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Wednesday, September 30, 2015

Covered Call Position in S&P 500 Index -- Closed

Today was the options expiration date for quarterly options.  The Covered Calls Advisor owned a covered call position in the S&P 500 Index (ticker symbol SPY) that was assigned (shares sold) at the $191.00 strike price since SPY closed at $191.63 today (i.e. above the strike price).

The maximum potential profit was realized which was +2.5% absolute return (equivalent to +33.6% annualized return for the 27 days of this covered call investment).  The details for this position are as follows:

1. S&P 500 Index (SPY) -- Covered Call Position Closed
The transactions were as follows:
09/04/2015 Bought 100 SPY shares @ $192.59
09/04/2015 Sold 1 SPY Sep30,2015 $191.00 Call option @ $5.53
09/18/2015 Ex-dividend of $1.03343 per share
09/30/2015 SPY Sep30,2015 Call option exercised and the 100 shares of SPY were sold at the $191.00 strike price.
Note: SPY closed at $191.63 on the 9/30/2015 quarterly options expiration date.

The overall performance result (including commissions) for this SPY covered call position was as follows:
Stock Purchase Cost: $19,267.95
= ($192.59*100+$8.95 commission)

Net Profit:
(a) Options Income: +$544.05
= ($5.53*100 shares) - $8.95 commissions
(b) Dividend Income (SPY assigned at Sept30,2015 expiration): +$103.34
= ($1.03343 dividend per share x 100 shares)
(c) Capital Appreciation (SPY assigned at $191.00 at Sept30,2015 expiration): -$167.95
= +($191.00-$192.59)*100 - $8.95 commissions
Total Net Profit (SPY assigned at $191.00 strike price at Sep30,2015 expiration): +$479.53
= (+$544.05 options income +$103.43 dividend income -$167.95 capital appreciation)
Absolute Return (SPY shares assigned at $191.00 at Sep30,2015 expiration): +2.5%
= +$479.53/$19,267.95
Annualized Return: +33.6%
= (+$479.53/$19,267.95)*(365/27 days)

Note: You might recall that the Implied Volatility (IV) of the SPY Call option when this position was established was 23.2 (above the Covered Calls Advisor's minimum threshold of 20.0). Looking ahead, the current IV for the Oct2015 $191.00 SPY Call options is at 21.2.  So, although the IV has declined somewhat, another covered calls position could be established with SPY (although the potential ROI would be somewhat lower) since the IV is still above the minimum threshold of 20.  The Covered Calls Advisor will decide tomorrow (or in the next few days) what to do with the cash obtained from selling these 100 SPY shares.  Any new position(s) will be posted on this blog site the same day it is established.