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Wednesday, April 1, 2015

Established Short 100% Cash-Secured Put Position in Google Inc.

Today, the Covered Calls Advisor established a 100% cash-secured Put position in Google Inc. (Symbol GOOG) by selling 1 Apr2015 Put option at the $535.00 strike price. This position indicates that the Covered Calls Advisor is willing to purchase Google Inc. shares at $535.00 (for future covered calls investments) upon the market close on April 17th if the stock declines to below $535.00 at that time.  This is a somewhat conservative investment since Google stock was at $543.41 (1.5% above the strike price) when this position was established.

As detailed below, this investment will achieve a +1.6% absolute return in 17 days (which is equivalent to a +33.7% annualized return) if the Google stock price remains above $535.00 at the April 17th options expiration date.

This transaction and the associated potential return-on-investment result is detailed below.

1.  Google Inc. (GOOG) -- New Position
The transaction was as follows:
04/01/2015 Sold 1 Google Inc. Apr2015 $535.00 Put @ $8.50
Note: The price of GOOG was $543.41 when this transaction was executed.

Note: The Covered Calls Advisor does not use margin, so the detailed information on this position and a potential result shown below reflect the fact that this position was established using 100% cash securitization for the Put option sold.

A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $53,500.00
= $535.00*100
Note:  the price of GOOG was $543.41 when the Put option was sold.

Net Profit:
(a) Options Income: +$840.30
= ($8.50*100 shares) - $9.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If GOOG is above $535.00 strike price at Apr2015 expiration): +$0.00
= ($535.00-$535.00)*100 shares

Total Net Profit (If GOOG is above $535.00 strike price upon the Apr2015 options expiration): +$840.30
= (+$840.30 +$0.00 +$0.00)

Absolute Return (If GOOG is above $535.00 strike price at Apr2015 options expiration): +1.6%
= +$840.30/$53,500.00
Annualized Return: +33.7%
= (+$840.30/$53,500.00)*(365/17 days)

The downside 'breakeven price' at expiration is at $526.50 ($535.00 - $8.50), which is 3.1% below the current market price.
The 'crossover price' at expiration is $551.91 ($543.41 + $8.50).  This is the price above which it would have been more profitable to simply buy-and-hold Google stock until April 17th (the Apr2015 options expiration date) rather than holding this short Put option.