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Wednesday, September 24, 2014

Established a 100% Cash-Secured Puts Position in Agnico Eagle Mines Ltd.

Today, the Covered Calls Advisor established a 100% Cash-Secured Puts position in Agnico Eagle Mines Ltd. (Ticker Symbol AEM) with an Oct2014 expiration and at the $30.00 strike price.  As detailed below, this investment will provide a +3.5% absolute return in 25 days (which is equivalent to a +51.7% annualized return) if Agnico Eagle stock closes at or above $30.00 at options expiration on Oct 18th.

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

Agnico Eagle Mines Ltd. (AEM)
The transaction is as follows:
09/24/2014 Sold 3 Oct2014 $30.00 Puts @ $1.10
Note: The price of Agnico Eagle was $30.03 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 three Put options sold.

A possible overall performance result (including commissions) for this Agnico Eagle Mines transaction would be as follows:
100% Cash-Secured Cost Basis: $9,000.00 = $30.00*300
Note:  the price of AEM was $30.03 when these Put options were sold.

Net Profit:
(a) Options Income: +$318.80
= ($1.10*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AEM close above $30.00 at Oct2014 expiration): +$0.00
= ($30.00-$30.00)*300 shares

Total Net Profit (If AEM is above $30.00 strike price at Oct2014 options expiration):+$318.80 
= (+$318.80 +$0.00 +$0.00)

Absolute Return (If AEM is above $30.00 at Oct2014 options expiration and Put options thus expire worthless): +3.5%
= +$318.80/$9,000.00
Annualized Return (If AEM is above $30.00 at expiration): +51.7%
= (+$318.80/$9,000.00)*(365/25 days)

The downside 'breakeven price' at expiration is at $28.90 ($30.00 - $1.10), which is 3.8% below the current market price of $30.03.
The 'crossover price' at expiration is $31.13 ($30.03 + $1.10).  This is the price above which it would have been more profitable to simply buy-and-hold Agnico Eagle Mines Ltd. stock until October 18th (the Oct2014 options expiration date) rather than holding these short Put options.