Wednesday, April 1, 2015
Established Short 100% Cash-Secured Put Position in Google Inc.
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
Note: the price of GOOG was $543.41 when the Put option was sold.
(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%
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.