Thursday, April 2, 2015
Established Short 100% Cash-Secured Puts Position in General Motors Co.
As detailed below, this investment will achieve a +1.2% absolute return in 16 days (which is equivalent to a +27.4% annualized return) if the GM stock price remains above $36.00 at the April 17th options expiration date.
This transaction and the associated potential return-on-investment result is detailed below.
1. GM Co. (GM) -- New Position
The transaction was as follows:
04/02/2015 Sold 3 GM Co. Apr2015 $36.00 Puts @ $.47
Note: The price of GM was $36.37 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 three Put options sold.
A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $10,800.00
Note: the price of GM was $36.37 when the Put options were sold.
(a) Options Income: +$129.80
= ($.47*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If GM is above $36.00 strike price at Apr2015 expiration): +$0.00
= ($36.00-$36.00)*300 shares
Total Net Profit (If GM is above $36.00 strike price upon the Apr2015 options expiration): +$129.80
= (+$129.80 +$0.00 +$0.00)
Absolute Return (If GM is above $36.00 strike price at Apr2015 options expiration): +1.2%
Annualized Return: +27.4%
= (+$129.80/$10,800.00)*(365/16 days)
The downside 'breakeven price' at expiration is at $35.53 ($36.00 - $.47), which is 2.3% below the current market price.
The 'crossover price' at expiration is $36.84 ($36.37 + $.47). This is the price above which it would have been more profitable to simply buy-and-hold GM stock until April 17th (the Apr2015 options expiration date) rather than holding this short Put option.