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Monday, February 3, 2014

Established a 100% Cash-Secured Puts Position in Citigroup Inc.

Today, the Covered Calls Advisor established a 100% Cash-Secured Puts position in Citigroup Inc. (Ticker Symbol C) with a Feb2014 expiration and at the $46.00 strike price.  As detailed below, this investment will provide a +2.3% absolute return in 20 days (which is equivalent to a +42.4% annualized return) if Citi stock closes at or above $46.00 at options expiration on Feb 21st.

Details of this transaction along with a potential return-on-investment result are: 

Citigroup Inc. (C)
The transaction is as follows:
02/03/2013 Sold 7 Feb2014 $46.00 Puts @ $1.09
Note: The price of Citigroup was $46.27 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 Citigroup Inc. transaction would be as follows:
100% Cash-Secured Cost Basis: $32,200.00 = $46.00*700
Note:  the price of Citigroup was $46.27 when these Put options were sold.

Net Profit:
(a) Options Income: +$748.80
= ($1.09*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If C remains above $46.00 at Feb2014 expiration): +$0.00
= ($46.00-$46.00)*700 shares

Total Net Profit (If C is above $46.00 strike price at Feb2014 options expiration):+$748.80 
= (+$748.80 +$0.00 +$0.00)

Absolute Return (If C is above $46.00 at Feb2014 options expiration and Put options thus expire worthless): +2.3%
= +$748.80/$32,200.00
Annualized Return (If C above $46.00 at expiration): +42.4%
= (+$748.80/$32,200.00)*(365/20 days)

The downside 'breakeven price' at expiration is at $44.91 ($46.00 - $1.09), which is 2.9% below the current market price of $46.27.
The 'crossover price' at expiration is $47.09 ($46.00 + $1.09).  This is the price above which it would have been more profitable to simply buy-and-hold Citigroup stock until Feb 21st (the Feb2014 options expiration date) rather than holding these short Put options.