Tuesday, January 29, 2013

Established 100% Cash-Secured Puts -- Fusion-io Inc.

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in Fusion-io Inc. (Ticker Symbol FIO) with a Feb2013 expiration.

The transaction was as follows:
01/29/2013 Sold 3 Fusion-io Inc. (FIO) Feb2013 $20.00 Put Options @ $2.00
Note: the price of FIO was $19.54 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 three Put options sold.

A possible overall performance results(including commissions) for this FIO transaction would be as follows:
100% Cash-Secured Cost Basis: $6,000.00 = $20.00*300

Net Profit:
(a) Options Income: +$588.80
= ($2.00*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FIO unchanged at $19.54 at Feb2013 expiration): -$138.00
= ($19.54-$20.00)*300 shares
(c) Capital Appreciation (If FIO above $20.00 at Feb2013 expiration): +$0.00 = ($20.00-$20.00)*300 shares

Total Net Profit (If FIO is unchanged at $19.54 at Feb2013 options expiration): +$450.80 = (+$588.80 +$0.00 -$138.00)
Total Net Profit (If FIO is above $20.00 strike price at Feb2013 options expiration): +$588.80  = (+$588.80 +$0.00 +$0.00)
Absolute Return (If FIO unchanged at $19.54 at Feb2013 options expiration and Put options are exercised at $20.00): +7.5%
= +$450.80/$6,000.00
Annualized Return (If stock price above $20.00 at expiration and Put options thus expire worthless): +144.3%
= (+$450.80/$6,000.00)*(365/19 days)

Absolute Return (If UAL above $20.00 at Feb2013 options expiration and Put options thus expire worthless): +9.8% = +$588.80/$6,000.00
Annualized Return (If stock price above $20.00 at expiration): +188.5%
= (+$588.80/$6,000.00)*(365/19 days)

The potential returns for this cash-secured short puts position are extraordinarily high since quarterly earnings are reported tomorrow.  So there is a great deal of price volatility embedded in today's option prices. 

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