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Friday, May 16, 2014

Established a 100% Cash-Secured Puts Position in Ensco PLC Class A

Today, the Covered Calls Advisor established a 100% Cash-Secured Puts position in Ensco PLC Class A (Ticker Symbol ESV) with a Jun2014 expiration and at the $50.00 strike price.  As detailed below, this investment will provide a +3.0% absolute return in 37 days (which is equivalent to a +29.4% annualized return) if Ensco's price is unchanged at $49.82 at options expiration on June 20th.  There will be an ex-dividend date in early June before options expiration of $.75, so the price of the stock will decline by that amount at the market open on the ex-div date.  Nevertheless, the Covered Calls Advisor would be pleased to purchase the shares at the $50 strike price since with a $3.00 current annual dividend, at $50 the associated dividend yield is a very attractive 6.0%. 

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

Ensco PLC Class A (ESV)
The transaction is as follows:
05/16/2014 Sold 4 Jun2014 $50.00 Puts @ $1.70
Note: The price of Ensco was $49.82 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 four Put options sold.

A possible overall performance result (including commissions) for this Ensco transaction would be as follows:
100% Cash-Secured Cost Basis: $20,000.00 = $50.00*400
Note:  the price of Ensco was $49.82 when these Put options were sold.

Net Profit:
(a) Options Income: +$668.05
= ($1.70*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If ESV price remains unchanged at $49.82 at Jun2014 expiration): -$72.00
= ($49.82-$50.00)*400 shares

Total Net Profit (If ESV is unchanged at $49.82 at Jun2014 options expiration):+$596.05 
= (+$668.05 +$0.00 -$72.00)

Absolute Return (If ESV is $49.82 at Jun2014 options expiration and Put options thus expire worthless): +3.0%
= +$596.05/$20,000.00
Annualized Return (If ESV is at current price of $49.82 at expiration): +29.4%
= (+$596.05/$20,000.00)*(365/37 days)