Today, the Covered Calls Advisor established a new position in Micron Technology Inc. (ticker symbol MU) by selling seven Sep2015 Put options at the $17.00 strike price. This position is a conservative one since it was established with 3.7% downside protection to the strike price.
As detailed below, the Micron Technology investment will yield a +4.5% absolute
return in 38 days (which is equivalent to a +42.9% annualized
return-on-investment) if Micron closes above the $17.00 strike price on the Sep2015 options expiration date.
This potential return is excellent given the 3.7% downside protection (from the current $17.66 stock price to the $17.00 strike price) when the position was established. The implied volatility in the options was high at 49 when this position was established; so the $.78 price per share received when the Puts were sold is very attractive to us option sellers, especially since the level of unknowns between now and the Sep2015 options expiration is relatively low, given that MU has already announced their 2nd quarter earnings results.
The transaction was as follows:
08/12//2015 Sold 7 MU 100% cash-secured $17.00 Put options @ $.78
Note: The price of MU was $17.66 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 seven Put options sold.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $11,908.95
= $17.00*700 + $8.95
(a) Options Income: +$531.80
= ($.78*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MU is above $17.00 strike price at Sep2015 expiration): +$0.00
= ($17.00-$17.00)*700 shares
Total Net Profit (If MU is above $17.00 strike price at Sep2015 options expiration): +$531.80
= (+$531.80 +$0.00 +$0.00)
Absolute Return (If MU is above $17.00 strike price at Sep2015 options expiration): +4.5%
Annualized Return (If MU is above $17.00 at expiration): +42.9%
= (+$531.80/$11,908.95)*(365/38 days)
downside 'breakeven price' at expiration is at $16.22 ($17.00 - $.78),
which is 8.2% below the current market price of $17.66.
'crossover price' at expiration is $18.44 ($17.66 + $.78). This is the
price above which it would have been more profitable to simply
buy-and-hold Micron stock until Sept 18th (the Sep2015 options expiration date)
rather than selling these Put options.