Thursday, October 17, 2013
Established a 100% Cash-Secured Puts Position in ProShares UltraShort 20+ Year Treasury ETF
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.
(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%
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.