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Tuesday, August 6, 2013

Establish 100% Cash-Secured Puts Position in U.S. Airways

Today, the following transaction was made in the Covered Calls Advisor Portfolio:
8/6/2013  Sold 4 US Airways (Symbol LCC) 100% Cash-Secured Puts for $.60 each at the Sep2013 $18.00 Strike Price
Note:  the price of LCC was $19.02 when this transaction was executed.

A possible overall performance results(including commissions) for this US Airways transaction would be as follows:
100% Cash-Secured Puts Cost Basis: $7,200.00
= $18.00*400

Net Profit:
(a) Options Income: +$228.05
= ($.60*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If LCC remains above $18.00 at Sep2013 expiration): +$0.00
= ($18.00-$18.00)*400 shares

Total Net Profit (If LCC is above $18.00 strike price at Sep2013 options expiration): +$228.05
= (+$228.05 +$0.00 +$0.00)

Absolute Return (If LCC is above $18.00 at Sep2013 options expiration and Put options thus expire worthless): +3.3%
= +$228.05/$7,200.00
Annualized Return (If LCC above $18.00 at expiration): +25.9%
= (+$228.05/$7,200.00)*(365/47 days)

The downside 'breakeven price' at expiration is at $17.40 ($18.00 - $.60). This is the price at which this 100% cash-secured Puts investment would breakeven (i.e. make neither a profit or a loss).
The 'crossover price' at expiration is $19.62 ($19.02 + $.60). This is the price above which it would have been more profitable to simply buy-and-hold LCC stock until Sep 20th (the Sep2013 options expiration date) rather than holding the short Put options.