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Wednesday, January 20, 2016

Established Position in SPDR S&P 500 ETF

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

Net Profit:
(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%
= +$822.55/$36,207.95
Annualized Return (If SPY is above $181.00 at expiration): +26.7%
= (+$822.55/$36,207.95)*(365/31 days)

The 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.
The '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.