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Thursday, October 24, 2013

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.