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Monday, September 29, 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 an Oct2014 expiration and at the $50.00 strike price.  As detailed below, this investment will provide a +0.9% absolute return in 20 days (which is equivalent to a +15.7% annualized return) if Citi stock closes at or above $50.00 at options expiration on October 17th.

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

Citigroup Inc. (C)
The transaction is as follows:
09/29/2014 Sold 4 Citigroup Inc. Oct2014 $50.00 Puts @ $.46
Note: The price of Citigroup was $51.69 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 Citigroup Inc. transaction would be as follows:
100% Cash-Secured Cost Basis: $20,000.00 = $50.00*400
Note:  the price of Citigroup was $51.69 when these Put options were sold.

Net Profit:
(a) Options Income: +$172.05
= ($.46*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If C remains above $50.00 at Oct2014 expiration): +$0.00
= ($50.00-$50.00)*400 shares

Total Net Profit (If C is above $50.00 strike price at Oct2014 options expiration):+$172.05 
= (+$172.05 +$0.00 +$0.00)

Absolute Return (If C is above $50.00 at Oct2014 options expiration and Put options thus expire worthless): +0.9%
= +$172.05/$20,000.00
Annualized Return (If C above $50.00 at expiration): +15.7%
= (+$172.05/$20,000.00)*(365/20 days)

The downside 'breakeven price' at expiration is at $49.54 ($50.00 - $.46), which is 4.2% below the current market price of $51.69.
The 'crossover price' at expiration is $52.15 ($51.69 + $.46).  This is the price above which it would have been more profitable to simply buy-and-hold Citigroup stock until Oct 17th (the Oct2014 options expiration date) rather than holding these short Put options.