The Covered Calls Advisor Portfolio established a new positions in JPMorgan Chase & Co. (ticker symbol JPM) by selling 100% cash-secured Put options. The Feb2016 options expiration was chosen and conservative out-of-the-money Puts were sold with downside protection to the 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 Put options sold.
As detailed below, the JPMorgan Chase & Co. investment will yield a +1.6% absolute
return in 31 days (which is equivalent to a +49.4% annualized
return-on-investment) if the stock closes above the $62.50 strike price on the Jan2016 options expiration date.
1. JPMorgan Chase & Co. (JPM) -- New Position
The transaction was as follows:
01/04//2016 Sold 3 JPM 100% cash-secured $62.50 Put options @ $1.05
Note: The price of JPM was $63.28 when this transaction was executed.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $18,757.95
= $62.50*300 + $7.95
(a) Options Income: +$304.80
= ($1.05*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If JPM is above $62.50 strike price at Jan2016 expiration): +$0.00
= ($62.50-$62.50)*300 shares
Total Net Profit (If JPM is above $62.50 strike price at Jan2016 options expiration): +$304.80
= (+$304.80 +$0.00 +$0.00)
Absolute Return (If JPM is above $62.50 strike price at Jan2016 options expiration): +1.6%
Annualized Return (If JPM is above $62.50 at expiration): +49.4%
= (+$304.80/$18,757.95)*(365/12 days)
downside 'breakeven price' at expiration is at $61.45 ($62.50 - $1.05),
which is 2.9% below the current market price of $63.28.
'crossover price' at expiration is $64.33 ($63.28 + $1.05). This is the
price above which it would have been more profitable to simply
buy-and-hold JPMorgan stock until January 15th (the Jan2016 options expiration date)
rather than selling these Put options.