.95)*(365/61 days)

Thursday, October 17, 2013

Established a 100% Cash-Secured Puts Position in ProShares UltraShort 20+ Year Treasury ETF

Today, the Covered Calls Advisor established a second 100% Cash-Secured Puts position in ProShares UltraShort 20+ Year Treasury ETF (Ticker Symbol TBT) with a Nov2013 expiration and at the $74.00 strike price.  As detailed below, this investment will provide a +2.8% absolute return in 31 days (which is equivalent to a +33.4% annualized return) if TBT closes at or above $74.00 at options expiration on Nov 15th.

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

ProShares UltraShort 20+ Year Treasury ETF (TBT)
The transaction is as follows:
10/17/2013 Sold 3 Nov2013 $74.00 Puts @ $2.10
Note: The price of TBT was $74.00 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 three Put options sold.

A possible overall performance result (including commissions) for this ProShares UltraShort 20+ Year Treasury ETF transaction would be as follows:
100% Cash-Secured Cost Basis: $22,200.00 = $74.00*300
Note:  the price of TBT was $74.00 when these Put options were sold.

Net Profit:
(a) Options Income: +$630.00
= ($2.10*300 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT remains above $74.00 at Nov2013 expiration): +$0.00
= ($74.00-$74.00)*300 shares

Total Net Profit (If TBT is above $74.00 strike price at Nov2013 options expiration):+$630.00 
= (+$630.00 +$0.00 +$0.00)

Absolute Return (If TBT is above $74.00 at Nov2013 options expiration and Put options thus expire worthless): +2.8%
= +$630.00/$22,200.00
Annualized Return (If TBT above $74.00 at expiration): +33.4%
= (+$630.00/$22,200.00)*(365/31 days)

The downside 'breakeven price' at expiration is at $71.90 ($74.00 - $2.10), which is 2.8% below the current market price of $74.00.
The 'crossover price' at expiration is $76.10 ($74.00 + $2.10). This is the price above which it would have been more profitable to simply buy-and-hold the ProShares UltraShort 20+ Year Treasury ETF until Nov 15th (the Nov2013 options expiration date) rather than holding these short Put options.

Continuation -- Transocean Inc. Covered Calls

Today, two November 2013 call options were sold in Transocean Inc.(Symbol RIG) to re-establish the covered calls position. As shown below, the September 2014 covered call options expired and the new position today was established at the Nov2013 $47.00 strike price. The transactions to date and some potential return on investment results are detailed below.

Transocean Inc. (RIG) -- Continuation
08/08/2013 Bought 200 RIG shares @ $48.76
08/08/2013 Sold 2 RIG Sep2013 $48.00 Call Options @ $1.65
08/21/2013 Ex-dividend of $.56 per share
09/20/2013 2 RIG Sep2013 $48.00 Calls expired 10/17/2013
Sold 2 RIG Nov2013 $47.00 Call Options @ $.75
Note: the price of RIG was $45.82 when these options were sold
11/13/2013 Ex-dividend of $.56 per share
Two possible overall performance results (including commissions) for this Transocean Inc. (RIG) covered calls position are as follows:

Stock Purchase Cost: $9,760.95
= ($48.76*200+$8.95 commission)

Net Profit:
(a) Options Income: +$459.10
= ($1.65+$.75)*200 shares - 2*$10.45 commissions
(b) Dividend Income: +$224.00 = ($.56 x 2 dividend per share x 200 shares);
(c) Capital Appreciation (If stock price unchanged at current price of $45.82): -$596.95
= +($45.82-$48.76)*200 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $47.00 at Nov2013 expiration): -$360.95
= +($47.00-$48.76)*200 - $8.95 commissions

Total Net Profit (If stock price unchanged at current price of $45.82): =-+94.15
= (+$459.10 +$224.00 -$596.95);
or Total Net Profit (If stock assigned at $47.00 at Nov2013 expiration): +$322.15
= (+$459.10 +$224.00 -$360.95)

1. Absolute Return (If stock price unchanged at current price of $45.82): +1.0%
= +$94.15/$9,760.95
Annualized Return: +3.5%
= (+$94.15/$9,760.95)*(365/100 days); OR

2. Absolute Return (If stock assigned at $47.00 at Nov2013 expiration): +3.3%
= +$322.15/$9,760.95
Annualized Return: +12.0%
= (+$322.15/$9,760.95)*(365/100 days)

Tuesday, October 8, 2013

Overall Market Meter Rating Remains at "Neutral"

The Covered Calls Advisor recalculated the current values for each of the eight factors used to determine the "Overall Market Meter" rating.  This month, the Overall Market Meter rating remains unchanged at Neutral.

The eight factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next three indicators), and
- growth (the last indicator).


























The current Market Meter average of 3.25 (see blue line at the bottom of the chart above) is identical to the 3.25 average when the rating was last calculated in June.  The ratings in each of the eight factors are identical to the result obtained in June.  This 3.25 overall rating is in the Neutral range (Neutral range is from 2.51 to 3.50). 

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Neutral sentiment is to "on-average sell 1% out-of-the-money covered calls for the next options expiration month" (which is Nov2013 in this instance).

Your comments or questions regarding this post (or the details related to any of the eight factors used in this model) are welcomed. Please email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Wednesday, October 2, 2013

Established a 100% Cash-Secured Puts Position in ProShares UltraShort 20+ Year Treasury ETF

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in ProShares UltraShort 20+ Year Treasury ETF (Ticker Symbol TBT) with an Oct2013 expiration and at the $74.00 strike price.  As detailed below, this investment will provide a +1.8% absolute return in 18 days (which is equivalent to a +35.9% annualized return) if TBT closes at or above $74.00 at options expiration on Oct 18th.

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

ProShares UltraShort 20+ Year Treasury ETF (TBT)
The transaction is as follows:
10/02/2013 Sold 7 Oct2013 $74.00 Puts @ $1.33
Note: The price of TBT was $74.93 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 seven Put options sold.

A possible overall performance result (including commissions) for this ProShares UltraShort 20+ Year Treasury ETF transaction would be as follows:
100% Cash-Secured Cost Basis: $51,800.00 = $74.00*700
Note:  the price of TBT was $74.93 when these Put options were sold.

Net Profit:
(a) Options Income: +$916.80
= ($1.33*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT remains above $74.00 at Oct2013 expiration): +$0.00
= ($74.00-$74.00)*700 shares

Total Net Profit (If TBT is above $74.00 strike price at Oct2013 options expiration): +$916.80 
= (+$916.80 +$0.00 +$0.00)

Absolute Return (If TBT is above $74.00 at Oct2013 options expiration and Put options thus expire worthless): +1.8%
= +$916.80/$51,800.00
Annualized Return (If TBT above $74.00 at expiration): +35.9%
= (+$916.80/$51,800.00)*(365/18 days)

The downside 'breakeven price' at expiration is at $72.67 ($74.00 - $1.33), which is 3.0% below the current market price of $74.93.
The 'crossover price' at expiration is $76.26 ($74.93 + $1.33). This is the price above which it would have been more profitable to simply buy-and-hold the ProShares UltraShort 20+ Year Treasury ETF until Oct 18th (the Oct2013 options expiration date) rather than holding these short Put options.

Monday, September 23, 2013

September 2013 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained nine positions with September 2013 expirations.  A summary of the results is as follows:

-  Seven of the nine positions (Blackstone Group, Citigroup Inc., Hertz Global Holdings Inc., iShares MSCI China ETF, Potash Corp. of Saskatchewan Inc., SanDisk Corp, and United Continental Holdings Inc.) were closed out at expiration.  This was the optimal result for these seven positions in that the maximum potential return-on-investment (ROI) results from when the positions were established were actually achieved.  The annualized ROIs for these seven closed positions are:
Blackstone Group = +2.5% absolute return (equivalent to +18.8% annualized return for the 48 day holding period)
Citigroup Inc. = +2.3% absolute return (equivalent to +24.2% annualized return for the 34 day holding period)
Hertz Global Holdings Inc. = +3.9% absolute return (equivalent to +30.6% annualized return for the 47 day holding period)
iShares MSCI China ETF = +1.8% absolute return (equivalent to +17.1% annualized return for 38 day holding period)
Potash Corp. of Saskatchewan Inc. = +2.8% absolute return (equivalent to +26.6% annualized return for 38 day holding period)
SanDisk Corp = +2.6% absolute return (equivalent to +35.9% annualized return for the 26 day holding period)
United Continental Holdings Inc. = +3.6% absolute return (equivalent to +34.4% annualized return for the 38 day holding period)

The detailed transactions history and results for each of the seven closed positions is detailed below.  The cash available from the closing of these positions will be retained in the Covered Calls Advisor Portfolio until new covered calls and/or 100% cash-secured puts positions are established (most likely in the next week or two).  These transactions will be posted on this blog the same day they occur.

- Two of the nine positions ended at expiration with long stock positions (Marthon Petroleum Corp and Transocean Inc.).  The two Marathon Petroleum Corp 100% cash-secured Puts were assigned at their $70.00 strike price since MPC closed at Sep2013 options expiration last Friday at $64.51, well below the $70.00 strike price.  The covered calls position in Transocean Inc. had its options expire since the stock price closed Friday at $45.06, below the Sep2013 options' $48.00 strike price.  So, the Covered Calls Advisor Portfolio (CCAP) now owns 200 long shares in Marathon Petroleum and 300 long shares in Transocean Inc.  A decision will be made early this week to either sell these shares or to continue with covered calls positions by selling Oct2013 call options against the current long stock holdings.  When these decisions are made and the accompanying transactions are completed, a post will be made on this blog on the same day with the transaction details.

Details of the transactions and associated return-on-investment results for the seven closed positions are as follows:

1. Blackstone Group(BX) -- Closed
The transaction was as follows:
8/5/2013 Sold 3 Sep2013 $22.00 Puts @ $.58
Note: The price of BX was $22.74 when this transaction was executed.

The return-on-investment result (including commissions) for this BX transaction was as follows:
100% Cash-Secured Cost Basis: $6,600.00 = $22.00*300

Net Profit:
(a) Options Income: +$162.80
= ($.58*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (BX closed above $22.00 at Sep2013 expiration): +$0.00
= ($22.00-$22.00)*300 shares

Total Net Profit: +$162.80 
= (+$162.80 +$0.00 +$0.00)

Absolute Return (BX Sep2013 Put options expired worthless): +2.5%
= +$162.80/$6,600.00

Annualized Return: +18.8%
= (+$162.80/$6,600.00)*(365/48 days)


2. Cititgroup Inc.(C) -- Closed
The transaction was as follows:
8/19/2013 Sold 3 Sep2013 $49.00 Puts @ $1.14
Note: The price of Citi was $49.73 when this transaction was executed.

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

The overall performance result (including commissions) for this Citigroup transaction was as follows:
100% Cash-Secured Cost Basis: $14,700.00 = $49.00*300
Note:  the price of C was $49.73 when these Put options were sold.

Net Profit:
(a) Options Income: +$330.80
= ($1.14*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Citigroup stock price was above $49.00 at Sep2013 expiration): +$0.00 = ($49.00-$49.00)*300 shares

Total Net Profit: +$330.80 
= (+$330.80 +$0.00 +$0.00)

Absolute Return (Citi Sep2013 Put options expired worthless): +2.3%
= +$330.80/$14,700.00
Annualized Return: +24.2%
= (+$330.80/$14,700.00)*(365/34 days)


3. Hertz Global Holdings Inc.(HTZ) -- Closed
The transactions were as follows:
08/06/2013 Bought 700 HTZ shares @ $24.50
08/06/2013 Sold 7 HTZ Sep2013 $24.00 Call Options @ $1.50

The return-on-investment performance result (including commissions) for these Hertz covered calls was as follows:
Stock Purchase Cost: $17,158.95
= ($24.50*700+$8.95 commission)

Net Profit:
(a) Options Income: +$1,035.80
= 700*$1.50 - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (HTZ assigned at $24.00) = -$358.95
= ($24.00-$24.50)*700 - $8.95 commissions

Total Net Profit: $676.85
= (+$1,035.80 +$0.00 -$358.95)

Absolute Return: +3.9%
= +$676.85/$17,158.95
Annualized Return: +30.6%
= (+$676.85/$17,158.95)*(365/47 days)


4. iShares MSCI China ETF (FXI) -- Closed
The transaction is as follows:
8/15/2013 Sold 5 Sep2013 $35.00 Puts @ $.65
Note: The price of FXI was $35.95 when this transaction was executed.

The overall performance result (including commissions) for this FXI transaction was as follows:
100% Cash-Secured Cost Basis: $17,500.00 = $35.00*500

Net Profit:
(a) Options Income: +$312.30
= ($.65*500 shares) - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (FXI above $35.00 at Sep2013 expiration): +$0.00
= ($35.00-$35.00)*500 shares

Total Net Profit: +$312.30  = (+$312.30 +$0.00 +$0.00)

Absolute Return: +1.8%
= +$312.30/$17,500.00
Annualized Return: +17.1%
= (+$312.30/$17,500.00)*(365/38 days)


5.  Potash Corp of Saskatchewan Inc. (POT) -- Closed
The transactions were as follows:
08/15/2013 Bought 300 POT shares @ $30.10
08/06/2013 Sold 3 POT Sep2013 $29.00 Call Options @ $2.00

The overall performance result (including commissions) for these Potash Corp (POT) covered calls was as follows:
Stock Purchase Cost: $9,038.95
= ($30.10*300+$8.95 commission)
(a) Options Income: +$588.80
= 300*$2.00 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (POT assigned at $29.00) = -$338.95
= ($29.00-$30.10)*300 - $8.95 commissions
Total Net Profit: +$249.85
= +$588.80+$0.00-$338.95
Absolute Return: +2.8%
= +$249.85/$9,038.95
Annualized Return: +26.6%
= (+$249.85/$9,038.95)*(365/38 days)


6. SanDisk Corporation (SNDK) -- Closed
The transaction is as follows:
8/27/2013 Sold 2 Sep2013 $55.00 SNDK Puts @ $1.46
Note: The price of SNDK was $55.44 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 two Put options sold.
The performance result (including commissions) for this SanDisk transaction was as follows:
100% Cash-Secured Cost Basis: $11,000.00 = $55.00*200
Net Profit:
(a) Options Income: +$281.55
= ($1.46*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (SNDK was above $55.00 at Sep2013 expiration): +$0.00
= ($55.00-$55.00)*200 shares
Total Net Profit: +$281.55
= (+$281.55 +$0.00 +$0.00)

Absolute Return: +2.6%
= +$281.55/$11,000.00
Annualized Return: +35.9%
= (+$281.55/$11,000.00)*(365/26 days)


7. United Continental Holdings Inc. (UAL)
The transaction is as follows:
8/15/2013 Sold 3 Sep2013 $28.00 Puts @ $1.04
Note: The price of UAL was $29.57 when this transaction was executed.
The overall performance result (including commissions) for this UAL transaction was as follows:
100% Cash-Secured Cost Basis: $8,400.00 = $28.00*300

Net Profit:
(a) Options Income: +$300.80
= ($1.04*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (UAL was above $28.00 at Sep2013 expiration): +$0.00
= ($28.00-$28.00)*300 shares
Total Net Profit: +$300.80
= (+$300.80 +$0.00 +$0.00)
Absolute Return (UAL was above $28.00 at Sep2013 options expiration and Put options thus expired worthless): +3.6%
= +$300.80/$8,400.00
Annualized Return: +34.4%
= (+$300.80/$8,400.00)*(365/38 days)

Friday, September 13, 2013

Established Noble Corp Covered Calls -- Example of Early Assignment or Dividend Capture Strategy

Today, a new covered calls position was established in Noble Corp  (Ticker Symbol NE).  This NE position was established at the $38.00 strike price and with an Oct2013 expiration.

As detailed below, this investment will provide a +2.9% absolute return in 37 days (which is equivalent to a +28.4% annualized return) if the stock closes at or above $38.00 at options expiration on Oct 18th.  The current Greek value of Delta for this option of 60.0% provides a good estimate of the probability that the stock price will be above the $38.00 strike price at Oct2013 options expiration. Thus, the resulting expected value of the annualized ROI for this investment is +17.0% = (+28.4%x 60.0%).
This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend of $.22 with an ex-dividend date of November 27th.  Although unlikely, if the current time value (i.e. extrinsic value) of $1.134 [$2.72 option premium - ($29.086 stock price - $27.50 strike price)] remaining in the short call option decays to less than $.22 by November 26th (the day prior to the ex-div date), then there is a possibility that the call options owner will exercise early and will call the stock away to capture the dividend. As shown below, two potential returns for this position are:
If Early Assignment: +3.8% absolute return (equivalent to +51.8% annualized return for the next 27 days) if the stock is assigned early (day prior to Nov 27th ex-div date); OR
If Dividend Capture:  +4.6% absolute return (equivalent to +32.2% annualized return over the next 52 days) if the stock is assigned at Dec 2013 expiration on December 20th.

As is often the case, early assignment provides a higher annualized return, so this is the Covered Calls Advisor's preferred outcome; but either outcome would provide a very good return.  These returns will be achieved as long as the stock is above the $27.50 strike price at assignment -- a nice 4.7% of downside protection.  Alternatively, if the stock declines below the strike price, the breakeven price of $26.146 ($29.086-$.22-$2.72) provides a very substantial 9.4% downside protection. 

In summary, this covered calls investment provides a very nice annualized ROI potential for such a conservative (hedged with substantial downside protection and the next earnings announcement is after the December options expiration date) investment. 

Two possible overall performance results (including commissions) for this Agnico Eagle(AEM) covered calls position are as follows:
The details of the associated transactions and a potential return-on-investment result are as follows:

1. Noble Corp. (NE)
The transactions were as follows:
09/13/2013 Bought 300 NE shares @ $38.91
09/13/2013 Sold 3 NE Oct2013 $38.00 Call Options @ $2.10

A possible overall performance result (including commissions) for these Noble Corp covered calls is as follows:
Stock Purchase Cost: $11,681.95
= ($38.91*300+$8.95 commission)

Net Profit:
(a) Options Income: +$618.80
= 300*$2.10 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If NE assigned at $38.00) = -$281.95
= ($38.00-$38.91)*300 - $8.95 commissions

Total Net Profit (If NE assigned at $38.00): +$336.85
= (+$618.80 +$0.00 -$281.95)

Absolute Return if Assigned (at $38.00): +2.9%
= +$336.85/$11,681.95
Annualized Return If Assigned (ARIA): +28.4%
= (+$336.85/$11,681.95)*(365/37 days)

The downside 'breakeven price' at expiration is at $36.81 ($38.91 - $2.10), which is 5.4% below the current market price of $38.91.

The 'crossover price' at expiration is $40.10 ($38.00 + $2.10). This is the price above which it would have been more profitable to simply buy-and-hold Noble Corp until October 18th (the Oct2013 options expiration date) rather than establishing this covered calls position.

Established Foot Locker Inc. Covered Calls

Today, a new covered calls position was established in Foot Locker Inc. (Ticker Symbol FL) with an Oct2013 expiration and at the $32.00 strike price. The transactions are as follows:
09/13/2013 Bought 300 FL shares @ $32.67
09/13/2013 Sold 3 FL Oct2013 $32.00 Call Options @ $1.35
Note: Oct2013 options expiration is 10/18/2013 and next FL ex-dividend of $.20 per share is on 10/16/2013.

This covered calls investment considers the upcoming quarterly dividend of $.20 with an ex-dividend date on October 16th.  If the current time value (i.e. extrinsic value) of $.68 = [$1.35 option premium - ($32.67 stock price - $32.00 strike price)] remaining in the short call option decays to less than the $.20 ex-dividend amount by Oct. 15th (the day prior to the ex-div date), then there is a reasonably good possibility that the call options owner would exercise early and would call the stock away to capture the dividend. As shown below, two potential returns for this position are:
If Early Assignment: +1.87% absolute return (equivalent to +20.7% annualized return) if the stock is assigned early (day prior to October 16th ex-div date); OR
If Dividend Capture and stock assigned at Oct2013 expiration: +2.49% absolute return (equivalent to +24.5% annualized return) if the stock is assigned at October 2013 expiration on October 18th

Either outcome would provide a very satisfactory return.  These returns will be achieved as long as the stock stays above the $32.00 strike price at assignment (2.05% of downside protection).  Alternatively, if the stock declines below the strike price, the breakeven price of $31.32 ($32.67-$1.35) provides a nice 4.13% downside protection from the original $32.67 stock purchase price. 


The detailed transactions and two possible performance results for this Foot Locker Inc.(FL) covered calls position is as follows:
Stock Purchase Cost: $9,809.95
= ($32.67*300+$8.95 commission)

Net Profit:
(a) Options Income: +$393.80
= ($1.35*300 shares) - $11.20 commissions
(b) Dividend Income (If option exercised early on day prior to Oct 16th ex-div date): +$0.00
(b) Dividend Income (If stock assigned at Oct2013 expiration): +$60.00
= ($.20 dividend per share x 300 shares); or
(c) Capital Appreciation (If stock assigned early on October 15th): -$209.95
+($32.00-$32.67)*300 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $32.00 at Oct2013 expiration): -$209.95
+($32.00-$32.67)*300 - $8.95 commissions

Total Net Profit (If option exercised on day prior to Oct 16th ex-div date): +$183.85
= (+$393.80 +$0.00 -$209.95); or
Total Net Profit (If stock assigned at $32.00 at Oct2013 expiration): +$243.85
= (+$393.80 +$60.00 -$209.95)

1. Absolute Return (If option exercised on day prior to Oct 16th ex-div date): +1.87%
= +$183.85/$9,809.95
Annualized Return (If option exercised early): +20.7%
= (+$183.85/$9,809.95)*(365/33 days); OR

2. Absolute Return (If stock assigned at $32.00 at Oct2013 expiration): +2.49%
= +$243.85/$9,809.95
Annualized Return (If stock assigned): +24.5%
= (+$243.85/$9,809.95)*(365/37 days)

Tuesday, August 27, 2013

Established a 100% Cash-Secured Puts Position in SanDisk Corporation


Today, a new 100% cash-secured Puts position was established in SanDisk Corporation (Ticker Symbol SNDK) with a Sep2013 expiration and at the $55.00 strike price.  As detailed below, this investment will provide a +2.6% absolute return in 26 days (which is equivalent to a +35.9% annualized return) if the stock closes at or above $55.00 at options expiration on Sept 20th.  The current Greek value of Delta for this option of 55.8% provides a good estimate of the probability that the stock price will be above the $55.00 strike price at Sep2013 options expiration. Thus, the resulting expected value of the annualized ROI for this investment is +20.1% = (+35.9%x.558).

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

SanDisk Corporation (SNDK)
The transaction is as follows:
8/27/2013 Sold 2 Sep2013 $55.00 SNDK Puts @ $1.46
Note: The price of SNDK was $55.44 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 three Put options sold.

A possible overall performance results(including commissions) for this SanDisk transaction would be as follows:
100% Cash-Secured Cost Basis: $11,000.00 = $55.00*200

Net Profit:
(a) Options Income: +$281.55
= ($1.46*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If SNDK remains above $55.00 at Sep2013 expiration): +$0.00
= ($55.00-$55.00)*200 shares

Total Net Profit (If SNDK is above $55.00 strike price at Sep2013 options expiration): +$281.55 
= (+$281.55 +$0.00 +$0.00)

Absolute Return (If SNDK is above $55.00 at Sep2013 options expiration and Put options thus expire worthless): +2.6%
= +$281.55/$11,000.00
Annualized Return (If SNDK above $55.00 at expiration): +35.9%
= (+$281.55/$11,000.00)*(365/26 days)

The downside 'breakeven price' at expiration is at $53.54 ($55.00 - $1.46), which is 3.4% below the current market price of $55.44.
The 'crossover price' at expiration is $56.90 ($55.44 + $1.46). This is the price above which it would have been more profitable to simply buy-and-hold SanDisk until Sep 20th (the Sep2013 options expiration date) rather than holding these short Put options.

Tuesday, August 20, 2013

Established Covered Calls Position in PulteGroup Inc.

Today, a new covered calls position was established in PulteGroup Inc. (Ticker Symbol PHM).  This PHM position was established at the $15.00 strike price and with an Oct2013 expiration. As detailed below, this investment will provide a +3.7% absolute return in 61 days (which is equivalent to a +22.4% annualized return) if the stock closes at or above $15.00 at options expiration on Oct 18th.  The current Greek value of Delta for this option of 68.3% provides a good estimate of the probability that the stock price will be above the $15.00 strike price at Oct2013 options expiration. Thus, the resulting expected value of the annualized ROI for this investment is +15.3% = (+22.4%x.683).

The details of the associated transactions and a potential return-on-investment result are as follows:

1. PulteGroup Inc. (PHM)
The transactions were as follows:
08/20/2013 Bought 300 PHM shares @ $16.08
08/20/2013 Sold 3 PHM Oct2013 $15.00 Call Options @ $1.75

A possible overall performance result (including commissions) for these Pulte covered calls is as follows:
Stock Purchase Cost: $4,832.95
= ($16.08*300+$8.95 commission)

Net Profit:
(a) Options Income: +$513.80
= 300*$1.75 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PHM assigned at $15.00) = -$332.95
= ($15.00-$16.08)*300 - $8.95 commissions

Total Net Profit (If PHM assigned at $15.00): +$180.85
= (+$513.80 +$0.00 -$332.95)

Absolute Return if Assigned (at $15.00): +3.7%
= +$180.85/$4,832.95
Annualized Return If Assigned (ARIA): +22.4%
= (+$180.85/$4,832.95)*(365/61 days)

Monday, August 19, 2013

Established a 100% Cash-Secured Puts Position in Citigroup Inc.

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in Citigroup Inc. (Ticker Symbol C) with a Sep2013 expiration and at the $49.00 strike price.  As detailed below, this investment will provide a +2.3% absolute return in 34 days (which is equivalent to a +24.2% annualized return) if the stock closes at or above $49.00 at options expiration on Sept 20th.  The current Greek value of Delta for this option of 60% provides a good estimate of the probability that the stock price will be above the $49.00 strike price at Sep2013 options expiration. Thus, the resulting expected value of the annualized ROI for this investment is +14.5% = (+24.2%x.60).

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

Citigroup Inc.(C)
The transaction is as follows:
8/19/2013 Sold 3 Sep2013 $49.00 Puts @ $1.14
Note: The price of Citi was $49.73 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 three Put options sold.

A possible overall performance results(including commissions) for this Citigroup transaction would be as follows:
100% Cash-Secured Cost Basis: $14,700.00 = $49.00*300
Note:  the price of C was $49.73 when these Put options were sold.

Net Profit:
(a) Options Income: +$330.80
= ($1.14*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If C remains above $49.00 at Sep2013 expiration): +$0.00
= ($49.00-$49.00)*300 shares

Total Net Profit (If C is above $49.00 strike price at Sep2013 options expiration): +$330.80 
= (+$330.80 +$0.00 +$0.00)

Absolute Return (If C is above $49.00 at Sep2013 options expiration and Put options thus expire worthless): +2.3%
= +$330.80/$14,700.00
Annualized Return (If C above $49.00 at expiration): +24.2%
= (+$330.80/$14,700.00)*(365/34 days)

The downside 'breakeven price' at expiration is at $47.86 ($49.00 - $1.14), which is 3.8% below the current market price of $49.73.
The 'crossover price' at expiration is $50.87 ($49.73 + $1.14). This is the price above which it would have been more profitable to simply buy-and-hold Citigroup until Sep 20th (the Sep2013 options expiration date) rather than holding these short Put options.

Sunday, August 18, 2013

August 2013 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained four positions with August 2013 expirations.  A summary of the results is as follows:

-  Three of the four positions (Hertz Global Holdings Inc., Marathon Petroleum Corp., and Potash Corp. of Saskatchewan Inc.) were closed out at expiration.  This was the optimal result for these three positions in that the maximum potential return-on-investment (ROI) results from when the positions were established were actually achieved.  The annualized ROIs for these three closed positions are:
Hertz Global Holdings Inc. = +1.8% absolute return (equivalent to +38.4% annualized return for the 17 day holding period)
Marathon Petroleum Corp. = +1.7% absolute return (equivalent to +48.0% annualized return for 13 day holding period)
Potash Corp. of Saskatchewan Inc. = +1.6% absolute return (equivalent to +48.8% annualized return for 12 day holding period)
The cash available from the closing of these positions will be retained in the Covered Calls Advisor Portfolio until new covered calls positions are established (most likely in the upcoming week).  These transactions will be posted on this blog the same day they occur.

- One of the four positions (a Transocean Inc. covered calls position) had the options expire since the stock price closed Friday at $47.00, below the Aug2013 options' $48.00 strike price.  So, the Covered Calls Advisor Portfolio (CCAP) is now long shares in Transocean.  A decision will be made early this week to either sell these shares or to continue with another covered calls position by selling Sep2013 call options against the current long stock holding.  When these decisions are made and the accompanying transactions are completed, a post will be made on this blog on the same day with the transaction details.

This was a very successful month given that the overall stock market declined by 2.4%, yet the Covered Calls Advisor Portfolio achieved very positive returns on each of the three positions that were closed this month.  This occurred primarily because relatively conservative strike prices were chosen (i.e. strikes below the stock prices when the positions were established).  The detailed transactions history and results for the three closed positions summarized above are:

1. Hertz Global Holdings (HTZ) -- Closed
The transaction is as follows:
8/1/2013 Sold 7 Aug2013 $24.00 Puts @ $.45
Note: The price of HTZ was $24.56 when this transaction was executed.

The overall performance result (including commissions) for this HTZ transaction was as follows:
100% Cash-Secured Cost Basis: $16,800.00 = $24.00*700

Net Profit:
(a) Options Income: +$300.80
= ($.45*700 shares) - $14.20 commissions
Note: Upon Aug2013 options expiration closing on Friday, HTZ stock closed at $24.66, above the $24.00 strike price; so the short Put options expired worthless and the full options income received when these options were originally sold was retained as profit.
(b) Dividend Income: +$0.00
(c) Capital Appreciation (HTZ closed above $24.00 at Aug2013 expiration): +$0.00
= ($24.00-$24.00)*700 shares

Total Net Profit (HTZ closed above $24.00 strike price at Aug2013 options expiration): +$300.80  = (+$300.80 +$0.00 +$0.00)

Absolute Return (HTZ was above $24.00 at Aug2013 options expiration and Put options thus expire worthless): +1.8%
= +$300.80/$16,800.00
Annualized Return on Investment (AROI): +38.4%
= (+$300.80/$16,800.00)*(365/17 days)


2. Marathon Petroleum Corp. (MPC) -- Closed
The transaction is as follows:
8/5/2013 Sold 2 Aug2013 $70.00 Puts @ $1.25
Note: The price of MPC was $70.96 when this transaction was executed.

The performance result (including commissions) for this MPC transaction was as follows:
100% Cash-Secured Cost Basis: $14,000.00 = $70.00*200
Note:  the price of MPC was $70.96 when these Put options were sold.

Net Profit:
(a) Options Income: +$239.55
= ($1.25*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (MPC closed at the $70.00 strike price at Aug2013 expiration): +$0.00
= ($70.00-$70.00)*200 shares

Total Net Profit (MPC closed at the $70.00 strike price at Aug2013 options expiration): +$239.55 
= (+$239.55 +$0.00 +$0.00)

Absolute Return (MPC closed at the $70.00 at Aug2013 options expiration and Put options thus expire worthless): +1.7%
= +$239.55/$14,000.00
Annualized Return on Investment (AROI): +48.0%
= (+$239.55/$14,000.00)*(365/13 days)



3.  Potash Corp of Saskatchewan Inc. (POT) -- Closed
The transactions were as follows:
08/06/2013 Bought 300 POT shares @ $28.80
08/06/2013 Sold 3 POT Aug2013 $28.00 Call Options @ $1.33
Note: the price of POT was $28.82 when the options were sold.

The performance result (including commissions) for these Potash (POT) covered calls is as follows:
Stock Purchase Cost: $8,648.95
= ($28.80*300+$8.95 commission)

Net Profit:
(a) Options Income: +$387.80
= 300*$1.33 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (POT assigned at $28.00) = -$248.95
= ($28.00-$28.80)*300 - $8.95 commissions

Total Net Profit (POT assigned at $28.00): +$138.85
= (+$387.80 +$0.00 -$248.95)

Absolute Return: +1.6%
= +$138.85/$8,648.95
Annualized Return: +48.8%
= (+$138.85/$8,648.95)*(365/12 days)

Thursday, August 15, 2013

Established a 100% Cash-Secured Puts Position in Marathon Petroleum Corporation

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in Marathon Petroleum Corporation (Ticker Symbol MPC) with a Sep2013 expiration and at the $70.00 strike price.  As detailed below, this investment will provide a +3.6% absolute return in 38 days (which is equivalent to a +35.0% annualized return) if the stock closes at or above $70.00 at options expiration on Sept 20th.

This position was established because the MPC Aug2013 short Puts will likely expire tomorrow and the Covered Calls Advisor wants to retain a position in MPC.  I agree with both Goldman Sachs and Credit Suisse that MPC is undervalued at its current price, however relatively conservative out-of-the-money Puts were sold because of the current stock market volatility.  An open order was placed early this afternoon and was executed within the last 15 minutes prior to today's market close.  This transaction along with a potential return-on-investment result are: 

Marathon Petroleum Corp. (MPC)
The transaction is as follows:
8/15/2013 Sold 2 Sep2013 $70.00 Puts @ $2.60
Note: The price of MPC was $70.74 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 two Put options sold.

A possible overall performance results(including commissions) for this MPC transaction would be as follows:
100% Cash-Secured Cost Basis: $14,000.00 = $70.00*200
Note:  the price of MPC was $70.74 when these Put options were sold.

Net Profit:
(a) Options Income: +$509.55
= ($2.60*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MPC remains above $70.00 at Sep2013 expiration): +$0.00
= ($70.00-$70.00)*200 shares

Total Net Profit (If MPC is above $70.00 strike price at Sep2013 options expiration): +$509.55 
= (+$509.55 +$0.00 +$0.00)

Absolute Return (If MPC is above $70.00 at Sep2013 options expiration and Put options thus expire worthless): +3.6%
= +$509.55/$14,000.00
Annualized Return (If MPC above $70.00 at expiration): +35.0%
= (+$509.55/$14,000.00)*(365/38 days)

The downside 'breakeven price' at expiration is at $67.40 ($70.00 - $2.60), which is 3.6% below the current market price.
The 'crossover price' at expiration is $73.34 ($70.74 + $2.60). This is the price above which it would have been more profitable to simply buy-and-hold MPC until Sep 20th (the Sep2013 options expiration date) rather than holding the short Put options.

Established Five New Positions -- Citigroup Inc., Freeport McMoran Inc., Hertz Global Holdings Inc., Intel Corp, and iShares MSCI South Korea ETF

The Covered Calls Advisor has established three new positions in United Continental Holdings Inc.(Ticker Symbol UAL), iShares MSCI China ETF (Ticker Symbol FXI), and Potash Corp of Saskatchewan Inc.(Ticker Symbol FXI). The UAL and FXI positions are 100% Cash-Secured Put Options.  The Covered Calls Advisor does not use margin, so the potential results shown below reflect the fact that these positions were established using 100% cash securitization for the Put options positions sold.   The position in POT was established as covered calls.  

As we know, Covered Calls and 100% Cash-Secured Puts are synthetically equivalent positions when established at the same strike price and same expiration date.  The Covered Calls Advisor's selection in each case was based on establishing a position where the Implied Volatility (IV) was ever-so-slightly higher (when comparing the comparable Puts and Calls for each equity).

Details for each position are provided below. In each case, Sep2013 expirations were selected and conservative positions were established at strike prices below the current market price of the equities.

1. United Continental Holdings Inc. (UAL)
The transaction is as follows:
8/15/2013 Sold 3 Sep2013 $28.00 Puts @ $1.04
Note: The price of UAL was $29.57 when this transaction was executed.

A possible overall performance results (including commissions) for this UAL transaction would be as follows:
100% Cash-Secured Cost Basis: $8,400.00 = $28.00*300

Net Profit:
(a) Options Income: +$300.80
= ($1.04*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UAL remains above $28.00 at Sep2013 expiration): +$0.00
= ($28.00-$28.00)*300 shares

Total Net Profit (If UAL is above $28.00 strike price at Sep2013 options expiration): +$300.80 
= (+$300.80 +$0.00 +$0.00)

Absolute Return (If UAL is above $28.00 at Sep2013 options expiration and Put options thus expire worthless): +3.6%
= +$300.80/$8,400.00

Annualized Return (If UAL above $28.00 at expiration): +34.4%
= (+$300.80/$8,400.00)*(365/38 days)

The downside 'breakeven price' at expiration is at $26.96 ($28.00 - $1.04).  This is the price at which this 100% cash-secured Puts investment would make neither a profit or a loss.
The 'crossover price' at expiration is $30.61 ($29.57 + $1.04). This is the price above which it would have been more profitable to simply buy-and-hold UAL stock until Sep 20th (the Sep2013 options expiration date) rather than holding the short Put options.


2. iShares MSCI China ETF (FXI)
The transaction is as follows:
8/15/2013 Sold 5 Sep2013 $35.00 Puts @ $.65
Note: The price of FXI was $35.95 when this transaction was executed.

A possible overall performance results(including commissions) for this FXI transaction would be as follows:
100% Cash-Secured Cost Basis: $17,500.00 = $35.00*500

Net Profit:
(a) Options Income: +$312.30
= ($.65*500 shares) - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI remains above $35.00 at Sep2013 expiration): +$0.00
= ($35.00-$35.00)*500 shares

Total Net Profit (If FXI is above $35.00 strike price at Sep2013 options expiration): +$312.30  = (+$312.30 +$0.00 +$0.00)

Absolute Return (If FXI is above $35.00 at Sep2013 options expiration and Put options thus expire worthless): +1.8%
= +$312.30/$17,500.00
Annualized Return (If FXI above $35.00 at expiration): +17.1%
= (+$312.30/$17,500.00)*(365/38 days)

The downside 'breakeven price' at expiration is at $34.35 ($35.00 - $.65).
The 'crossover price' at expiration is $36.60 ($35.95 + $.65). This is the price above which it would have been more profitable to simply buy-and-hold FXI until Sep 20th (the Sep2013 options expiration date) rather than investing in the short Put options.


3.  Potash Corp of Saskatchewan Inc. (POT)

The transactions were as follows:
08/15/2013 Bought 300 POT shares @ $30.10
08/06/2013 Sold 3 POT Sep2013 $29.00 Call Options @ $2.00

A possible overall performance result (including commissions) for these Potash (POT) covered calls is as follows:
Stock Purchase Cost: $9,038.95
= ($30.10*300+$8.95 commission)

Net Profit:
(a) Options Income: +$588.80
= 300*$2.00 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If POT assigned at $29.00) = -$338.95
= ($29.00-$30.10)*300 - $8.95 commissions

Total Net Profit (If POT assigned at $29.00): +$249.85
= (+$588.80 +$0.00 -$338.95)

Absolute Return if Assigned (at $29.00): +2.8%
= +$249.85/$9,038.95
Annualized Return If Assigned (ARIA): +26.6%
= (+$249.85/$9,038.95)*(365/38 days)

The downside 'breakeven price' at expiration is at $28.10 ($30.10 - $2.00).  This is the price at which this covered calls investment would make neither a profit or a loss.
The 'crossover price' at expiration is $31.00 ($29.00 + $2.00). This is the price above which it would have been more profitable to simply buy-and-hold POT stock until Sep 20th (the Sep2013 options expiration date) rather than establishing the covered calls in POT.