Monday, February 2, 2015
Established New Short 100% Cash-Secured Puts Position in Delta Air Lines Inc.
As detailed below, this investment will yield a +2.7% absolute return in 20 days (which is equivalent to a +49.7% annualized return-on-investment) if Delta Air Lines stock closes above the $44.00 strike price on the Feb 20th options expiration date.
1. Delta Air Lines Inc. (DAL) -- New Position
The transaction was as follows:
02/02/2015 Sold 2 Delta Air Lines Inc. Feb2015 $44.00 Puts @ $1.25
Note: The price of DAL was $45.27 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: $8,800.00
Note: the price of DAL was $45.27 when these Put options were sold.
(a) Options Income: +$239.55
= ($1.25*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If DAL is above $44.00 strike price at Feb2015 expiration): +$0.00
= ($44.00-$44.00)*200 shares
Total Net Profit (If DAL is above $44.00 strike price at Feb2015 options expiration): +$239.55
= (+$239.55 +$0.00 +$0.00)
Absolute Return (If DAL is above $44.00 strike price at Feb2015 options expiration): +2.7%
Annualized Return (If DAL is above $44.00 at expiration): +49.7%
= (+$239.55/$8,800.00)*(365/20 days)
The downside 'breakeven price' at expiration is at $42.75 ($44.00 - $1.25), which is 5.6% below the current market price of $45.27.
The 'crossover price' at expiration is $46.52 ($45.27 + $1.25). This is the price above which it would have been more profitable to simply buy-and-hold Delta Air Lines stock until Feb 20th (the Feb2015 options expiration date) rather than selling these Put options.