Thursday, December 29, 2016

Continuation of Agnico Eagle Mines and Alibaba Covered Calls Positions

The Covered Calls Advisor Portfolio held five positions at the Dec2016 options expiration.  Three of these positions were assigned upon expiration and the maximum return-on-investment results were achieved: Link
For the other two positions [Agnico Eagle Mines Ltd. (500 shares) and Alibaba Group Holdings (400 shares)] the price of the equities closed below their strike prices, so the options expired worthless and the long shares were retained in the Portfolio.  Today, covered calls were established to continue these two holdings as follows:

1. Agnico Eagle Mines (AEM) -- Continuing Covered Calls Position
The transactions to date are as follows:
11/16/2016 Sold 5 Dec2016 $43.00 Puts @ $1.95
Note: The price of Agnico Eagle was $43.93 when this transaction was executed.
12/16/2016 5 Put options exercised and 500 shares AEM purchased at $43.00 strike price.
12/29/2016 Sold 5 Jan2017 AEM $42.50 Call options @ $1.60 when stock price was $42.10

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 five Put options sold.

A possible overall performance result (including commissions) for this AEM position is as follows:
Stock Purchase Cost: $21,507.95
= ($43.00*500+$7.95 commission)

Net Profit:
(a) Options Income: +$1,751.60
= ($1.95 + $1.60)*500 shares - 2*$11.70 commissions
(b) Dividend Income: +$0.00
= ($0.00 dividend per share x 500 shares)
(c) Capital Appreciation (If stock assigned at $42.50 at Jan 20, 2017 expiration): -$257.95
+($42.50-$43.00)*500 - $7.95 commissions

Total Net Profit (If stock assigned at $42.50 at Jan 20, 2017 expiration): +$1,493.65
= (+$1,751.60 +$0.00 -$257.95)

Absolute Return (If stock assigned at $42.50 at Jan 20, 2017 expiration): +6.9%
= +$1,493.65/$21,507.95
Annualized Return (If stock assigned at $42.50 at Jan 20, 2017 expiration): +39.0%
= (+$1,493.65/$21,507.95)*365/65 days


2. Alibaba Group Holdings (BABA) -- Continuation of Covered Calls Position
The transactions to-date are:
10/26/2016 Sold 4 Alibaba (BABA) Nov2016 $95.00 100% Cash-Secured Put options @ $1.25
11/18/2016 4 BABA Puts assigned and 400 shares of Alibaba purchased at $95.00
11/21/2016 Sold 4 BABA Dec2016 $95.00 Call options @ $2.26
Note: the price of BABA was $94.27 when these Call options were sold
12/16/2016 4 BABA Call options expired worthless
12/29/2016 Sold 4 Jan2017 BABA $92.50 Call options @ $.72 when stock price was $88.05

A possible overall performance result (including commissions) for this BABA position is as follows:
Stock Purchase Cost: $38,007.95
= ($95.00*400+$7.95 commission)

Net Profit:
(a) Options Income: +$1,659.15
= ($1.25 + $2.26 + $.72) * 400 shares - 3*$10.95 commissions
(b) Dividend Income: +$0.00
= ($0.00 dividend per share x 400 shares)
(c) Capital Appreciation (If stock assigned at $92.50 at Jan 20, 2017 expiration): -$1,007.95
+($92.50-$95.00)*500 - $7.95 commissions

Total Net Profit (If stock assigned at $92.50 at Jan 20, 2017 expiration): +$651.20
= (+$1,659.15 +$0.00 -$1,007.95)

Absolute Return (If BABA assigned at $92.50 at Jan 20, 2017 expiration): +1.7%
= +$651.20/$38,007.95
Annualized Return: +7.3%
= (+$1,493.65/$21,507.95)*365/86 days

The current holdings for these two positions are shown in the right sidebar of this blog.

Monday, December 19, 2016

December 2016 Option Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained five positions with December 2016 expirations.  Three of the five positions were closed out at the options expiration this past Friday.  For the remaining two positions, the price of the stock closed below the strike price; so the options expired and the associated long shares will remain in the Covered Calls Advisor Portfolio until these shares are either sold or continuation covered calls positions established by selling Jan2017 call options against the shares owned.  The results for these five positions are:  

I.  For the three closed positions:
The overall average annualized return-on-investment for these three closed positions was +22.5%.  The return-on-investment results for each position was:
  • Amazon.com Inc. = +1.1% absolute return (+23.0% annualized return)
  • Blackstone Group LP = +2.3% absolute return (+21.2% annualized return)
  • Noble Energy Inc. = +1.8% absolute return (+23.2% annualized return)
One of the positions (Blackstone Group) was a Covered Calls and two (Amazon.com Inc. and Noble Energy Inc.) were 100% Cash-Secured Puts.
Below are two examples that demonstrate how the returns shown above are calculated.  The Blackstone Group LP position details are provided to show calculations for a Covered Calls position and Amazon.com Inc. details an example for a 100% Cash-Secured Put position.

The cash now available in the Covered Calls Advisor Portfolio from the closing of these three positions will be retained until new covered calls and/or 100% cash-secured puts positions are established.  Any new positions established in the near future with this available cash will be posted on this site on the same day the transactions occur.

Blackstone Group LP -- Example of Covered Calls Position Closed at Expiration
The transactions were as follows:
11/08/2016  Bought 1,000 Blackstone shares @ $23.59
11/08/2016 Sold 10 BX Dec2016 $23.00 Call options @ $1.14
Note: this was a simultaneous buy/write transaction.
12/16/2016 10 Call options expired in-the-money and 1,000 BX shares were sold at the $23 strike price.

The overall performance result (including commissions) was as follows:
Bought 1,000 shares BX: $23,597.95
= $23.59*1,000 + $7.95 commission

Net Profit:
(a) Options Income: +$1,132.50
= ($1.14*1,000 shares) - $7.50 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (BX was above $23.00 strike price at Dec2016 expiration): -$597.95
= ($23.00-$23.59)*1,000 shares - $7.95 commissions

Total Net Profit: +$534.55
= (+$1,132.50 options income +$0.00 dividends -$597.95 capital appreciation)

Absolute Return: +2.3%
= +$534.55/$23,597.95
Annualized Return: +21.2%
= (+$534.55/$23,597.95)*(365/39 days)


Amazon.com Inc. -- Example of 100% Cash-Secured Put Position Closed at Expiration
The transaction was as follows:
11/29/2016 Sold 1 Dec2016 $750.00 Put @ $8.60
Note: The price of Amazon.com stock was $769.70 when this transaction was executed.
12/16/2016 The AMZN Dec2016 $750 Put expired with the stock price above the strike price upon options expiration.

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

The overall performance result (including commissions) for this Amazon.com transaction was as follows:
100% Cash-Secured Cost Basis: $75,000.00 = $750.00 * 100 shares

Net Profit:
(a) Options Income: +$851.30
= ($8.60*100 shares) - $8.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (AMZN stock closed above $750.00 at Dec2016 expiration): +$0.00
= ($750.00-$750.00)*100 shares

Total Net Profit:+$851.30 
= (+$851.30 +$0.00 +$0.00)

Absolute Return: +1.1%
= +$851.30/$75,000.00
Annualized Return: +23.0%
= (+$851.30/$75,000.00)*(365/18 days)


II. For the two continuing positions:
The two positions that ended at Dec2016 options expiration with the price of the stock below the strike price were Agnico Eagle Mines (500 shares) and Alibaba Group (400 shares).

These positions are included in the listing of the current Covered Calls Advisor Portfolio shown in the right sidebar on this page. For these positions, the options expired and the long shares will remain in the Portfolio until they are either sold or new Covered Calls are established by selling associated Jan2017 options against the stock currently held.   In either case, transactions and overall position results will be posted on this site on the same day they occur.

Tuesday, November 29, 2016

Sold a 100% Cash-Secured Put Option in Amazon.com Inc.

Today, the Covered Calls Advisor established a 100% Cash-Secured Put position in Amazon.com Inc.(Ticker Symbol AMZN) with a Dec2016 expiration and at the $750.00 strike price.  As detailed below, this investment will provide a +1.1% absolute return in 18 days (which is equivalent to a +23.0% annualized return) if Amazon.com stock closes at or above $750.00 at options expiration on Dec 16th.  Given the Covered Calls Advisor's current 'Slightly Bearish' overall market outlook, one out-of-the-money Put option was sold with the strike price of $750.00 below the stock price at $769.70 when these options were sold.
Note: This potential result exceeds the Covered Calls Advisor's desired threshold of >20% annualized return-on-investment.  

Details of this transaction along with a potential return-on-investment result are: 

Amazon.com Inc. (AMZN)
The transaction is as follows:
11/29/2016 Sold 1 Dec2016 $750.00 Put @ $8.60
Note: The price of Amazon.com stock was $769.70 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 Put option sold.

A possible overall performance result (including commissions) for this Amazon.com transaction would be as follows:
100% Cash-Secured Cost Basis: $75,000.00 = $750.00 * 100 shares

Net Profit:
(a) Options Income: +$851.30
= ($8.60*100 shares) - $8.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AMZN closes above $750.00 at Dec2016 expiration): +$0.00
= ($750.00-$750.00)*100 shares

Total Net Profit (If AMZN is above $750.00 strike price at Dec2016 options expiration):+$851.30 
= (+$851.30 +$0.00 +$0.00)

Absolute Return (If AMZN is above $750.00 at Dec2016 options expiration and Put option thus expire worthless): +1.1%
= +$851.30/$75,000.00
Annualized Return (If AMZN is above $750.00 at expiration): +23.0%
= (+$851.30/$75,000.00)*(365/18 days)

The downside 'breakeven price' at expiration is at $741.40 ($750.00 - $8.60), which is 3.7% below the current market price of $769.70.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Dec 16th, 2016 options expiration) for this Amazon.com short Pus position is 67.5%. This compares with a probability of profit of 50.3% for a buy-and-hold of Amazon.com stock over the same time period. Using this probability of profit of 67.5%, the Expected Value annualized ROI of this investment (if held until expiration) is +15.5% (+23.0% * 67.5%).
 
The 'crossover price' at expiration is $778.30 ($769.70 + $8.60).  This is the price above which it would have been more profitable to simply buy-and-hold Amazon.com stock until Dec 16th (the Dec2016 options expiration date) rather than selling this short Put option.

Monday, November 21, 2016

Update on Four Open Positions from Nov2016 Options Expiration

The four positions that ended at Nov2016 options expiration with the price of the stock below the strike price were Agnico Eagle Mines (500 shares), Alibaba Group (400 shares), Facebook (300 shares), and Hanes Brands (1,000 shares).  Today, two positions (Alibaba and Agnico Eagle Mines) were continued by establishing covered calls.  December 2016 call options were sold against the long shares in these companies.  Shares held in the other two stocks (Facebook and Hanes Brands) were sold today.  The transactions associated with each of these positions are detailed below.

I. Covered Calls Continuation Transactions -- Agnico Eagle Mines and Alibaba

Agnico Eagle Mines
The transactions to-date are:
10/26/2016 Bought 500 shares Agnico Eagle Mines Ltd.(AEM) @ $48.07
10/26/2016 Sold 5 AEM Nov2016 $46.00 Call options @ $3.12
11/18/2016 5 AEM Call options expired with AEM stock below strike price
11/21/2016 Sold 5 AEM Dec2016 $45.00 Call options @ $1.20
Note: price of AEM stock was $43.27 when these Dec2016 options were sold

Alibaba Group Holding
The transactions to-date are:
10/26/2016 Sold 4 Alibaba (BABA) Nov2016 $95.00 100% Cash-Secured Put options @ $1.25
11/18/2016 4 BABA Puts assigned and 400 shares of Alibaba purchased at $95.00
11/21/2016 Sold 4 BABA Dec2016 $95.00 Call options @ $2.26
Note: the price of BABA was $94.27 when these Call options were sold

The return-on-investment results for these two positions will be detailed when these positions are closed.


II. Two Positions Closed -- Facebook Inc. and Hanes Brands Inc.
The Covered Calls Advisor closed these two holdings today by selling the stock owned in each.  Details of the transactions and the associated results are as follows:

Facebook Inc.
The transactions history for this position was as follows:
10/26/2016 Sold 3 Facebook (FB) Nov2016 $125.00 100% Cash-Secured Put options @ $2.22
11/18/2016 3 FB Puts assigned and 300 shares of Facebook purchased at $125.00
11/21/2016 Sold 300 Facebook shares @ $121.67

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $37,500.00
= $125.00*300

Net Profit:
(a) Options Income: +$655.80
= ($2.22*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$999.00
= ($121.67-$125.00)*300 shares

Total Net Profit: -$343.20
= (+$655.80 options income +$0.00 dividend income -$999.00 capital appreciation)

Absolute Return: -0.9%
= -$343.20/$37,500.00
Annualized Return: -12.8%
= (-$343.20/$37,500.00)*(365/26 days)



Hanes Brands Inc. 
The transactions history for this position was as follows:
10/09/2016 Sold 10 Hanes Brands Inc.(HBI) Nov2016 $25.00 100% Cash-Secured Put options @ $.90
11/18/2016 10 Hanes Puts assigned and 1,000 shares of Hanes stock purchased at $25.00
11/21/2016 Sold 1,000 Hanes shares @ $24.49


The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $25,000.00
= $25.00*1,000

Net Profit:
(a) Options Income: +$884.55
= ($.90*1,000 shares) - $15.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$510.00
= ($24.49-$25.00)*1,000 shares

Total Net Profit: +$374.55
= (+$884.55 options income +$0.00 dividend income -$510.00 capital appreciation)

Absolute Return: +1.5%
= +$374.55/$25,000.00
Annualized Return: +12.7%
= (+$374.55/$25,000.00)*(365/43 days)

Sunday, November 20, 2016

November 2016 Option Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained nine positions with November 2016 expirations.  Five of the nine positions were closed out at the options expiration this past Friday.  For the remaining four positions, the price of the stock closed below the strike price; so the options expired and the associated long shares will remain in the Covered Calls Advisor Portfolio until these shares are either sold or continuation covered calls positions established by selling Dec2016 call options against the shares owned.  The results for these nine positions are presented below.  

I.  For the five closed positions:
The overall average annualized return-on-investment for these five closed positions was +26.3%.  The return-on-investment results for each position was:
  • Alibaba Group Holding Ltd = +0.8% absolute return (+36.6% annualized return)
  • Apple Inc. = +1.0% absolute return (+19.9% annualized return)
  • Celgene Corp. = +1.8% absolute return (+22.2% annualized return)
  • Deutsche Bank AG = +2.0% absolute return (+18.9% annualized return)
  • JetBlu Airways Corp. = +1.7% absolute return (+33.9% annualized return)
Two of these positions were Covered Calls and three were 100% Cash-Secured Puts.
Below are two examples that demonstrate how the returns shown above are calculated.  The Apple Inc. details are provided to show calculations for a Covered Calls position and the Alibaba Group Holding Ltd details are an example for a 100% Cash-Secured Puts position.

The cash now available in the Covered Calls Advisor Portfolio from the closing of these five positions will be retained until new covered calls and/or 100% cash-secured puts positions are established.  Any new positions established in the near future with this available cash will be posted on this site on the same day the transactions occur.

Apple Inc. -- Example of Covered Calls Position Closed at Expiration
The transactions were as follows:
11/01/2016  Bought 300 Apple Inc. shares @ $112.56
11/01/2016 Sold 3 AAPL Nov2016 $110.00 Call options @ $3.13
Note: this was a simultaneous buy/write transaction.
11/18/2016 Apple covered calls postion closed
Note: the price of AAPL was $110.04 at Nov2016 options expiration.

The overall performance result (including commissions) was as follows:
Bought 300 shares AAPL: $33,775.95
= $112.56*300 + $7.95 commission

Net Profit:
(a) Options Income: +$936.75
= ($3.13*300 shares) - $2.25 commissions
(b) Dividend Income: +$171.00 = $.57 * 300 shares
(c) Capital Appreciation (AAPL closed above $110.00 strike price at Nov2016 expiration): -$775.95
= ($110.00-$112.56)*300 shares - $7.95 commissions

Total Net Profit (AAPL closed above $110.00 strike price at Nov2016 options expiration): +$331.80
= (+$936.75 options income +$171.00 dividends -$775.95 capital appreciation)

Absolute Return: +1.0%
= +$331.80/$33,775.95
Annualized Return: +19.9%
= (+$331.80/$33,775.95)*(365/18 days)


Alibaba -- Example of 100% Cash-Secured Puts Position Closed at Expiration
The transaction was as follows:
11/11/2016  Sold 2 BABA 100% cash-secured $90.00 Put options with Nov2016 expirations @ $.77
Note: the price of Alibaba was $92.74 today when this transaction was executed.

11/18/2016 Alibaba Puts expired with price of stock above the $90 strike price
Note: the price of BABA was $93.39 at Nov2016 options expiration.


The performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $18,000.00
= $90.00*200

Net Profit:
(a) Options Income: +$144.55
= ($.77 * 200 shares) - $9.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (BABA closed above $90.00 strike price at Nov2016 expiration): +$0.00
= ($90.00 -$90.00)*200 shares

Total Net Profit: +$144.55
= (+$144.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +0.8%
= +$144.55/$18,000.00
Annualized Return: +36.6%
= (+$144.55/$18,000.00)*(365/8 days)


II. For the four continuing positions:
The four positions that ended at Nov2016 options expiration with the price of the stock below the strike price were Agnico Eagle Mines (500 shares), Alibaba Group (400 shares), Facebook (300 shares), and Hanes Brands (1,000 shares).

These positions are included in the listing of the current Covered Calls Advisor Portfolio shown in the right sidebar on this page. For each of these four positions, the options expired and the long shares will remain in the Portfolio until they are either sold or new Covered Calls are established by selling associated Dec2016 options against the stock currently held.   In either case, transactions and overall position results will be posted on this site on the same day they occur.

Friday, November 18, 2016

Established a 100% Cash-Secured Puts Position in Noble Energy, Inc.

Today, the Covered Calls Advisor established a 100% Cash-Secured Puts position in Noble Energy, Inc.(Ticker Symbol NBL) with a Dec2016 expiration and at the $32.50 strike price.  As detailed below, this investment will provide a +1.8% absolute return in 29 days (which is equivalent to a +23.2% annualized return) if Noble Energy stock closes at or above $32.50 at options expiration on Dec 16th.  Given the Covered Calls Advisor's current 'Slightly Bearish' overall market outlook, five out-of-the-money Put options were sold with the strike price of $32.50 below the stock price of $34.95 when these options were sold.
Note: This potential result exceeds the Covered Calls Advisor's desired threshold of >20% annualized return-on-investment.  


Details of this transaction along with a potential return-on-investment result are: 

Noble Energy, Inc. (NBL)
The transaction is as follows:
11/18/2016 Sold 5 Dec2016 $32.50 Puts @ $.60
Note: The price of Noble Energy was $34.95 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 five Put options sold.

A possible overall performance result (including commissions) for this Noble Energy transaction would be as follows:
100% Cash-Secured Cost Basis: $16,250.00 = $32.50*500


Net Profit:
(a) Options Income: +$288.30
= ($.60*500 shares) - $11.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If NBL closes above $32.50 at Dec2016 expiration): +$0.00
= ($32.50-$32.50)*500 shares

Total Net Profit (If NBL is above $32.50 strike price at Dec2016 options expiration):+$288.30 
= (+$288.30 +$0.00 +$0.00)

Absolute Return (If NBL is above $32.50 at Dec2016 options expiration and Put options thus expire worthless): +1.8%
= +$288.30/$16,250.00
Annualized Return (If NBL is above $32.50 at expiration): +23.2%
= (+$288.30/$16,250.00)*(365/29 days)

The downside 'breakeven price' at expiration is at $31.90 ($32.50 - $.60), which is 8.7% below the current market price of $34.95.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Dec 16th, 2016 options expiration) for this Noble Energy short Puts position is 76%. This compares with a probability of profit of 50.2% for a buy-and-hold of Noble Energy stock over the same time period. Using this probability of profit of 76%, the Expected Value annualized ROI of this investment (if held until expiration) is +17.6% (+23.2% * 76%).
 
The 'crossover price' at expiration is $35.55 ($34.95 + $.60).  This is the price above which it would have been more profitable to simply buy-and-hold Noble Energy stock until Dec 16th (the Dec2016 options expiration date) rather than holding these short Put options.

Thursday, November 17, 2016

Established a 100% Cash-Secured Puts Position in Agnico Eagle Mines Ltd.

On Wednesday (November 16th), the Covered Calls Advisor established a 100% Cash-Secured Puts position in Agnico Eagle Mines Ltd. (Ticker Symbol AEM) with a Dec2016 expiration and at the $43.00 strike price.  As detailed below, this investment will provide a +4.5% absolute return in 31 days (which is equivalent to a +52.8% annualized return) if Agnico Eagle stock closes at or above $43.00 at options expiration on Dec 16th.  Given the Covered Calls Advisor's current 'Slightly Bearish' overall market outlook, slightly out-of-the-money Put options were sold with the strike price of $43.00 below the stock purchase price of $43.93.

This Dec2016 position is the second position established in AEM.  About 3 weeks ago, a Nov2016 postion was established at the $46.00 strike price.  Both current positions are now listed in the Covered Calls Advisor Portfolio Holdings in the right sidebar of this page.

This transaction was executed with the price of gold at $1,227.  This advisor agrees with Goldman Sachs, who has called gold at current levels a 'strategic buying opportunity', despite the very strong likelihood that the Fed will raise by 1/4% at their December meeting.  In sympathy with the recent decline of the gold price, AEM's stock has plummeted by 13% in the last week.  Understandably, the implied volatility of the Put options selected has soared to 46.8, a level that provides us option sellers a very attractive profit potential if the downward gold price trend reverses (or even just stabilizes).   

Details of this transaction along with a potential return-on-investment result are: 

Agnico Eagle Mines Ltd. (AEM)
The transaction is as follows:
11/16/2016 Sold 5 Dec2016 $43.00 Puts @ $1.95
Note: The price of Agnico Eagle was $43.93 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 five Put options sold.

A possible overall performance result (including commissions) for this Agnico Eagle Mines transaction would be as follows:
100% Cash-Secured Cost Basis: $21,500.00 = $43.00*500


Net Profit:
(a) Options Income: +$963.30
= ($1.95*500 shares) - $11.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AEM close above $43.00 at Dec2016 expiration): +$0.00
= ($43.00-$43.00)*500 shares

Total Net Profit (If AEM is above $43.00 strike price at Dec2016 options expiration):+$963.30 
= (+$963.30 +$0.00 +$0.00)

Absolute Return (If AEM is above $43.00 at Dec2016 options expiration and Put options thus expire worthless): +4.5%
= +$963.30/$21,500.00
Annualized Return (If AEM is above $43.00 at expiration): +52.8%
= (+$963.30/$21,500.00)*(365/31 days)

The downside 'breakeven price' at expiration is at $41.05 ($43.00 - $1.95), which is 6.6% below the current market price of $43.93.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Dec 16th, 2016 options expiration) for this Agnico Eagle short Puts position is 62%. This compares with a probability of profit of 50.3% for a buy-and-hold of Agnico Eagle stock over the same time period. Using this probability of profit of 68%, the Expected Value annualized ROI of this investment (if held until expiration) is +32.7% (+52.8% * 62%).
 
The 'crossover price' at expiration is $45.88 ($43.93 + $1.95).  This is the price above which it would have been more profitable to simply buy-and-hold Agnico Eagle Mines Ltd. stock until Dec 16th (the Dec2016 options expiration date) rather than holding these short Put options.

Friday, November 11, 2016

Established New Position in Alibaba Group Holding Ltd.

Today, the Covered Calls Advisor established a new position in Alibaba Group Holding Ltd. (ticker symbol BABA) by selling two Nov2016 Put options at the $90.00 strike price. This position is a conservative one since it was established when the price of Alibaba was $92.74 (3.0% downside protection to the strike price) and exactly one week remaining until the options expiration date.

As detailed below, the Alibaba Group Holding Ltd. investment will yield a +0.8% absolute return in 8 days (which is equivalent to a +36.6% annualized return-on-investment) if Alibaba stock closes above the $90.00 strike price on the Nov 18th options expiration date. 

Today was Alibaba's annual Singles Day, and they transacted an incredible $17.73 billion (yes that's Billion -- with a B), an increase of 24% above the same day last year. 

The Covered Calls Advisor does not use margin, so the detailed information on this position and these results shown below reflect that this position was established using 100% cash securitization for the two Put options sold.

The implied volatility in the options was 35 when this position was established; so the $.77 price per share received when the Puts were sold is a nice premium to receive for us option sellers.     

1. Alibaba Group Holding Ltd (BABA) --
The transaction was as follows:
11/11/2016  Sold 2 BABA 100% cash-secured $90.00 Put options with Nov2016 expirations @ $.77
Note: the price of Alibaba was $92.74 today when this transaction was executed.

A potential performance result (including commissions) could be as follows:
100% Cash-Secured Cost Basis: $18,000.00
= $90.00*200

Net Profit:
(a) Options Income: +$144.55
= ($.77 * 200 shares) - $9.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BABA closes above $90.00 strike price at Nov2016 expiration): +$0.00
= ($90.00 -$90.00)*200 shares

Total Net Profit: +$144.55
= (+$144.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +0.8%
= +$144.55/$18,000.00
Annualized Return: +36.6%
= (+$144.55/$18,000.00)*(365/8 days)

The downside 'breakeven price' at expiration is at $89.23 ($90.00 - $.77), which is 3.8% below the current market price of $92.74.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Nov 18th, 2016 options expiration) for this Alibaba short Puts position is 72%. This compares with a probability of profit of 50.0% for a buy-and-hold of this Alibaba stock over the same time period. Using this probability of profit of 74%, the expected value annualized return-on-investment (if held until expiration) is +26.4% (+36.6% maximum potential annualized return on investment * 72%), an attractive risk/reward profile for this somewhat conservative investment.  

The 'crossover price' at expiration is $93.51 ($92.74 + $.77).  This is the price above which it would have been more profitable to simply buy-and-hold Alibaba stock until the Nov2016 options expiration date rather than selling these Put options.

Thursday, November 10, 2016

Early Assignment of Eli Lilly and Company Covered Calls

The Covered Calls Advisor had an Eli Lilly and Company (ticker LLY) November 2016 covered calls position at the $75 strike price.  Early this morning, I received email notification from my broker (Schwab) that the 4 LLY Call options were exercised early, so the 400 shares of Lilly stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $75 strike price.

Details of the transactions and results for this Eli Lilly covered calls position are provided below.  The LLY shares had risen from $76.76 when purchased (on October 26th) to $78.39 at yesterday's market close.  The time value remaining in the Call options had declined to $0.00 (based on the midpoint of the $3.20/$3.55 bid/ask spread at the market close yesterday) -- so it was expected that the owner of the Call options would exercise his/her option early in order to purchase the 400 shares and thus capture the dividend.  In this advisor's experience, early assignment normally occurs only in those relatively deep-in-the-money positions when there is less than $.15 time value remaining near the end of trading on the day prior to the ex-div date. 

As detailed below, the actual return-on-investment result for this closed position was a +1.3% absolute return (equivalent to +32.7% annualized return) for the 14 days holding period.  This result was slightly better than the 30.4% annualized ROI that would have occurred if the covered calls had instead been held until expiration and if the options were exercised then.


The transactions history was as follows:
10/26/2016 Bought 400 LLY shares @ $76.76
10/26/2016 Sold 4 LLY Nov2016 $75.00 Call options @ $2.75
Note: a simultaneous buy/write transaction was executed.
11/10/2016 Quarterly ex-dividend of $.51 per share
11/09/2016 4 LLY Call options assigned and associated 400 LLY shares sold at $75.00 strike price.  Note: the price of LLY stock was $78.39 at yesterday's market close.

The overall performance result (including commissions) for this Eli Lilly covered calls position was as follows:
Stock Purchase Cost: $30,711.95
= ($76.76*400+$7.95 commission)

Net Profit:
(a) Options Income: +$1,097.00
= ($2.75*400 shares) - $3.00 commissions
(b) Dividend Income (Call options exercised early on business day prior to Nov 10th ex-div date): +$0.00
(c) Capital Appreciation (Early assignment on Nov 9th): -$311.95
+($75.00 sale price - $76.76 purchase price)*400 shares - $7.95 commissions

Total Net Profit (Call options exercised on day prior to Nov 10th ex-dividend date): +$385.05
= (+$1,097.00 options income +$0.00 dividend income -$711.95 capital appreciation)

Absolute Return: +1.3%
= +$385.05/$30,711.95
Annualized Return (Call options were exercised early): +32.7%
= (+$385.05/$30,711.95)*(365/14 days)

The cash now available from the closing of this Lilly covered calls position will be retained in the Covered Calls Advisor Portfolio until new covered calls and/or 100% cash-secured puts positions are established.  Any new positions will be posted on this site on the same day they occur.

Tuesday, November 8, 2016

Established Covered Calls Position in Blackstone Group LP

Today, a covered calls position was established in Blackstone Group LP (ticker symbol BX) with a Dec2016 expiration.  Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, an in-the-money covered calls position was established with the strike price of $23.00 below the stock purchase price of $23.59.

As detailed below, the potential returns are:
Blackstone Group LP: +2.3% absolute return in 39 days (equivalent to a +21.2% annualized return-on-investment)

Note: This potential result exceeds the Covered Calls Advisor's desired threshold of >20% annualized return-on-investment.  

The transactions and a potential return-on-investment result is as follows:

1.  Blackstone Group LP (BX) -- New Covered Calls Position
The transactions were as follows:
11/08/2016  Bought 1,000 Blackstone shares @ $23.59
11/08/2016 Sold 10 BX Dec2016 $23.00 Call options @ $1.14
Note: this was a simultaneous buy/write transaction.

A possible overall performance result (including commissions) would be as follows:
Bought 1,000 shares BX: $23,597.95
= $23.59*1,000 + $7.95 commission

Net Profit:
(a) Options Income: +$1,132.50
= ($1.14*1,000 shares) - $7.50 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BX is above $23.00 strike price at Dec2016 expiration): -$597.95
= ($23.00-$23.59)*1,000 shares - $7.95 commissions

Total Net Profit (If BX is above $23.00 strike price at Dec2016 options expiration): +$534.55
= (+$1,132.50 options income +$0.00 dividends -$597.95 capital appreciation)

Absolute Return (If BX remains above $23.00 strike price at Dec2016 options expiration): +2.3%
= +$534.55/$23,597.95
Annualized Return: +21.2%
= (+$534.55/$23,597.95)*(365/39 days)

The downside 'breakeven price' at expiration is at $22.45 ($23.59 - $1.14), which is 4.8% below the current market price of $23.59.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Dec 16th, 2016 options expiration) for this Blackstone Group covered calls position is 59%. This compares with a probability of profit of 50.2% for a buy-and-hold of Blackstone stock over the same time period. Using this probability of profit of 59%, the Expected Value annualized ROI of this investment (if held until expiration) is +12.5% (+21.2% * 59%).

The 'crossover price' at expiration is $24.73 ($23.59 + $1.14).  This is the price above which it would have been more profitable to simply buy-and-hold Blackstone stock until Dec 16th (the Dec2016 options expiration date) rather than establishing this covered calls position.

Tuesday, November 1, 2016

Established Short 100% Cash-Secured Puts Position in JetBlue Airways Corp.

Today, the Covered Calls Advisor established a 100% cash-secured Puts position in JetBlue Airways Corp. (Symbol JBLU) by selling 10 Nov2016 Put options at the $17.00 strike price. This position indicates that the Covered Calls Advisor is willing to purchase JetBlue shares at $17.00 (for future covered calls investments) upon the market close on Nov 18th if the stock declines to below $17.00 at that time.  This is a slightly conservative investment since JBLU stock was at $17.45 (2.6% above the strike price) when this position was established.

As detailed below, this investment will achieve a +1.7% absolute return in 18 days (which is equivalent to a +33.9% annualized return) if the JBLU stock price remains above $17.00 at the November 18th options expiration date.

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

1.  JetBlue Airways Corp. (JBLU) -- New Position
The transaction was as follows:
11/01/2016 Sold 10 JBLU Nov2016 $17.00 Puts @ $.30
Note: The price of JBLU was $17.45 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 ten Put options sold.

A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $17,000.00
= $17.00*1,000


Net Profit:
(a) Options Income: +$284.55
= ($.30*1,000 shares) - $15.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If JBLU is above $17.00 strike price at Nov2016 expiration): +$0.00
= ($17.00-$17.00)*1,000 shares

Total Net Profit (If JBLU is above $17.00 strike price upon the Nov2016 options expiration): +$284.55
= (+$284.55 +$0.00 +$0.00)

Absolute Return (If JBLU is above $17.00 strike price at Nov2016 options expiration): +1.67%
= +$284.55/$17,000.00
Annualized Return: +33.9%
= (+$284.55/$17,000.00)*(365/18 days)

The downside 'breakeven price' at expiration is at $16.70 ($17.00 - $.30), which is 4.3% below the current market price.
The 'crossover price' at expiration is $17.75 ($17.45 + $.30).  This is the price above which it would have been more profitable to simply buy-and-hold JetBlue stock until November 18th (the Nov2016 options expiration date) rather than holding this short Put options position.

Established Covered Calls Position in Apple Inc.

Today, a covered calls position was established in Apple Inc. (ticker symbol AAPL) with a Nov2016 expiration.  This covered calls position includes consideration of an upcoming $.57 quarterly dividend with an ex-div date of Nov. 3rd (the day after tomorrow). Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, an in-the-money covered call position was established with the strike price of $110.00 below the stock purchase price of $112.56.

As detailed below, the potential returns are:
Apple Inc.: +1.0% absolute return in 18 days (equivalent to a +19.9% annualized return-on-investment)

Note: This potential result is very close to the Covered Calls Advisor's desired threshold of 20% annualized return-on-investment.  

The transactions and a potential return-on-investment result is as follows:

1.  Apple Inc. (AAPL) -- New Covered Calls Position
The transactions were as follows:
11/01/2016  Bought 300 Apple Inc. shares @ $112.56
11/01/2016 Sold 3 AAPL Nov2016 $110.00 Call options @ $3.13
Note: this was a simultaneous buy/write transaction.

A possible overall performance result (including commissions) would be as follows:
Bought 300 shares AAPL: $33,775.95
= $112.56*300 + $7.95 commission

Net Profit:
(a) Options Income: +$936.75
= ($3.13*300 shares) - $2.25 commissions
(b) Dividend Income: +$171.00 = $.57 * 300 shares
(c) Capital Appreciation (If AAPL is above $110.00 strike price at Nov2016 expiration): -$775.95
= ($110.00-$112.56)*300 shares - $7.95 commissions

Total Net Profit (If AAPL is above $110.00 strike price at Nov2016 options expiration): +$331.80
= (+$936.75 options income +$171.00 dividends -$775.95 capital appreciation)

Absolute Return (If AAPL is above $110.00 strike price at Jan2016 options expiration): +1.0%
= +$331.80/$33,775.95
Annualized Return: +19.9%
= (+$331.80/$33,775.95)*(365/18 days)

The downside 'breakeven price' at expiration is at $108.86 ($112.56 - $3.13 -$.57), which is 3.3% below the current market price of $112.56.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Nov 18th, 2016 options expiration) for this Apple Inc. covered calls position is 73%. This compares with a probability of profit of 50.3% for a buy-and-hold of Apple Inc. stock over the same time period. Using this probability of profit of 73%, the Expected Value annualized ROI of this investment (if held until expiration) is +14.5% (+19.9% * 73%).

The 'crossover price' at expiration is $115.12 ($112.56 + $3.13 - $.57).  This is the price above which it would have been more profitable to simply buy-and-hold Apple stock until Nov 18th (the Nov2016 options expiration date) rather than establishing this covered calls position.

Friday, October 28, 2016

Positions With November 2016 Options Expirations


The following positions have been established with November 2016 options expirations.
All prices include commissions.
Since the Covered Calls Advisor's market outlook remains 'Slightly Bearish', strike prices below the stock prices were selected.

The financial results for each of these positions will be posted on this blog on the same day the closing transactions occur.









Definition of Column Headings:
 
Stock Price - Stock price when position was established.







Option(s) Price - Price obtained for each Option contract sold








Qty - Number of Options Sold












Type - CSP=100% Cash-Secured Puts Sold and CC=Covered Calls








ExpDate - Expiration Date.












DTE - Days to expiration when position was established.









ROI - Absolute Return on Investment if Assigned at Expiration









AROI - Annualized Return on Investment if Assigned at Expiration

Thursday, August 18, 2016

Overall Market Meter Remains "Slightly Bearish"

Today, the Covered Calls Advisor recalculated the current values for each of the seven factors used to determine the "Overall Market Meter" rating.  The result is that the Covered Calls Advisor's current market viewpoint remains at Slightly Bearish.  A graphical representation of the "Overall Market Meter" is shown in the right sidebar on this page.    

The seven factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next two indicators), and
- growth (the last indicator).
Note: The rating for each of these factors is not subjective.  Each factor is calculated using objective, quantifiable measures.

















The current Market Meter average of 3.00 (see blue line at the bottom of the chart above) is in the Slightly Bearish range (Note: the Slightly Bearish range is from 2.35 to 3.09). 

Both of the value-related factors are now Very Bearish.  The current P/E ratio for the S&P 500 (based on the average of the Operating and As Reported earnings for the past year) is very high at 23.9.  This is much higher than the expected current P/E ratio of 18.6 (based on the current 2.1% CPI-U inflation rate for the past year).  The market would have to decline by 22.2% from its current level to reach a P/E ratio of 18.6.  Despite the fact that most other factors are Bullish, these two Very Bearish value factors (i.e. P/E Ratio and the Total Market to GDP Ratio) coupled with an expectation of modest sales and earnings growth over the next year explains why the Covered Calls Advisor Portfolio is currently 25% invested and 75% in cash at this time.  

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Slightly Bearish sentiment is to "on-average sell 1% in-the-money covered calls for the next options expiration month".

Your comments or questions regarding this post (or the details related to any of the seven factors used in this model) are welcomed. Please email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Monday, August 1, 2016

July 2016 Option Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained three positions with July 2016 expirations.  The three positions (Alphabet Inc., Home Depot Inc., and S&P 500 ETF) were 100% cash-secured Put options and all three were closed out upon expiration since the stock price was above the strike price at options expiration.

The overall average annualized return-on-investment for these three positions was +21.5%.  The return-on-investment result for each position was:
  • Alphabet Inc. = +1.5% absolute return (+28.3% annualized return)
  • Home Depot Inc. = +0.8% absolute return (+16.3% annualized return)
  • S&P 500 ETF = +0.9% absolute return (+19.8% annualized return)
The details for each position is shown below.  The cash now available from the closing of these positions will be retained in the Covered Calls Advisor Portfolio until new covered calls and/or 100% cash-secured puts positions are established.  Any new positions will be posted on this site on the same day they occur.

1. Alphabet Inc. (GOOGL) -- 100% Cash-Secured Put Options Closed at Expiration
The transaction was as follows:
06/27/2016  Sold 1 GOOGL Jul2016 $665.00 100% cash-secured Put option @ $9.90
Note: the price of GOOGL was $679.87 today when this transaction was executed.
07/15/2016 GOOGL Jul2016 options expired
Note: price of GOOGL was $735.63 upon options expiration

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.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $66,500.00
= $665.00*100

Net Profit:
(a) Options Income: +$981.30
= ($9.90*100 shares) - $8.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (GOOGL is above $665.00 strike price at Jul2016 expiration): +$0.00
= ($665.00-$665.00)*100 shares

Total Net Profit: +$981.30
= (+$981.30 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.5%
= +$981.30/$66,500.00
Annualized Return: +28.3%
= (+$981.30/$66,500.00)*(365/19 days)



2. Home Depot Inc. (HD) -- 100% Cash-Secured Puts Position Closed at Expiration
The transaction was as follows:
06/27/2016  Sold 3 HD Jul2016 $120.00 100% cash-secured Put options @ $1.05
Note: the price of HD was $125.09 today when this transaction was executed.
07/15/2016 HD Jul2016 options expired
Note: price of HD was $134.78 upon options expiration

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $36,000.00
= $120.00*300

Net Profit:
(a) Options Income: +$304.80
= ($1.05*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (HD was above $120.00 strike price at Jul2016 expiration): +$0.00
= ($120.00-$120.00)*300 shares

Total Net Profit: +$304.80
= (+$304.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +0.8%
= +$304.80/$36,000.00
Annualized Return: +16.3%
= (+$304.80/$36,000.00)*(365/19 days)


3. S&P 500 ETF (SPY) -- 100% Cash-Secured Puts Position  Closed at Expiration
The transaction was as follows:
06/27/2016  Sold 3 SPY Jul2016 $192.50 100% cash-secured Put options @ $1.86
Note: the price of SPY was $199.75 today when this transaction was executed.
07/15/2016 SPY Jul2016 options expired
Note: price of SPY was $215.83 upon options expiration

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $57,750.00
= $192.50*300

Net Profit:
(a) Options Income: +$547.80
= ($1.86*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (SPY was above $192.50 strike price at Jul2016 expiration): +$0.00
= ($192.50-$192.50)*300 shares

Total Net Profit: +$547.80
= (+$547.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +0.9%
= +$547.80/$57,750.00
Annualized Return: +19.8%
= (+$547.80/$57,750.00)*(365/19 days)

Friday, July 1, 2016

Early Assignment of JPMorgan Chase Covered Calls

The Covered Calls Advisor had a JPMorgan Chase & Co. (ticker JPM) July 2016 covered calls position at the $55 strike price.  Early this morning, I received an email notification from my broker (Schwab) that the 5 JPM Call options were exercised early, so the 500 shares of JPM stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $55 strike price.

Details for this JPMorgan covered calls position are provided below.  The JPM shares had risen from $58.14 when purchased (only 4 days ago) to $61.66 at yesterday's market close.  The time value remaining in the Call options had declined to approximately $.44 (based on the midpoint of the $6.95/$7.25 bid/ask spread at the market close yesterday).  Given that the stock price declines at market open today by the $.48 ex-div amount, I was somewhat surprised that the owner of the Call options exercised his/her option early since they immediately forfeited the remaining $.44 time value to purchase the shares (and capture the dividend).  In this advisor's experience, early assignment normally occurs only in those uncommon deep-in-the-money positions when there is less than $.15 time value remaining near the end of trading on the day prior to the ex-div date.  But as covered calls investors, we are grateful to receive the immediate gift ($.44 per share in this instance) when it does occur. 

As detailed below, the actual return-on-investment result for this closed position was a +1.2% absolute return (equivalent to +106.2% annualized return for the 4 days holding period).


The transactions were:
06/27/2016 Bought 500 JPM shares @ $58.14
06/27/2016 Sold 5 JPM Jul2016 $55.00 Call options @ $3.84
Note: a simultaneous buy/write transaction was executed.
07/01/2016 Upcoming quarterly ex-dividend of $.48 per share
07/01/2016 5 JPM Call options assigned and associated 500 JPM shares sold at $55.00 strike price.  Note: the price of JPM stock was $61.66 at yesterday's market close.

The overall performance result (including commissions) for this JPMorgan covered calls position was as follows:
Stock Purchase Cost: $29,077.95
= ($58.14*500+$7.95 commission)

Net Profit:
(a) Options Income: +$1,916.25
= ($3.84*500 shares) - $3.75 commissions
(b) Dividend Income (Call options exercised early on business day prior to July 1st ex-div date): +$0.00
(c) Capital Appreciation (Early assignment on June 30th): -$1,577.95
+($55.00-$58.14)*500 - $7.95 commissions

Total Net Profit (Call options exercised on day prior to Jul 1st ex-dividend date): +$338.30
= (+$1,916.25 options income +$0.00 dividend income -$1,577.95 capital appreciation)

Absolute Return: +1.2%
= +$338.30/$29,077.95
Annualized Return (Call options were exercised early): +106.2%
= (+$338.30/$29,077.95)*(365/4 days)

The cash now available from the closing of this JPMorgan Chase covered calls position will be retained in the Covered Calls Advisor Portfolio until new covered calls and/or 100% cash-secured puts positions are established.  Any new positions will be posted on this site on the same day they occur.

Tuesday, June 28, 2016

Established Four New Positions

Yesterday, positions were established in Alphabet Inc.(ticker symbol GOOGL), Home Depot Inc.(HD), JPMorgan Chase & Co.(JPM), and S&P 500 ETF (SPY).

The Covered Calls Advisor Portfolio (CCAP) has been idle (100% cash) since April 18th, when the S&P 500 (SPY) closed at 209.24.  With SPY having declined by 4% since then (largely as a result of last week's Brexit vote), the implied volatility of options has moved substantially higher and selling options offers an attractive return-on-investment opportunity.  Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, conservative investments were made for each of the four positions (with the strike prices below the stock prices).  The CCAP is now about 25% invested and 75% cash.

For the Alphabet, Home Depot, and S&P 500 positions, July2016 100% cash-secured Put options were sold (instead of establishing comparable covered calls positions) since the implied volatility of the Puts exceeded that of the Calls (thus providing a slightly higher potential return-on-investment result).  JPMorgan Chase is a covered calls position that explicitly considers the potential for capturing the upcoming quarterly ex-dividend of $.48 on July 1st. 

As detailed below, the potential returns are:
1. Alphabet Inc.: +1.5% absolute return in 19 days (equivalent to a +28.3% annualized return-on-investment)
2. Home Depot Inc.: +0.8% absolute return in 19 days (equivalent to a +16.3% annualized return-on-investment)
3. JPMorgan Chase & Co.: +2.0% absolute return in 19 days (equivalent to a +37.7% annualized return-on-investment)
4. S&P 500 ETF: +0.9% absolute return in 19 days (equivalent to a +19.8% annualized return-on-investment)
Note: in each case, the Implied Volatility (IV) of the options at the time they were sold exceeded the Covered Calls Advisor's minimum threshold of IV>20 and thus provides a sufficiently attractive potential return-on-investment relative to the conservative risk profile of each position.  


1. Alphabet Inc. (GOOGL) -- New 100% Cash-Secured Puts Position 
The transaction was as follows:
06/27/2016  Sold 1 GOOGL Jul2016 $665.00 100% cash-secured Put option @ $9.90
Note: the price of GOOGL was $679.87 today when this transaction was executed.

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) would be as follows:
100% Cash-Secured Cost Basis: $66,500.00
= $665.00*100

Net Profit:
(a) Options Income: +$981.30
= ($9.90*100 shares) - $8.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If GOOGL is above $665.00 strike price at Jul2016 expiration): +$0.00
= ($665.00-$665.00)*100 shares

Total Net Profit (If GOOGL is above $665.00 strike price at Jul2016 options expiration): +$981.30
= (+$981.30 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If GOOGL is above $665.00 strike price at Jul2016 options expiration): +1.5%
= +$981.30/$66,500.00
Annualized Return: +28.3%
= (+$981.30/$66,500.00)*(365/19 days)

The downside 'breakeven price' at expiration is at $655.10 ($665.00 - $9.90), which is 3.6% below the current market price of $679.87.
The 'crossover price' at expiration is $689.77 ($679.87 + $9.90).  This is the price above which it would have been more profitable to buy-and-hold GOOGL until the Jul2016 options expiration date rather than selling these Put options.


2. Home Depot Inc. (HD) -- New 100% Cash-Secured Puts Position 
The transaction was as follows:
06/27/2016  Sold 3 HD Jul2016 $120.00 100% cash-secured Put options @ $1.05
Note: the price of HD was $125.09 today when this transaction was executed.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $36,000.00
= $120.00*300

Net Profit:
(a) Options Income: +$304.80
= ($1.05*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HD is above $120.00 strike price at Jul2016 expiration): +$0.00
= ($120.00-$120.00)*300 shares

Total Net Profit (If HD is above $120.00 strike price at Jul2016 options expiration): +$304.80
= (+$304.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If HD is above $120.00 strike price at Jul2016 options expiration): +0.8%
= +$304.80/$36,000.00
Annualized Return: +16.3%
= (+$304.80/$36,000.00)*(365/19 days)

The downside 'breakeven price' at expiration is at $118.95 ($120.00 - $1.05), which is 4.9% below the current market price of $125.09.
The 'crossover price' at expiration is $126.14 ($125.09 + $1.05).  This is the price above which it would have been more profitable to buy-and-hold HD until the Jul2016 options expiration date rather than selling these Put options.


3. JPMorgan Chase & Co. (JPM) -- New Covered Calls Position
An ex-dividend occurs on July 1st for $.48.  Although very unlikely, if the current time value (i.e. extrinsic value) of $.70 [$3.84 option premium - ($58.14 stock price - $55.00 strike price)] remaining in the short call options decay further by June 31st (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 500 JPM shares away to capture the dividend payment.

As shown below, two potential return-on-investment results for this position are:
If Early Assignment: +1.1% absolute return (equivalent to +69.1% annualized return for the next 6 days) if the stock is assigned early (business day prior to July 1st ex date); OR
If Dividend Capture: +2.0% absolute return (equivalent to +37.7% annualized return over the next 19 days) if the stock is assigned at the Jul2016 expiration on July 15th.

The transactions were:
06/27/2016 Bought 500 JPM shares @ $58.14
06/27/2016 Sold 5 JPM Jul2016 $55.00 Call options @ $3.84
Note: a simultaneous buy/write transaction was executed.
07/01/2016 Upcoming quarterly ex-dividend of $.48 per share

Two possible overall performance results (including commissions) for this JPM covered calls position are as follows:
Stock Purchase Cost: $29,077.95
= ($58.14*500+$7.95 commission)

Net Profit:
(a) Options Income: +$1,908.30
= ($3.84*500 shares) - $11.70 commissions
(b) Dividend Income (If option exercised early on business day prior to July 1st ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at Jul2016 expiration): +$240.00
= ($.48 dividend per share x 500 shares)
(c) Capital Appreciation (If JPM assigned early on June 31st): -$1,577.95
+($55.00-$58.14)*500 - $7.95 commissions; or
(c) Capital Appreciation (If JPM assigned at $55.00 at Jul2016 expiration): -$1,577.95
+($55.00-$58.14)*500 - $7.95 commissions

Total Net Profit (If option exercised on day prior to July 1st ex-dividend date): +$330.35
= (+$1,908.30 +$0.00 -$1,577.95); or
Total Net Profit (If JPM assigned at $55.00 at Jul2016 expiration): +$570.35
= (+$1,908.30 +$240.00 -$1,577.95)

1. Absolute Return [If option exercised on June 31st (business day prior to ex-dividend date)]: +1.1%
= +$330.35/$29,077.95
Annualized Return (If option exercised early): +69.1%
= (+$330.35/$29,077.95)*(365/6 days); OR

2. Absolute Return (If JPM assigned at $55.00 at Jul2016 expiration): +2.0%
= +$570.35/$29,077.95
Annualized Return: +37.7%
= (+$570.35/$29,077.95)*(365/19 days)

Either outcome provides a very attractive return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $55.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $53.82 ($58.14 -$3.84 -$.48) provides 7.4% downside protection below today's purchase price.

The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls using a dividend capture strategy.  The minimum threshold to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, ten of the eleven criteria are achieved for this JPMorgan position.




4. S&P 500 ETF (SPY) -- New 100% Cash-Secured Puts Position 
The transaction was as follows:
06/27/2016  Sold 3 SPY Jul2016 $192.50 100% cash-secured Put options @ $1.86
Note: the price of SPY was $199.75 today when this transaction was executed.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $57,750.00
= $192.50*300

Net Profit:
(a) Options Income: +$547.80
= ($1.86*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If SPY is above $192.50 strike price at Jul2016 expiration): +$0.00
= ($192.50-$192.50)*300 shares

Total Net Profit (If SPY is above $192.50 strike price at Jul2016 options expiration): +$547.80
= (+$547.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If SPY is above $192.50 strike price at Jul2016 options expiration): +0.9%
= +$547.80/$57,750.00
Annualized Return: +19.8%
= (+$547.80/$57,750.00)*(365/19 days)

The downside 'breakeven price' at expiration is at $190.64 ($192.50 - $1.86), which is 4.6% below the current market price of $199.75.
The 'crossover price' at expiration is $201.61 ($199.75 + $1.86).  This is the price above which it would have been more profitable to buy-and-hold SPY until the Jul2016 options expiration date rather than selling these Put options.

Sunday, May 8, 2016

Overall Market Meter Remains "Slightly Bearish"

Today, the Covered Calls Advisor recalculated the current values for each of the seven factors used to determine the "Overall Market Meter" rating.  The result is that the Covered Calls Advisor's current market viewpoint remains at Slightly Bearish.  A graphical representation of the "Overall Market Meter" is shown in the right sidebar on this page.    

The seven factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next two indicators), and
- growth (the last indicator).
Note: The rating for each of these factors is not subjective.  Each factor is calculated using objective, quantifiable measures.

The current Market Meter average of 2.43 (see blue line at the bottom of the chart above) is in the Slightly Bearish range (Note: the Slightly Bearish range is from 2.25 to 2.99).  This overall value of 2.43 is slightly lower than the 2.57 from the prior analysis conducted in early March this year.

One factor that is Very Bearish is the P/E Ratio.  The current P/E ratio is 22.1 (calculated based on the average of the Operating and As Reported earnings for the past year for the S&P 500).  This is much higher than the expected current P/E ratio of 16.0 (based on the current low 0.9% CPI-U inflation rate for the past year).  The market would have to decline by 27.6% from its current level to reach a P/E ratio of 16.0.  Despite the fact that both macroeconomic factors are Slightly Bullish, it is this important value factor (i.e. P/E ratio) that explains why the Covered Calls Advisor is in no hurry to establish new positions at this time.  

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Slightly Bearish sentiment is to "on-average sell 1% in-the-money covered calls for the next options expiration month".

Your comments or questions regarding this post (or the details related to any of the seven factors used in this model) are welcomed. Please email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Sunday, May 1, 2016

Returns -- Year-to-Date Through April 2016

As shown in the "Year-to-Date 2016" line in the chart below, the Covered Calls Advisor Portfolio (CCAP) has underperformed the benchmark Russell 3000 index by 1.37 percentage points for the first four months of calendar year 2016. 















As a reminder, the Covered Calls Advisor Portfolio is not identical to the advisor's personal portfolio. However, it does provide a comparable overall portfolio return result since all equities in the CCAP are also held in this advisor's personal portfolio. To ensure comparability, all transaction dates and transaction prices herein are identical to those that were established in the Covered Calls Advisor's personal portfolio. The primary difference between the two accounts is the total number of shares held for each equity. This approach is used to preserve the confidentiality of the total value of the Covered Call Advisor's personal portfolio.

The Covered Calls Advisor uses a bottom-line performance measure to determine overall portfolio investment performance results -- it is called 'Total Account Value Return Percent'. Here's an example to aid understanding of how the overall portfolio performance is determined: 
If the total CCAP portfolio value was $100,000 at the beginning of the calendar year and $110,000 at the end of that year (and with no deposits or withdrawals having been made), then the 'Total Account Value Return Percent' would be +10.0% [($110,000-$100,000)/$100,000]*100Of course, the actual 'Total Account Value Return Percent' shown also adjusts for any deposits and withdrawals made each month.

If you have any comments or questions, please email me at the address shown in the right sidebar of this blog site.

Regards and Godspeed,
Jeff

Monday, April 18, 2016

April 2016 Option Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained four positions with April 2016 expirations.

I.  Three of the four positions were closed out at expiration. The overall average annualized return-on-investment for these three positions was +21.1%.  The return-on-investment results for each position was:
  • Bristol-Myers Squibb Co. = +2.1% absolute return (+24.1% annualized return)
  • Celgene Corp. = +1.8% absolute return (+22.2% annualized return)
  • Delta Air Lines Inc. = +1.4% absolute return (+17.1% annualized return)
As an example of how these returns were calculated, the details for the Bristol-Myers covered calls position is shown below.  The cash now available from the closing of these positions will be retained in the Covered Calls Advisor Portfolio until new covered calls and/or 100% cash-secured puts positions are established.  Any new positions will be posted on this site on the same day they occur.

Bristol-Myers Squibb Co. -- Covered Calls Position Closed at Expiration
The transactions were as follows:
Stock Purchase Cost: $19,096.95
= ($63.63*300+$7.95 commission)

Net Profit:
(a) Options Income: +$636.75
= ($2.13*300 shares) - $2.25 commissions
(b) Dividend Income (BMY assigned at Apr2016 expiration): +$114.00
= ($.38 dividend per share x 300 shares)

(c) Capital Appreciation (BMY assigned at $62.50 at Apr2016 expiration): -$346.95
+($62.50-$63.63)*300 - $7.95 commissions
Total Net Profit: +$403.80
= (+$636.75 +$114.00 -$346.95)
Absolute Return: +2.1%
= +$403.80/$19,096.95
Annualized Return: +24.1%
= (+$403.80/$19,096.95)*(365/32 days)


II.  One of the four positions (Western Digital Corporation) ended at expiration with the price of the stock below the strike price, so the options expired and the long shares remained in the Covered Calls Advisor Portfolio.  Today, the 300 shares of WDC were sold at $40.21. 

The overall performance result (including commissions) for this Western Digital (WDC) covered calls position was as follows:
The transactions were:
03/14/2016 Bought 300 WDC shares @ $48.23
03/02/2016 Sold 3 WDC Apr2016 $45.00 Call options @ $4.43
Note: a simultaneous buy/write transaction was executed.
03/30/2016 Ex-dividend of $.50 per share
04/15/2016 3 WDC Apr2016 Call options expired.  
Note: the price of WDC was $40.49 at options expiration.
04/18/2016 Sold 300 WDC shares at $40.21

The overall performance result (including commissions) for this Western Digital covered calls position was as follows:
Stock Purchase Cost: $14,476.95
= ($48.23*300+$7.95 commission)

Net Profit:
(a) Options Income: +$1,326.75
= ($4.43*300 shares) - $2.25 commissions
(b) Dividend Income: +$150.00
= ($.50 dividend per share x 300 shares)
(c) Capital Appreciation: -$2,413.95
+($40.21-$48.23)*300 - $7.95 commissions

Total Net Profit: -$937.20
= (+$1,326.75 +$150.00 -$2,413.95)

Absolute Return: -6.5%
= -$937.20/$14,476.95
Annualized Return: -67.5%
= (-$937.20/$14,476.95)*(365/35 days)

Saturday, April 9, 2016

Hooray! -- New Fiduciary Rule Allows Options in Retirement Accounts

In a Covered Calls Advisor post last September (Link), you were alerted to a proposed rule from the Dept of Labor (DOL) that included an elimination of trading options in IRA accounts.  Many, including covered calls investors, use options in our retirement accounts.  We do so not for the speculative, risky purposes feared by Federal government regulators, but for the exact opposite reason -- to reduce risk in our portfolio.  In fact, for covered calls, several reputable academic studies have confirmed that covered calls have only two-thirds the risk of comparable buy-and-hold stock portfolios.

Fortunately, the new fiduciary rule just released has removed the sections that eliminated the use of options in our retirement accounts.  Here is a quote from an article today in Barron's: " WHY THE GOVERNMENT backed down from banning options isn’t entirely clear. But that came after many investors had written to the Labor Department, explaining that they use options to enhance stock returns and reduce risks, rather than speculate on stock moves."  This letter from the Options Clearing Corporation (OCC) and TD Ameritrade (Link) is a very good example of a compelling argument that might well have influenced the DOL to retain options trading in their new rule.

Here is another article summarizing this issue: Link 

Thank you to those of you who wrote letters advocating (successfully) to retain options trading in our retirement accounts.


Best Wishes and Godspeed,
Jeff

Thursday, April 7, 2016

Worthwhile Reading Related to Earnings

First quarter earnings will begin to be reported early next week. 

1. Earnings Will Decide the Stock Market's Fate: Link

2. One perma-bear says:
  •  U.S. earnings recession will continue because of ongoing profit  margin reversion-to-the-mean: Link ; and
  •  The earnings recession is not just in the U.S. -- It's Global: Link 

3. .... But, It's Hard to Find a Pattern Between Profits and Stock Market Returns: Link

4. Market appears overvalued by these 4 valuation metrics: Link ;
    and also by Warren Buffett's favorite valuation measure: Link


Caveat emptor (i.e. Let the buyer beware)!

Best wishes,
Jeff


Friday, April 1, 2016

Will 2016 be a Bull, a Bear, or a Bunny Market?


1. The Bullish Case:

Big Wall Street firms unanimously predict the now 7-year bull market will continue:  Link 





2. The Bearish Case:
Rising dangers in the stock market:  Link






3.The Bunny Case: 
 
Or perhaps the market will continue with its brief up and down hops?  Link



Returns -- Year-to-Date Through March 2016

As shown in the "Year-to-Date 2016" line in the chart below, the Covered Calls Advisor Portfolio (CCAP) has underperformed the benchmark Russell 3000 index by 1.76 percentage points for the first quarter of calendar year 2016. 













As a reminder, the Covered Calls Advisor Portfolio is not identical to the advisor's personal portfolio. However, it does provide a comparable overall portfolio return result since all equities in the CCAP are also held in this advisor's personal portfolio. To ensure comparability, all transaction dates and transaction prices herein are identical to those that were established in the Covered Calls Advisor's personal portfolio. The primary difference between the two accounts is the total number of shares held for each equity. This approach is used to preserve the confidentiality of the total value of the Covered Call Advisor's personal portfolio.

The Covered Calls Advisor uses a bottom-line performance measure to determine overall portfolio investment performance results -- it is called 'Total Account Value Return Percent'. Here's an example to aid understanding of how the overall portfolio performance is determined: 
If the total CCAP portfolio value was $100,000 at the beginning of the calendar year and $110,000 at the end of that year (and with no deposits or withdrawals having been made), then the 'Total Account Value Return Percent' would be +10.0% [($110,000-$100,000)/$100,000]*100Of course, the actual 'Total Account Value Return Percent' shown also adjusts for any deposits and withdrawals made each month.

If you have any comments or questions, please email me at the address shown in the right sidebar of this blog site.

Regards and Godspeed,
Jeff