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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.