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Thursday, January 21, 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 JBLU 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 somewhat 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
Note:  the price of JetBlue stock was $17.45 when the Put options were sold.

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 Novermber 18th (the Nov2016 options expiration date) rather than holding this short Put options position.