Tuesday, December 2, 2014
Established a 100% Cash-Secured Put Position in Baidu Inc.
Details of this transaction along with a potential return-on-investment result are:
Baidu Inc. (BIDU)
The transaction is as follows:
09/29/2014 Sold 1 out-of-the-money Oct2014 $230.00 Put @ $3.35
Note: The price of Baidu was $237.38 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 Baidu transaction would be as follows:
100% Cash-Secured Cost Basis: $23,000.00 = $230.00*100
Note: the price of BIDU was $237.38 when the Put option was sold.
(a) Options Income: +$325.30
= ($3.35*100 shares) - $9.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BIDU closes above $230.00 at the Dec2014 options expiration): +$0.00
= ($230.00-$230.00)*100 shares
Total Net Profit (If BIDU is above $230.00 strike price at Dec2014 options expiration): +$325.30
= (+$325.30 +$0.00 +$0.00)
Absolute Return (If BIDU is above $230.00 at Dec2014 options expiration and Put option thus expire worthless): +1.4%
Annualized Return (If BIDU is above $230.00 at expiration): +25.8%
= (+$325.30/$23,000.00)*(365/20 days)
The downside 'breakeven price' at expiration is at $226.65 ($230.00 - $3.35), which is 4.5% below the current market price of $237.38.
The 'crossover price' at expiration is $240.73 ($237.38 + $3.35). This is the price above which it would have been more profitable to simply buy-and-hold Baidu Inc. stock until December 19th (the Dec2014 options expiration date) rather than holding this short Put option.