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Thursday, October 30, 2014

Established a December 2014 100% Cash-Secured Puts Position in Micron Technology Inc.

Today, the Covered Calls Advisor established a 100% Cash-Secured Puts position in Micron Technology Inc. (Ticker Symbol MU) with a Dec2014 expiration and at the $30.00 strike price.  As detailed below, this investment will provide a +4.1% absolute return in 52 days (which is equivalent to a +28.8% annualized return) if Micron Technology stock remains at or above $30.00 at options expiration on December 20th.

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

Micron Technology Inc. (MU)
The transaction is as follows:
10/30/2014 Sold 4 Micron Technology Inc. Dec2014 $30.00 Puts @ $1.26
Note: The price of Micron was $31.22 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 transaction would be as follows:
100% Cash-Secured Cost Basis: $12,000.00
= $30.00*400
Note:  the price of Micron was $31.22 when these Put options were sold.

Net Profit:
(a) Options Income: +$492.05
= ($1.26*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MU remains above $30.00 at Dec2014 expiration): +$0.00
= ($30.00-$30.00)*400 shares

Total Net Profit (If MU is above $30.00 strike price at Dec2014 options expiration):+$492.05 
= (+$492.05 +$0.00 +$0.00)

Absolute Return (If MU is above $30.00 at Dec2014 options expiration and Put options thus expire worthless): +4.1%
= +$492.05/$12,000.00
Annualized Return (If MU above $30.00 at expiration): +28.8%
= (+$492.05/$12,000.00 )*(365/52 days)

The downside 'breakeven price' at expiration is at $28.74 ($30.00 - $1.26), which is 7.9% below the current market price of $31.22.
The 'crossover price' at expiration is $32.48 ($31.22 + $1.26).  This is the price above which it would have been more profitable to simply buy-and-hold Micron stock until Dec 20th (the Dec2014 options expiration date) rather than holding these short Put options.