This position indicates that the Covered Calls Advisor would be very willing to purchase Delta shares at $44.00 (for future covered calls investments) upon the close of business on the March 20th options expiration date if the stock continues to decline to below the $44.00 strike price. If the stock remains above $44.00 by the market close on March 20th, then the $276.80 profit detailed below (a +2.1% absolute return-on-investment result in only 18 days) will have been achieved.
A conservative (2.0% out-of-the-money) short Puts position was established. The investment thesis is that for at least the next six months, the cost of oil will continue to be substantially below the prior year levels.
This transaction and a potential return-on-investment result is:
1. Delta Air Lines Inc. (DAL) -- New Position
The transaction was as follows:
03/04/2015 Sold 3 Delta Air Lines Inc. Mar2015 $44.00 Puts @ $.96
Note: The price of DAL was $44.93 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 three Put options sold.
A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $13,200.00
Note: the price of DAL was $44.93 when these Put options were sold.
(a) Options Income: +$276.80
= ($.96*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If DAL is above $44.00 strike price at Mar 20th, 2015 expiration): +$0.00
= ($44.00-$44.00)*300 shares
Total Net Profit (If DAL is above $44.00 strike price upon Mar2015 options expiration): +$276.80
= (+$276.80 +$0.00 +$0.00)
Absolute Return (If DAL is above $44.00 strike price at Mar2015 options expiration): +2.1%
= (+$276.80/$13,200.00)*(365/18 days)
The downside 'breakeven price' at expiration is at $43.04 ($44.00 - $.96), which is 4.2% below the current market price of $44.93.
The 'crossover price' at expiration is $45.89 ($44.93 + $.96). This is the price above which it would have been more profitable to simply buy-and-hold Delta Air Lines stock until March 20th (the Mar2015 options expiration date) rather than selling these Put options.