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Friday, January 9, 2015

Established New Short 100% Cash-Secured Puts Position in Anadarko Petroleum Corporation

Today, the Covered Calls Advisor established a new position in Anadarko Petroleum Corp.(ticker symbol APC) by selling 2 Jan2015 $75.00 Put options.  As detailed below, this investment will yield a +1.2% absolute return in 8 days (which is equivalent to a +53.4% annualized return-on-investment) if APC closes above the $75.00 strike price a week from today on the Jan 16th options expiration date.  The transaction and a potential return-on-investment result is:

1.  Anadarko Petroleum Corp. (APC) -- New Position
The transaction was as follows:
01/09/2015 Sold 2 Anadarko Petroleum Corporation Jan2015 $75.00 Puts @ $.93
Note: The price of APC was $77.90 today 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 two Put options sold.

A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $15,000.00
= $75.00*200
Note:  the price of APC was $77.90 when these Put options were sold.

Net Profit:
(a) Options Income: +$175.55
= ($.93*200 shares) - $9.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If APC is above $75.00 strike price at Jan2015 expiration): +$0.00
= ($75.00-$75.00)*200 shares

Total Net Profit (If APC is above $75.00 strike price at Jan2015 options expiration): +$175.55
= (+$175.55 +$0.00 +$0.00)

Absolute Return (If APC is above $75.00 strike price at Jan2015 options expiration): +1.2%
= +$175.55/$15,000.00
Annualized Return (If APC is above $75.00 at expiration): +53.4%
= (+$175.55/$15,000.00)*(365/8 days)

The downside 'breakeven price' at expiration is at $74.07 ($75.00 - $.93), which is 4.9% below the current market price of $77.90.
The 'crossover price' at expiration is $78.83 ($77.90 + $.93).  This is the price above which it would have been more profitable to simply buy-and-hold APC until Jan 16th (the Jan2015 options expiration date) rather than purchasing these short Put options.