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Thursday, September 25, 2014

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

Today, the Covered Calls Advisor established a 100% Cash-Secured Puts position in Google Inc. (Ticker Symbol GOOG) with a Jan2015 expiration and at the $530.00 strike price.  As detailed below, this investment will provide a +   % absolute return in 40 days (which is equivalent to a +    % annualized return) if Google closes at or above $530.00 at options expiration on Jan 16th.

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

Google Inc. (GOOG)
The transaction is as follows:
12/09/2014 Sold 1 Jan2015 $530.00 Put @ $18.20
Note: The price of Google was $522.64 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 Google transaction would be as follows:
100% Cash-Secured Cost Basis: $53,000.00
= $530.00*100
Note:  the price of GOOG was $522.64 when the Put option was sold.

Net Profit:
(a) Options Income: +$1,810.30
= ($18.20*100 shares) - $9.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If GOOG closes above $530.00 at Jan2015 expiration): +$0.00
= ($530.00-$530.00)*100 shares

Total Net Profit (If GOOG is above $530.00 strike price at Jan2015 options expiration): +$1,810.30 
= (+$1,810.30 +$0.00 +$0.00)

Absolute Return (If GOOG is above $530.00 at Jan2015 options expiration and Put option thus expires worthless): +3.4%
= +$1,810.30/$53,000.00
Annualized Return (If GOOG is above $530.00 at expiration): +31.2%
= (+$1,810.30/$53,000.00)*(365/40 days)

The downside 'breakeven price' at expiration is at $511.80 ($530.00 - $18.20), which is 2.1% below the current market price of $522.64.
The 'crossover price' at expiration is $540.84 ($522.64 + $18.20).  This is the price above which it would have been more profitable to simply buy-and-hold Google Inc. stock until December 16th (the Dec2015 options expiration date) rather than holding this short Put option.