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Tuesday, September 23, 2014

Established a 100% Cash-Secured Puts Position in American Airlines Group Inc.

Today, the Covered Calls Advisor established a 100% Cash-Secured Puts position in American Airlines Group Inc. (Ticker Symbol AAL) with an Oct2014 expiration and at the $35.00 strike price.  As detailed below, this investment will provide a +4.0% absolute return in 26 days (which is equivalent to a +56.6% annualized return) if American Airlines closes at or above $35.00 at options expiration on Oct 18th.

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

American Airlines Group Inc. (AAL)
The transaction is as follows:
09/23/2014 Sold 4 Oct2014 $35.00 Puts @ $1.44
Note: The price of American Airlines was $35.03 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 one Put option sold.

A possible overall performance result (including commissions) for this AAL transaction would be as follows:
100% Cash-Secured Cost Basis: $14,000.00
= $35.00*400
Note:  the price of AAL was $35.03 when these Put options were sold.

Net Profit:
(a) Options Income: +$564.05
= ($1.44*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AAL closes above $35.00 at Oct2014 expiration): +$0.00
= ($35.00-$35.00)*400 shares

Total Net Profit (If AAL is above $35.00 strike price at Oct2014 options expiration):+$564.05 
= (+$564.05 +$0.00 +$0.00)

Absolute Return (If AAL is above $35.00 at Oct2014 options expiration and Put options thus expire worthless): +4.0%
= +$564.05/$14,000.00
Annualized Return (If AAL is above $35.00 at expiration): +56.6%
= (+$564.05/$14,000.00)*(365/26 days)

The downside 'breakeven price' at expiration is at $33.56 ($35.00 - $1.44), which is 4.2% below the current market price of $35.03.
The 'crossover price' at expiration is $36.47 ($35.03 + $1.44).  This is the price above which it would have been more profitable to simply buy-and-hold American Airlines Group Inc. stock until October 18th (the Oct2014 options expiration date) rather than holding these short Put options.