The Covered Calls Advisor Portfolio established a new positions in SPDR S&P 500 ETF (ticker symbol SPYSPDR S&P 500 ETF) by selling two 100% cash-secured Put options. The Feb2016 options expiration were chosen and out-of-the-money Puts were sold with downside protection to the $181.00 strike price.
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 these positions were established using 100% cash
securitization for the two Put options sold.
As detailed below, the SPDR S&P 500 ETF investment will yield a +2.3% absolute
return in 31 days (which is equivalent to a +26.7% annualized
return-on-investment) if the stock closes above the $181.00 strike price on the Feb2016 options expiration date.
1. SPDR S&P 500 ETF (SPY) -- New Position
The transaction was as follows:
01/20//2016 Sold 2 SPY 100% cash-secured $181.00 Put options @ $4.16
Note: The price of SPY was $184.03 when this transaction was executed.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $36,207.95
= $181.00*200 + $7.95
(a) Options Income: +$822.55
= ($4.16*200 shares) - $9.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If SPY is above $181.00 strike price at Feb2016 expiration): +$0.00
= ($181.00 -$181.00)*200 shares
Total Net Profit (If SPY is above $181.00 strike price at Feb2016 options expiration): +$822.55
= (+$822.55 +$0.00 +$0.00)
Absolute Return (If SPY is above $181.00 strike price at Feb2016 options expiration): +2.3%
Annualized Return (If SPY is above $181.00 at expiration): +26.7%
= (+$822.55/$36,207.95)*(365/31 days)
downside 'breakeven price' at expiration is at $176.84 ($181.00 - $4.16),
which is 3.9% below the current market price of $184.03.
'crossover price' at expiration is $188.19 ($184.03 + $4.16). This is the
price above which it would have been more profitable to simply
buy-and-hold SPY until February 19th (the Feb2016 options expiration date)
rather than selling these Put options.