This position indicates that the Covered Calls Advisor would be very willing to purchase U.S. Steel shares at $21.00 (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 $21.00 strike price. A conservative (5.4% out-of-the-money) short Puts position was established. If the stock remains above $21.00 by the market close on March 20th, then the $114.80 profit detailed below (a +1.8% absolute return-on-investment result in only 18 days) will have been achieved.
This transaction and a potential return-on-investment result is:
1. United States Steel Corp. (X) -- New Position
The transaction was as follows:
03/04/2015 Sold 3 United States Steel Corp. Mar2015 $21.00 Puts @ $.42
Note: The price of X was $22.20 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: $6,300.00
Note: the price of U.S. Steel was $22.20 when these Put options were sold.
(a) Options Income: +$114.80
= ($.42*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If X is above $21.00 strike price at Mar 20th, 2015 expiration): +$0.00
= ($21.00-$21.00)*300 shares
Total Net Profit (If X is above $21.00 strike price upon Mar2015 options expiration): +$114.80
= (+$114.80 +$0.00 +$0.00)
Absolute Return (If X is above $21.00 strike price at Mar2015 options expiration): +1.8%
= (+$114.80/$6,300.00)*(365/18 days)
The downside 'breakeven price' at expiration is at $20.58 ($21.00 - $.42), which is 7.3% below the current market price of $22.20.
The 'crossover price' at expiration is $22.62 ($22.20 + $.42). This is the price above which it would have been more profitable to simply buy-and-hold United States Steel stock until March 20th (the Mar2015 options expiration date) rather than selling these Put options.