Monday, April 24, 2017

Continuation of JPMorgan Chase & Co. Position

Upon the April options expiration last Friday, four of the five positions were in-the-money and the positions were closed.  The one position that was out-of-the-money (strike price of $85.00 and stock closed Friday at $84.52) was JPMorgan Chase & Co.  So, the four Apr2017 Call options in JPMorgan Chase & Co.(ticker symbol JPM) expired assigned and 400 shares remained in the Covered Calls Advisor portfolio.  Today, the JPMorgan Chase continued this investment by establishing another covered calls position by selling four May2017 Call options against the 400 JPM shares held. The company also went ex-dividend on April 4th with a quarterly dividend of $.50 which is included in the transactions details below.

A potential return-on-investment is +4.5% absolute return (equivalent to +28.6% annualized) for the 57 days of this JPMorgan Chase & Co. investment. Details of the transactions to-date including the potential return-on-investment result are provided below:


JPMorgan Chase & Co. (JPM) -- Covered Calls Continuation
The transactions are as follows:
03/23/2017 Bought 400 JPM shares @ $87.21
03/23/2017 Sold 4 JPM Apr2017 $85.00 Call options @ $3.16
Note: a simultaneous buy/write transaction was executed.
04/04/2017 Quarterly ex-dividend of $.50 per share
04/21/2017 4 JPM Call options expired
04/24/2017 Sold 4 JPM May2017 $85.00 Call options @ $2.50
Note: the price of JPM was $86.53 when these Calls were sold

A possible overall performance result (including commissions) for this JPM covered calls position is as follows:
Stock Purchase Cost: $34,888.95
= ($87.21*400+$4.95 commission)

Net Profit:
(a) Options Income: +$2,248.90
= ($3.16 + $2.50)*400 shares - 2*$7.55 commissions

(b) Dividend Income: +$200.00
= ($.50 dividend per share x 400 shares)
(c) Capital Appreciation (If JPM assigned at $85.00 at May2017 expiration): -$888.95
+($85.00-$87.21)*400 - $4.95 commissions

Total Net Profit (If JPM assigned at $85.00 at May2017 expiration): +$1,559.95
= (+$2,248.90 +$200.00 -$888.95)

Absolute Return: (If option exercised at May2017 options expiration): +4.5%
= +$1,559.95/$34,888.95
Annualized Return (If option exercised early): +28.6%
= (+$1,559.95/$34,888.95)*(365/57 days)

Saturday, April 22, 2017

April 2017 Option Expiration Results

Four of the five April 2017 positions in the Covered Calls Advisor Portfolio closed in-the-money at expiration, so the maximum possible return-on-investment result was achieved for these four positions: Carmax Inc., Energy Transfer Equity LP, Hawaiian Holdings Inc., and Transdigm Group Inc. 

For the other position (JPMorgan Chase & Co.), the price of the stock was $84.52 which was below the $85.00 strike price at Apr2017 expiration, so the Covered Calls options expired.  The 400 shares will remain in the Covered Calls Advisor Portfolio until they are either sold or a continuation covered calls position established by selling four May2017 Call options against the 400 JPM shares now owned.

I.  For the four closed positions:
The return-on-investment results for each position was:
  • Carmax Inc. = +0.8% absolute return (+26.2% annualized return) in 11 days
  • Energy Transfer Equity LP = +2.8% absolute return (+21.9% annualized return) in 47 days
  • Hawaiian Holdings Inc. = +2.3% absolute return (+27.9% annualized return) in 30 days
  • Transdigm Group Inc. = +1.7% absolute return (+33.6% annualized return) in 19 days
The cash now available in the Covered Calls Advisor Portfolio from the closing of these positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new positions established with this available cash will be posted on this site on the same day the transactions occur.  The return-on-investment results for these four closed positions are detailed below.  


1. Carmax Inc. -- 100% Cash-Secured Put Options Position Closed at Expiration
The transactions were as follows:
This position was established when the price of Carmax Inc. was $56.80 (3.2% downside protection to the strike price) and 11 days remaining until the options expiration date.

The implied volatility of the Put options was 29.0 when this position was established; so the $.45 price received per share received when the Puts were sold is a nice premium to receive for these 3.2% out-of-the-money Put options.    

The transaction was as follows:
04/11/2017  Sold 5 KMX Apr2017 $55.00 100% cash-secured Put options @ $.45
Note: the price of KMX was $56.80 today when this transaction was executed.
04/21/2017 5 KMX Apr2017 Put options expired
Note: the price of KMX was $58.31 at Apr2017 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 five Put options sold.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $27,500.00
= $55.00*500

Net Profit:
(a) Options Income: +$216.80
= ($.45*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (KMX was above $55.00 strike price at Apr2017 expiration): +$0.00
= ($55.00-$55.00)*500 shares

Total Net Profit:  +$216.80
= (+$216.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +0.8%
= +$216.80/$27,500.00
Annualized Return: +26.2%
= (+$216.80/$27,500.00)*(365/11 days)



2. Energy Transfer Equity LP (ETE) -- 100% Cash-Secured Put Options Position Closed at Expiration
The transactions were as follows:
03/06/2017 Sold 10 ETE Apr2017 $18.00 100% cash-secured Put options @ $.52
Note: the price of ETE was $18.99 when these Puts were sold
04/21/2017 10 ETE Apr2017 Put options expired
Note: the price of ETE was $18.26 at Apr2017 options expiration

The overall performance result (including commissions) for this Energy Transfer position was as follows:
Stock Cost Basis: $18,000.00
= $18.00*1,000 shares

Net Profit:
(a) Options Income: +$508.55
= ($.52*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (ETE stock was above $18.00 strike price at Apr2017 options expiration date): +$0.00
=+($18.00-$18.00)*1,000 shares

Total Net Profit: +$508.55
= (+$508.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +2.8%
= +$508.55/$18,000.00
Annualized Return: +21.9%
= (+$508.55/$18,000.00)*(365/47 days)



3.  Hawaiian Holdings Inc. (HA) -- 100% Cash-Secured Put Options Position Closed at Expiration
This position was established when the price of Hawaiian Holdings was $46.88 (4.0% downside protection to the strike price) and 30 days remaining until the options expiration date.

The implied volatility of the Put options was 30.2 when this position was established; so the $1.05 price received per share received when the Puts were sold is a nice premium to receive for these 4.0% out-of-the-money Put options.    

The transaction was as follows:
03/23/2017  Sold 5 HA Apr2017 $45.00 100% cash-secured Put options @ $1.05
Note: the price of HA was $46.88 today when this transaction was executed.
04/21/2017 5 HA Apr2017 Put options expired
Note: the price of HA was $53.25 at Apr2017 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 five Put options sold.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $22,500.00
= $45.00*500

Net Profit:
(a) Options Income: +$516.80
= ($1.05*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($45.00-$45.00)*500 shares

Total Net Profit: +$516.80
= (+$516.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +2.3%
= +$516.80/$22,500.00
Annualized Return: +27.9%
= (+$516.80/$22,500.00)*(365/30 days)


4.  Transdigm Group Inc. (TDG) -- 100% Cash-Secured Put Options Position Closed at Expiration
This position was established when the price of Transdigm Group was $218.30 (3.8% downside protection to the strike price) and 19 days remaining until the options expiration date.

The implied volatility of the Put options was 35.8 when this position was established; so the $3.70 price received per share received when the Puts were sold is a nice premium to receive for these 3.8% out-of-the-money Put options.    

The transaction was as follows:
04/03/2017  Sold 2 TDG Apr2017 $201.00 100% cash-secured Put options @ $3.70
Note: the price of TDG was $218.30 today when this transaction was executed.
04/21/2017 2 TDG Apr2017 Put options expired
Note: the price of TDG was $240.21 at Apr2017 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 two Put options sold.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $42,000.00
= $210.00*200
Note: the price of TDG was $218.30 when these options were sold

Net Profit:
(a) Options Income: +$733.75
= ($3.70*200 shares) - $6.25 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (TDG was above $210.00 strike price at Apr2017 expiration): +$0.00
= ($210.00-$210.00)*200 shares

Total Net Profit: +$733.75
= (+$733.75 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.7%
= +$733.75/$42,000.00
Annualized Return: +33.6%
= (+$733.75/$42,000.00)*(365/19 days)

Tuesday, April 11, 2017

Established New Position in Carmax Inc.

Today, a new position was established in Carmax Inc.(ticker KMX) by selling five April 2017 100% cash-secured Put options at the $55.00 strike price.  The short Puts were chosen instead of the comparable covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.

As detailed below, there is potential for a +0.8% absolute return in 11 days (equivalent to a +26.2% annualized return-on-investment).

Carmax Inc. (KMX) -- New 100% Cash-Secured Puts Position
This position was established when the price of Carmax Inc. was $56.80 (3.2% downside protection to the strike price) and 11 days remaining until the options expiration date.

The implied volatility of the Put options was 29.0 when this position was established; so the $.45 price received per share received when the Puts were sold is a nice premium to receive for these 3.2% out-of-the-money Put options.    

The transaction was as follows:
04/11/2017  Sold 5 KMX Apr2017 $55.00 100% cash-secured Put options @ $.45
Note: the price of KMX was $56.80 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 five Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $27,500.00
= $55.00*500
Note: the price of KMX was $56.80 when these options were sold

Net Profit:
(a) Options Income: +$216.80
= ($.45*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If KMX is above $55.00 strike price at Apr2017 expiration): +$0.00
= ($55.00-$55.00)*500 shares

Total Net Profit (If Carmax Inc. stock price is above $55.00 strike price at Apr2017 options expiration): +$216.80
= (+$216.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If KMX is above $55.00 strike price at Apr2017 options expiration): +0.8%
= +$216.80/$27,500.00
Annualized Return: +26.2%
= (+$216.80/$27,500.00)*(365/11 days)

The downside 'breakeven price' at expiration is at $54.55 ($55.00 - $.45), which is 4.0% below the current market price of $56.80.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Apr 21st, 2017 options expiration) for this Carmax Inc. short Puts position is 73%. This compares with a probability of profit of 50.2% for a buy-and-hold of KMX shares over the same time period. Using this probability of profit of 73%, the expected value annualized return-on-investment (if held until expiration) is +19.1% (+26.2% * 73%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $57.25 ($56.80 + $.45).  This is the price above which it would have been more profitable to simply buy-and-hold Carmax stock until the April 21, 2017 options expiration date rather than selling these Put options.

Monday, April 3, 2017

Established New Position in Transdigm Group Inc.

Today, a new position was established in Transdigm Group Inc. (ticker TDG) by selling two April 2017 100% cash-secured Put options at the $210.00 strike price.  The short Puts were chosen instead of the comparable covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.

As detailed below, there is potential for a +1.7% absolute return in 19 days (equivalent to a +33.6% annualized return-on-investment).

Transdigm Group Inc. (TDG) -- New 100% Cash-Secured Puts Position
This position was established when the price of Transdigm Group was $218.30 (3.8% downside protection to the strike price) and 19 days remaining until the options expiration date.

The implied volatility of the Put options was 35.8 when this position was established; so the $3.70 price received per share received when the Puts were sold is a nice premium to receive for these 3.8% out-of-the-money Put options.    

The transaction was as follows:
04/03/2017  Sold 2 TDG Apr2017 $201.00 100% cash-secured Put options @ $3.70
Note: the price of TDG was $218.30 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 two Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $42,000.00
= $210.00*200
Note: the price of TDG was $218.30 when these options were sold

Net Profit:
(a) Options Income: +$733.75
= ($3.70*200 shares) - $6.25 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TDG is above $210.00 strike price at Apr2017 expiration): +$0.00
= ($210.00-$210.00)*200 shares

Total Net Profit (If Transdigm Group Inc. stock price is above $210.00 strike price at Apr2017 options expiration): +$733.75
= (+$733.75 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If TDG is above $210.00 strike price at Apr2017 options expiration): +1.7%
= +$733.75/$42,000.00
Annualized Return: +33.6%
= (+$733.75/$42,000.00)*(365/19 days)

The downside 'breakeven price' at expiration is at $206.30 ($210.00 - $3.70), which is 5.5% below the current market price of $218.30.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Apr 21st, 2017 options expiration) for this Transdigm short Puts position is 69.5%. This compares with a probability of profit of 50.3% for a buy-and-hold of TDG shares over the same time period. Using this probability of profit of 69.5%, the expected value annualized return-on-investment (if held until expiration) is +23.4% (+33.6% * 69.5%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $222.00 ($218.30 + $3.70).  This is the price above which it would have been more profitable to simply buy-and-hold TDG stock until the April 21, 2017 options expiration date rather than selling these Put options.

Thursday, March 23, 2017

Established Covered Calls Position in JPMorgan Chase & Co.

Today, a covered calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) with an Apr2017 expiration and at the $85.00 strike price.  This position has an upcoming quarterly ex-dividend on April 4th of $.50 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the April 21st options expiration date.  Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, an in-the-money covered calls position was established. 

As detailed below, a potential return-on-investment result is +1.1% absolute return (equivalent to +32.0% annualized return for the next 12 days) if the stock is assigned early (business day prior to April 4th ex-date); OR +1.6% absolute return (equivalent to +19.8% annualized return over the next 30 days) if the stock is assigned on the April 21, 2017 options expiration date.


JPMorgan Chase & Co. (JPM) -- New Covered Calls Position
An ex-dividend occurs on Apr 4th for $.50.  Although very unlikely, if the current time value (i.e. extrinsic value) of $.95 [$3.16 option premium - ($87.21 stock price - $85.00 strike price)] remaining in the short call options decays substantially (down to about $.15 or less) by April 3rd (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 400 JPM shares away to capture the dividend payment.


The transactions were:
03/23/2017 Bought 400 JPM shares @ $87.21
03/23/2017 Sold 4 JPM Apr2017 $85.00 Call options @ $3.16
Note: a simultaneous buy/write transaction was executed.
04/04/2017 Upcoming quarterly ex-dividend of $.50 per share

Two possible overall performance results (including commissions) for this JPM covered calls position are as follows:
Stock Purchase Cost: $34,888.95
= ($87.21*400+$4.95 commission)

Net Profit:
(a) Options Income: +$1,256.45
= ($3.16*400 shares) - $7.55 commissions
(b) Dividend Income (If option exercised early on business day prior to April 4th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at Apr2017 expiration): +$200.00
= ($.50 dividend per share x 400 shares)
(c) Capital Appreciation (If JPM assigned early on April 3rd): -$888.95
+($85.00-$87.21)*400 - $4.95 commissions; or
(c) Capital Appreciation (If JPM assigned at $55.00 at Jul2016 expiration): -$888.95
+($85.00-$87.21)*400 - $4.95 commissions

1. Total Net Profit (If option exercised on day prior to April 4th ex-dividend date): +$367.50
= (+$1,256.45 +$0.00 -$888.95); or
2. Total Net Profit (If JPM assigned at $85.00 at Apr2017 expiration): +$567.50
= (+$1,256.45 +$200.00 -$888.95)

1. Absolute Return [If option exercised on April 3rd (business day prior to ex-dividend date)]: +1.1%
= +$367.50/$34,888.95
Annualized Return (If option exercised early): +32.0%
= (+$367.50/$34,888.95)*(365/12 days); or
2. Absolute Return (If JPM assigned at $85.00 at Apr2017 expiration): +1.6%
= +$567.50/$34,888.95
Annualized Return: +19.8%
= (+$567.50/$34,888.95)*(365/30 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 $85.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $83.55 ($87.21 -$3.16 -$.50) provides 4.2% 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, nine of the eleven criteria are achieved for this JPMorgan position.


Established New Position in Hawaiian Holdings Inc.

Today, a new position was established in Hawaiian Holdings Inc.(ticker HA) by selling five April 2017 100% cash-secured Put options at the $45.00 strike price.  The short Puts were chosen instead of the comparable covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.

As detailed below, there is potential for a +2.3% absolute return in 30 days (equivalent to a +27.9% annualized return-on-investment).

Hawaiian Holdings Inc. (HA) -- New 100% Cash-Secured Puts Position
This position was established when the price of Hawaiian Holdings was $46.88 (4.0% downside protection to the strike price) and 30 days remaining until the options expiration date.

The implied volatility of the Put options was 30.2 when this position was established; so the $1.05 price received per share received when the Puts were sold is a nice premium to receive for these 4.0% out-of-the-money Put options.    

The transaction was as follows:
03/23/2017  Sold 5 HA Apr2017 $45.00 100% cash-secured Put options @ $1.05
Note: the price of HA was $46.88 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 five Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $22,500.00
= $45.00*500
Note: the price of HA was $46.88 when these options were sold

Net Profit:
(a) Options Income: +$516.80
= ($1.05*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HA is above $45.00 strike price at Apr2017 expiration): +$0.00
= ($45.00-$45.00)*500 shares

Total Net Profit (If Hawaiian Holdings stock price is above $45.00 strike price at Apr2017 options expiration): +$516.80
= (+$516.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If HA is above $45.00 strike price at Apr2017 options expiration): +2.3%
= +$516.80/$22,500.00
Annualized Return: +27.9%
= (+$516.80/$22,500.00)*(365/30 days)

The downside 'breakeven price' at expiration is at $43.95 ($45.00 - $1.05), which is 6.25% below the current market price of $46.88.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Apr 21st, 2017 options expiration) for this Hawaiian Holdings short Puts position is 67.6%. This compares with a probability of profit of 50.3% for a buy-and-hold of HA shares over the same time period. Using this probability of profit of 67.6%, the expected value annualized return-on-investment (if held until expiration) is +18.9% (+27.9% * 67.6%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $47.93 ($46.88 + $1.05).  This is the price above which it would have been more profitable to simply buy-and-hold HA stock until the April 21, 2017 options expiration date rather than selling these Put options.

Closed Short Puts Position in in iPath S&P 500 VIX Short-Term Futures ETN

Today, the Covered Calls Advisor closed out the 100% cash-secured short Puts position in in iPath S&P 500 VIX Short-Term Futures ETN (ticker symbol VXX).  Although this trade was profitable, the Covered Calls Advisor is very unlikely to establish another position in VXX in the future.  I expected a better return-on-investment than was achieved given the significant increase in volatility in the S&P 500 Volatility Index (VIX) from 11.33 when the position was established to 12.94 today when the position was closed.  But because of these VXX futures are so short-term in nature, their inherent value decline makes it exceedingly difficult to profit from them.

Fortunately in this position, the Covered Calls Advisor achieved a +0.6% absolute return-on-investment (equivalent to a +13.9% annualized return-on-investment) for the 15 days the  position was held.  Details of the transactions and results are provided below.


iPath S&P 500 VIX Short-Term Futures ETN (VXX) -- Position Closed
The transactions were as follows:
03/08/2017 Sold 10 VXX March 24, 2017 $17.00 100% cash-secured Put options @ $.69
Note: the price of VXX was $17.02 when these Puts were sold
03/23/2017 Bought-to-Close 10 VXX Puts @ $.57
Note: the price of VXX was $16.63 when this transaction occurred

The performance result (including commissions) for this iPath S&P 500 VIX Short-Term Futures ETN position is as follows:
VXX Cost Basis: $17,000.00
= $17.00*1,000 shares

Net Profit:
(a) Options Income: +$97.10
= ($.69 - $.57) *1,000 shares - 2* $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
=+($17.00-$17.00)*1,000 shares

Total Net Profit: +$97.10
= (+$97.10 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +0.6%
= +$97.10/$17,000.00
Annualized Return: +13.9%
= (+$97.10/$17,000.00)*(365/15 days)

Tuesday, March 21, 2017

Early Assignment of Las Vegas Sands Corp Covered Calls

Today, Las Vegas Sands Corp (ticker symbol LVS) is ex-dividend at $.73 per share.  The Covered Calls Advisor owned a LVS April 2017 covered calls position at the $50.00 strike price.  Early this morning (as expected), I received email and text notifications from my broker (Schwab) that the 5 LVS Call options were exercised early, so the 500 shares of LVS stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $50.00 strike price.

Details of the transactions and results for this Las Vegas Sands position are provided below.  The shares had risen from $55.35 when the position was originally established (on January 23rd) to $56.63 at yesterday's market close.  The time value remaining in the Call options was $0.75 (based on the $7.38 midpoint of the $7.05/$7.70 bid/ask spread at the market close yesterday), so I was somewhat surprised that the Call owners would immediately forfeit the $.75 per share to buy the shares to capture the dividend; but it yielded a good return-on-investment result.    

The actual return-on-investment result for this Las Vegas Sands position was a +2.6% absolute return (equivalent to +17.0% annualized return) for the 56 days holding period.  Details of the transactions and associated return-on-investment results are shown below.


Las Vegas Sands Corp (LVS) -- Position Closed
The transactions are as follows:
01/23/2017 Sold 5 LVS Feb2017 $52.50 Puts @ $.78
Note: The price of LVS was $55.35 when this transaction was executed.
02/17/2017 5 Put options assigned and 500 shares of LVS purchased at the $52.50 strike price.
Note: the price of LVS was $52.03 at market close at Feb2017 options expiration
02/21/2017 Sold 5 LVS Apr2017 $50.00 Call options @ $3.10
Note: the price of LVS was $52.14 when these Call options were sold
03/20/2017 Owner of Calls exercised their option and 500 shares were assigned at $50.00 strike price

The performance result (including commissions) for this transaction was as follows:
100% Cash-Secured Cost Basis: $26,256.95
= $52.50*500 - $6.95 commission

Net Profit:
(a) Options Income: +$1,931.80
= ($.78 + $3.10) *500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00

(c) Capital Appreciation: -$1,245.05
= ($50.00-$52.50)*500 shares - $4.95 commission

Total Net Profit: +$686.75
= (+$1,931.80 +$0.00 -$1,245.05)

Absolute Return-on-Investment: +2.6%
= +$686.75/$26,256.95
Annualized Return: +17.0%
= (+$686.75/$26,256.95)*(365/56 days)

Monday, March 20, 2017

Closed Positions in Hawaiian Holdings Inc. and AmTrust Financial Services Inc.

 Last Friday was options expiration for 5 Hawaiian Holdings Inc. (ticker HA) Put options sold.  The options closed below the $50 strike price on Friday, so 500 shares of HA were purchased.  Today, the Covered Calls Advisor sold the 500 shares when the stock was $49.45.

As detailed below, the actual return-on-investment result for this closed position was a +1.7% absolute return (equivalent to +19.8% annualized return) for the 32 days holding period.

1. Hawaiian Holdings Inc. (HA) -- Closed Position

The transactions history was:
02/16/2017  Sold 5 HA Mar2017 $50.00 100% cash-secured Put options @ $1.45
Note: the price of HA was $50.65 when this transaction was executed.
03/17/2017 5 short HA Put options expired below the $50 strike price and 500 shares HA stock purchased at $50 per share
03/20/2017 Sold 500 shares of HA at $49.45 per share

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

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $25,004.95
= $50.00*500 + $4.95 commission
Note: the price of HA was $50.65 when these options were sold

Net Profit:
(a) Options Income: +$714.55
= ($1.45*500 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$279.95
= ($49.45-$50.00)*500 shares - $4.95 commission

Total Net Profit: +$434.60
= (+$714.55 options income +$0.00 dividend income -$279.95 capital appreciation)

Absolute Return: +1.7%
= +$434.60/$25,004.95
Annualized Return: +19.8%
= (+$434.60/$25,004.95)*(365/32 days)


2. AmTrust Financial Services Inc. (AFSI) -- Position Closed
Sometimes you win and sometimes you lose, and this position was clearly a loser. The day after the position was established, the company revealed that their auditor was being terminated and they would be delaying disclosure of revised financial results back to 2014 pending review by their newly appointed audit company.  Needless to say, the stock was hammered with this news.  Upon further research over this past weekend, it was decided to exit the position today and accept the substantial losses shown below.


The transactions were as follows:
03/16/2017  Bought 1,000 AmTrust Financial Services shares @ $21.55
03/16/2017 Sold 10 AFSI Apr2017 $20.00 Call options @ $2.05
Note: this was a simultaneous buy/write transaction.
03/20/2017 Exited the AFSI covered calls position with an unwind transaction by selling 1,000 shares at $17.30 and simulaneously bought back 10 Apr2017 Call options @ $.30

The overall performance result (including commissions) was as follows:
Bought 1,000 shares AFSI: $21,554.95
= $21.55*1,000 + $4.95 commission

Net Profit:
(a) Options Income: +$1,738.55
= ($2.05 - $.30) *1,000 shares - $11.45 commissions
(b) Dividend Income: +$0.00

(c) Capital Appreciation: -$4,254.95
= ($17.30 - $21.55)*1,000 shares - $4.95 commissions

Total Net Profit: -$2,516.40
= (+$1,738.55 options income +$0.00 dividends -$4,254.95 capital appreciation)

Saturday, March 18, 2017

March 2017 Option Expiration Results

Four of the six March 2017 positions in the Covered Calls Advisor Portfolio closed in-the-money at expiration, so the maximum possible return-on-investment result was achieved for these four positions: Alibaba Group Holdings Ltd, Big Lots Inc., Magna International Inc., and PulteGroup Inc. 

For the two other positions (Hawaiian Holdings Inc. and Noble Energy Inc.), the price of the stock closed below the strike prices, so the short Put options were assigned and shares were purchased at the strike prices. These shares will remain in the Covered Calls Advisor Portfolio until they are either sold or continuation covered calls positions will be established by selling Apr2017 call options against the shares now owned.

I.  For the four closed positions:
The return-on-investment results for each position was:
  • Alibaba Group Holdings Ltd. = +1.2% absolute return (+19.7% annualized return) in 23 days
  • Big Lots Inc. = +1.0% absolute return (+46.7% annualized return) in 8 days
  • Magna International Inc. = +1.4% absolute return (+28.0% annualized return) in 18 days
  • PulteGroup Inc. = +1.5% absolute return (+35.4% annualized return) in 15 days
The cash now available in the Covered Calls Advisor Portfolio from the closing of these positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new positions established with this available cash will be posted on this site on the same day the transactions occur.  The return-on-investment results for these four closed positions are detailed below.  


1. Alibaba Group Holdings Ltd. -- 100% Cash-Secured Put Options Position Closed at Expiration
The transactions were as follows:
02/23/2017  Sold 5 BABA 100% cash-secured $100.00 Put options with Mar2017 expirations @ $1.26
Note: the price of Alibaba was $102.77 today when this transaction was executed.
03/17/2017 5 BABA Put options expired
Note: the price of BABA shares was $105.61 at expiration

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $50,000.00
= $100.00*500

Net Profit:
(a) Options Income: +$621.80
= ($1.26 * 500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (BABA closed above $100.00 strike price at Mar2017 expiration): +$0.00
= ($100.00 -$100.00)*500 shares

Total Net Profit: +$621.80
= (+$621.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.2%
= +$621.80/$50,000.00
Annualized Return: +19.7%
= (+$621.80/$50,000.00)*(365/23 days)


2. Big Lots Inc. -- Covered Calls Position Closed at Expiration
The transactions were:
03/10/2017 Bought 500 BIG shares @ $51.12
03/10/2017 Sold 5 BIG Mar2017 $50.00 Call options @ $1.42
Note: a simultaneous buy/write transaction was executed.
03/15/2017 Ex-dividend of $125.00 = $.25 per share x 500 shares
03/17/2017 500 shares BIG assigned at $50.00 strike price
Note: BIG shares closed at $50.01 at expiration

The performance result (including commissions) for this Big Lots Inc. covered calls position was as follows:
Stock Purchase Cost: $25,564.95
= ($51.12*500+$4.95 commission)

Net Profit:
(a) Options Income: +$701.80
= ($1.42*500 shares) - $8.20 commissions

(b) Dividend Income: +$125.00
= ($.25 dividend per share x 500 shares)
(c) Capital Appreciation (BIG assigned at $50.00 at Mar2017 expiration): -$564.95
+($50.00-$51.12)*500 - $4.95 commissions

Total Net Profit (BIG assigned at $50.00 at Mar2017 expiration): +$261.85
= (+$701.80 +$125.00 -$564.95)

Absolute Return (BIG assigned at $50.00 at Mar2017 expiration): +1.0%
= +$261.85/$25,564.95
Annualized Return: +46.7%
= (+$261.85/$25,564.95)*(365/8 days)


3. Magna International Inc. -- Covered Calls Position Closed at Expiration
The transactions were:
02/28/2017 Bought 500 MGA shares @ $43.49
02/28/2017 Sold 5 MGA Mar2017 $42.50 Call options @ $1.35
Note: a simultaneous buy/write transaction was executed.
03/08/2016 Ex-dividend of $137.50 = $.275 per share x 500 shares
03/17/2017 500 shares MGA assigned at $42.50 strike price
Note: MGA shares closed at $44.04 at expiration

The overall performance result (including commissions) for this Magna International covered calls position was as follows:
Stock Purchase Cost: $21,751.95
= ($43.49*500+$6.95 commission)

Net Profit:
(a) Options Income: +$664.55
= ($1.35*500 shares) - $10.45 commissions

(b) Dividend Income (MGA assigned at Mar2017 expiration): +$137.50
= ($.275 dividend per share x 500 shares)
(c) Capital Appreciation (MGA assigned at $42.50 at Mar2017 expiration): -$501.95
+($42.50-$43.49)*500 - $6.95 commissions

Total Net Profit (MGA assigned at $42.50 at Mar2017 expiration): +$300.10
= (+$664.55 +$137.50 -$501.95)

Absolute Return (MGA assigned at $42.50 at Mar2017 expiration): +1.4%
= +$300.10/$21,751.95
Annualized Return: +28.6%
= (+$300.10/$21,751.95)*(365/18 days)


4. PulteGroup Inc. -- Covered Calls Position Closed at Expiration
The transactions were:
03/03/2017 Bought 1,000 PHM shares @ $22.23
03/03/2017 Sold 10 PHM Mar2017 $22.00 Call options @ $.48
Note: a simultaneous buy/write transaction was executed.
03/08/2017 Ex-dividend of $90.00 = $.09 per share x 1,000 shares

The performance result (including commissions) for this PulteGroup, Inc. covered calls position was as follows:
Stock Purchase Cost: $22,234.95
= ($22.23*1,000+$4.95 commission)

Net Profit:
(a) Options Income: +$468.55
= ($.48*1,000 shares) - $11.45 commissions

(b) Dividend Income (PHM shares assigned at Mar2017 expiration): +$90.00
= ($.09 dividend per share x 1,000 shares)
(c) Capital Appreciation (PHM assigned at $22.00 at Mar2017 expiration): -$234.95
+($22.00-$22.23)*1,000 - $4.95 commissions

Total Net Profit (PHM assigned at $22.00 at Mar2017 expiration): +$323.60
= (+$468.55 +$90.00 -$234.95)

Absolute Return (PHM assigned at $22.00 at Mar2017 expiration): +1.5%
= +$323.60/$22,234.95
Annualized Return: +35.4%
= (+$323.60/$22,234.95)*(365/15 days)

Friday, March 17, 2017

Closed Position in Express Scripts Holding Co.

This morning I was notified that my five short Mar2017 $67.00 Put options in Express Scripts were exercised and I had therefore purchased 500 shares.  Since establishing the position, the stock price has declined rapidly because of negative sentiment towards drug pricing along with a recent downgrade by Wells Fargo to Underperform.

Because of these factors, as well as the Covered Calls Advisor's current Slightly Bearish sentiment on the overall market, this morning I sold the 500 shares at a net loss of $363.15.  Details of the transactions are provided below.  This sale will further increase my already high cash position and I am unlikely to deploy this cash in any new position(s) until I become more constructive on the overall market outlook.


Express Scripts Holding Co.(ESRX) -- Position Closed
The transactions were as follows:
03/09/2017 Sold 5 ESRX Mar2017 $67.00 100% cash-secured Put options @ $1.15

Note: the price of ESRX was $66.64 when these Puts were sold
03/16/2017 5 Put options exercised and 500 ESRX shares purchased at $67.00
03/17/2017 Sold 500 ESRX shares @ $65.14

The overall performance result (including commissions) for this Express Scripts position was as follows:
Stock Cost Basis: $33,504.95
= $67.00*500 shares - $4.95 commission

Net Profit:
(a) Options Income: +$566.80
= ($1.15*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$929.95
=+($65.14 - $67.00)*500 shares - $4.95 commission

Total Net Loss: -$363.15
= (+$566.80 options income +$0.00 dividend income -$929.95 capital appreciation)

Thursday, March 16, 2017

Established Covered Calls Position in AmTrust Financial Services Inc.

Today, a covered calls position was established in AmTrust Financial Services Inc. (ticker symbol AFSI) with an Apr2017 expiration.  This covered calls position includes consideration of the upcoming $.17 quarterly dividend on March 30th. 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 $20.00 (below the stock purchase price of $21.55).

As detailed below, a potential return is +3.0% absolute return in 37 days (equivalent to a +29.9% annualized return-on-investment)

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

AmTrust Financial Services Inc. (AFSI) -- New Covered Calls Position
The transactions were as follows:
03/16/2017  Bought 1,000 AmTrust Financial Services shares @ $21.55
03/16/2017 Sold 10 AFSI Apr2017 $20.00 Call options @ $2.05
Note: this was a simultaneous buy/write transaction.
03/30/2017 Ex-dividend of $170.00 ($.17 x 1,000 shares)

A possible overall performance result (including commissions) would be as follows:
Bought 1,000 shares AFSI: $21,554.95
= $21.55*1,000 + $4.95 commission

Net Profit:
(a) Options Income: +$2,038.55
= ($2.05*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$170.00
= $.17 * 1,000 shares
(c) Capital Appreciation (If AFSI is above $20.00 strike price at Apr2017 expiration): -$1,554.95
= ($20.00-$21.55)*1,000 shares - $4.95 commissions

Total Net Profit (If AFSI is above $20.00 strike price at Apr2017 options expiration): +$652.60
= (+$2,038.55 options income +$170.00 dividends -$1,554.95 capital appreciation)

Absolute Return (If AFSI is above $20.00 strike price at Apr2017 options expiration): +3.0%
= +$652.60/$21,554.95
Annualized Return: +29.9%
= (+$652.60/$21,554.95)*(365/37 days)

The downside 'breakeven price' at expiration is at $19.33 ($21.55 - $.17 -$2.05), which is 10.3% below the current market price of $21.55.

Friday, March 10, 2017

Established New Covered Calls Position in Big Lots Inc.

Today, a covered calls positions were established in Big Lots Inc. (ticker symbol BIG) with a Mar2017 expiration and at the $50.00 strike price.  This position has an upcoming quarterly ex-dividends on March 15th of $.25 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the March 17th options expiration date.  Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, a slightly in-the-money covered calls position was established. 

As detailed below, potential return-on-investment result is +0.5% absolute return (equivalent to +39.1% annualized return for the next 5 days) if the stock is assigned early (business day prior to Mar 15th ex-date); OR +1.0% absolute return (equivalent to +46.7% annualized return over the next 8 days) if the stock is assigned at the Mar2017 expiration on March 17th.


Big Lots Inc. (BIG) -- New Covered Calls Position
The $.25 dividend of Mar 15th is included in the potential results detailed below.  Although unlikely, if the current time value (i.e. extrinsic value) of $.30 [$1.42 option premium - ($51.12 stock price - $50.00 strike price)] remaining in the short call option decays to about $.10 or less by March 14th (the business day prior to the ex-div date), then it is possible that the call options owner would exercise early and call the Big Lots shares away to capture the dividend.

The transactions were:
03/10/2017 Bought 500 BIG shares @ $51.12
03/10/2017 Sold 5 BIG Mar2017 $50.00 Call options @ $1.42
Note: a simultaneous buy/write transaction was executed.
03/15/2017 Upcoming ex-dividend of $.25 per share

Two possible overall performance results (including commissions) for this Big Lots Inc. covered calls position are as follows:
Stock Purchase Cost: $25,564.95
= ($51.12*500+$4.95 commission)

Net Profit:
(a) Options Income: +$701.80
= ($1.42*500 shares) - $8.20 commissions
(b) Dividend Income (If option exercised early on business day prior to Mar 15th ex-div date): +$0.00; or
(b) Dividend Income (If BIG shares assigned at Mar2017 expiration): +$125.00
= ($.25 dividend per share x 500 shares)
(c) Capital Appreciation (If BIG assigned early on Mar 14th): -$564.95
+($50.00-$51.12)*500 - $4.95 commissions; or
(c) Capital Appreciation (If BIG assigned at $50.00 at Mar2017 expiration): -$564.95
+($50.00-$51.12)*500 - $4.95 commissions

Total Net Profit (If option exercised on day prior to Mar 15th ex-dividend date): +$136.85
= (+$701.80 +$0.00 -$564.95); or
Total Net Profit (If BIG assigned at $50.00 at Mar2017 expiration): +$261.85
= (+$701.80 +$125.00 -$564.95)

1. Absolute Return [If option exercised on Mar 14th (business day prior to ex-dividend date)]: +0.5%
= +$136.85/$25,564.95
Annualized Return (If option exercised early): +39.1%
= (+$136.85/$25,564.95)*(365/5 days); OR

2. Absolute Return (If BIG assigned at $50.00 at Mar2017 expiration): +1.0%
= +$261.85/$25,564.95
Annualized Return: +46.7%
= (+$261.85/$25,564.95)*(365/8 days)

In this instance, assignment at options expiration provides a slightly higher annualized return, so that outcome is preferable -- but either outcome would provide a very good return-on-investment result.  These returns will be achieved as long as the stock is above the $50.00 strike price at assignment.  If the stock declines below the strike price at expiration, the breakeven price of $49.45 ($51.12 -$.25 -$1.42) provides 3.3% downside protection below today's purchase price.

The 'crossover price' at expiration is $52.29 ($51.12 - $.25 + $1.42).  This is the price above which it would have been more profitable to simply buy-and-hold Big Lots stock until the Mar2017 options expiration date rather than selling these Put options.

The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls investments using a potential for dividend capture strategy.  The minimum threshold to establish a position is that at least nine of these eleven criteria must be achieved.  As detailed below, for this Big Lots position, ten of eleven criteria were achieved.

Thursday, March 9, 2017

Established Short Put Options Position in Express Scripts Holding Co.

Today, a new position was established in Express Scripts Holding Co.(ticker ESRX) by selling 5 Mar2017 $67.00 Put options.  This position was established when the price of ESRX was $66.64.  These short Puts were chosen since they provide a slightly higher potential return-on-investment result than their comparable Covered Calls.  The Covered Calls Advisor does not use margin, so 100% cash-secured Put options were sold.  There is not a quarterly earnings report or ex-dividend date prior to the Mar2017 options expiration date of March 17th. 

As detailed below, the potential return is +1.1% absolute return in 9 days (equivalent to a +46.2% annualized return-on-investment) if the stock price is unchanged.  If the stock increases above the $67.00 strike price, the maximum possible absolute return of +1.7% (equivalent to a +68.6% annualized return-on-investment) will be achieved.
Note: the Implied Volatility (IV) of the options at the time they were sold was 20.8, so these options exceeded the Covered Calls Advisor's minimum threshold of IV>20 and thus provides a sufficiently attractive potential return-on-investment result for this position.  


Express Scripts Holding Co.(ESRX) -- New 100% Cash-Secured Puts Position
The transactions were as follows:
03/09/2017 Sold 5 ESRX Mar2017 $67.00 100% cash-secured Put options @ $1.15
Note: the price of ESRX was $66.64 when these Puts were sold

Two possible overall performance results (including commissions) for this Express Scripts position is as follows:
Stock Cost Basis: $33,500.00
= $67.00*500 shares

Net Profit:
(a) Options Income: +$566.80
= ($1.15*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If price of ESRX stock closes unchanged at $66.64 at options expiration: -$184.95
=+($66.64-$67.00)*500 shares - $4.95 commission; OR
(c) Capital Appreciation (If price of ESRX stock is above $67.00 strike price at Mar2017 options expiration date): +$0.00
=+($67.00-$67.00)*500 shares

1. Total Net Profit (If ESRX stock is unchanged at $66.64 at Mar2017 expiration): +$381.85
= (+$566.80 options income +$0.00 dividend income -$184.95 capital appreciation)
2. Total Net Profit (If ESRX stock is assigned at $67.00 at Mar2017 expiration): +$566.80
= (+$566.80 options income +$0.00 dividend income +$0.00 capital appreciation)

1. Absolute Return (If ESRX stock is unchanged at $66.64 at Mar2017 expiration): : +1.1%
= +$381.85/$33,500.00
Annualized Return: +46.2%
= (+$381.85/$33,500.00)*(365/9 days)

2. Absolute Return (If ESRX stock is assigned at $67.00 at Mar2017 expiration): : +1.7%
= +$566.80/$33,500.00
Annualized Return: +68.6%
= (+$381.85/$33,500.00)*(365/9 days)

Wednesday, March 8, 2017

Established Short Put Options Position in iPath S&P 500 VIX Short-Term Futures ETN

Today, a new position was established in iPath S&P 500 VIX Short-Term Futures ETN (ticker VXX) with a March 24, 2017 options expiration at the $17.00 strike price when the price of VXX was $17.02 and the $17.00 Put options were at $.69 per share.  At that time, the S&P Volatility Index (VIX) was at 11.33, which is only 0.75 above the lowest value it has traded at this year and is also close to its all-time low.  Any increase in volatility in the stock market during the next 2 1/2 weeks will result in an increase in VIX and a very attractive return-on-investment potential for this investment.  These short Puts were chosen since they provide a slightly higher potential return-on-investment result than their comparable Covered Calls.  The Covered Calls Advisor does not use margin, so 100% cash-secured Put options were sold. 

As detailed below, the potential return is +4.0% absolute return in 17 days (equivalent to a +85.7% annualized return-on-investment).
Note: the Implied Volatility (IV) of the options at the time they were sold was 48.5, so these options exceeded the Covered Calls Advisor's minimum threshold of IV>20 by a very wide margin.     


iPath S&P 500 VIX Short-Term Futures ETN (VXX) -- New 100% Cash-Secured Puts Position
The transactions were as follows:
03/08/2017 Sold 10 VXX March 24, 2017 $17.00 100% cash-secured Put options @ $.69
Note: the price of VXX was $17.02 when these Puts were sold

A possible overall performance result (including commissions) for this iPath S&P 500 VIX Short-Term Futures ETN position is as follows:
Stock Cost Basis: $17,000.00
= $17.00*1,000 shares

Net Profit:
(a) Options Income: +$678.55
= ($.69*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If price of VXX is above $17.00 strike price at Mar 24th, 2017 options expiration date): +$0.00
=+($17.00-$17.00)*1,000 shares

Total Net Profit (If VXX is assigned at $17.00 at options expiration date): +$678.55
= (+$678.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +4.0%
= +$678.55/$17,000.00
Annualized Return: +85.7%
= (+$678.55/$17,000.00)*(365/17 days)

The downside 'breakeven price' at expiration is at $16.31 ($17.00 - $.69), which is 4.2% below the current market price of $17.02.

The 'crossover price' at expiration is $17.71 ($17.02 + $.69).  This is the price above which it would have been more profitable to buy-and-hold VXX shares until the March 17th options expiration date rather than selling these Put options.

Early Assignment of General Motors Co. Covered Calls

Today, General Motors Co. (ticker symbol GM) is ex-dividend at $.38 per share.  The Covered Calls Advisor owned a GM March 2017 covered calls position at the $36.00 strike price.  Early this morning (as expected), I received email and text notifications from my broker (Schwab) that the 10 GM Call options were exercised early, so the 1,000 shares of GM stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $36.00 strike price.

Details of the transactions and results for this GM position are provided below.  The shares had risen from $36.90 when purchased (on Feb 28th) to $37.52 at yesterday's market close.  The time value remaining in the Call options had declined to $0.02 (based on the $1.54 midpoint of the $1.53/$1.55 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 to purchase the 1,000 shares in order to capture the $.38 dividend.  In this advisor's experience, early assignment normally occurs only in those relatively deep-in-the-money positions (note: GM was 4.2% in-the-money at market close yesterday) when the Call options time value remaining near the end of trading on the day prior to the ex-div date is $.10 or less and the ex-dividend amount ($.38 in this case) is much greater than the time value the Call buyer forfeits ($.02 in this GM case).  It is also interesting to observe that the Pulte Mar2017 covered calls position (which also went ex-dividend today), also, just like the GM position, had only $.02 of time value remaining -- but those Calls were not exercised (likely because today's ex-dividend amount for Pulte is only $.09). 

The actual return-on-investment result for this closed position was a +0.8% absolute return (equivalent to +33.6% annualized return) for the 9 days holding period.  This result was slightly below the +37.7% annualized ROI that would have occurred if the covered calls had instead been held until expiration and if the options were exercised then.


General Motors Co. (GM) -- Covered Calls Position Closed
The transactions were:
02/28/2017 Bought 1,000 GM shares @ $36.90
02/28/2017 Sold 10 GM Mar2017 $36.00 Call options @ $1.22
Note: a simultaneous buy/write transaction was executed.
03/07/2017 10 Call options exercised and 1,000 shares GM stock sold at $36.00 strike price

The overall performance result (including commissions) for this General Motors covered calls position were as follows:
Stock Purchase Cost: $36,906.95
= ($36.90*1,000+$6.95 commission)

Net Profit:
(a) Options Income: +$1,213.00
= ($1.22*1,000 shares) - $7.00 commissions
(b) Dividend Income (Options exercised early on business day prior to Mar 8th ex-div date): +$0.00
(c) Capital Appreciation: -$906.95
+($36.00-$36.90)*1,000 - $6.95 commissions

Total Net Profit: +$306.05
= (+$1,213.00 options income +$0.00 dividend income -$906.95 capital appreciation)

Absolute Return: +0.8%
= +$306.05/$36,906.95
Annualized Return: +33.6%
= (+$306.05/$36,906.95)*(365/9 days)

Monday, March 6, 2017

Established Short Put Options Position in Energy Transfer Equity LP

Today, a new position was established in Energy Transfer Equity LP (ticker ETE) with an Apr2017 options expiration at the $18.00 strike price.  These short Puts were chosen since they provide a slightly higher potential return-on-investment result than their comparable Covered Calls.  The Covered Calls Advisor does not use margin, so 100% cash-secured Put options were sold.  Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, a conservative investment was made with the strike price below the stock price when the position was established.  There is not a quarterly earnings report or ex-dividend date prior to the Apr2017 options expiration date. 

As detailed below, the potential return is +2.8% absolute return in 47 days (equivalent to a +21.9% annualized return-on-investment).
Note: the Implied Volatility (IV) of the options at the time they were sold was 31.6, so these options exceeded the Covered Calls Advisor's minimum threshold of IV>20 and thus provides a sufficiently attractive potential return-on-investment for the conservative risk profile of this position.  


Energy Transfer Equity LP (ETE) -- New 100% Cash-Secured Puts Position
The transactions were as follows:
03/06/2017 Sold 10 ETE Apr2017 $18.00 100% cash-secured Put options @ $.52
Note: the price of ETE was $18.99 when these Puts were sold

A possible overall performance result (including commissions) for this Energy Transfer position is as follows:
Stock Cost Basis: $18,000.00
= $18.00*1,000 shares

Net Profit:
(a) Options Income: +$508.55
= ($.52*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If price of ETE stock is above $18.00 strike price at Apr2017 options expiration date): +$0.00
=+($18.00-$18.00)*1,000 shares

Total Net Profit (If Energy Transfer stock is assigned at $18.00 at Apr2017 expiration): +$508.55
= (+$508.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +2.8%
= +$508.55/$18,000.00
Annualized Return: +21.9%
= (+$508.55/$18,000.00)*(365/47 days)

The downside 'breakeven price' at expiration is at $17.48 ($18.00 - $.52), which is 8.0% below the current market price of $18.99.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the April 21st, 2017 options expiration) for this ETE short Puts position is 67.8%. This compares with a probability of profit of 50.3% for a buy-and-hold of ETE shares over the same time period. Using this probability of profit of 67.8%, the expected value annualized return-on-investment (if held until expiration) is +14.8% (+21.9% * 67.8%), a nice risk/reward profile for this conservative investment.  

The 'crossover price' at expiration is $19.51 ($18.99 + $.52).  This is the price above which it would have been more profitable to simply buy-and-hold ETE until the Apr2017 options expiration date rather than selling these Put options.

Friday, March 3, 2017

Established New Covered Calls Position in PulteGroup, Inc.

Today, a covered calls positions were established in PulteGroup, Inc. (ticker symbol PHM) with a Mar2017 expiration and at the $22.00 strike price.  This position has an upcoming quarterly ex-dividends on March 8th of $.09 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the March 17th options expiration date.  Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, a slightly in-the-money covered calls position was established. 

As detailed below, potential return-on-investment result is +1.1% absolute return (equivalent to +78.3% annualized return for the next 5 days) if the stock is assigned early (business day prior to Mar 8th ex-date); OR +1.5% absolute return (equivalent to +36.0% annualized return over the next 15 days) if the stock is assigned at the Mar2017 expiration on March 17th.


PulteGroup, Inc. (PHM) -- New Covered Calls Position
The $.09 dividend of Mar 8th is included in the potential results detailed below.  Although unlikely, if the current time value (i.e. extrinsic value) of $.25 [$.48 option premium - ($22.23 stock price - $22.00 strike price)] remaining in the short call option decays to about $.10 or less by March 7th (the business day prior to the ex-div date), then it is possible that the call options owner would exercise early and call the PulteGroup shares away to capture the dividend.

The transactions were:
03/03/2017 Bought 1,000 PHM shares @ $22.23
03/03/2017 Sold 10 PHM Mar2017 $22.00 Call options @ $.48
Note: a simultaneous buy/write transaction was executed.
03/08/2017 Upcoming ex-dividend of $.09 per share

Two possible overall performance results (including commissions) for this PulteGroup, Inc. covered calls position are as follows:
Stock Purchase Cost: $22,234.95
= ($22.23*1,000+$4.95 commission)
Note: In the category of "I never thought I'd see the day that...", effective today, Schwab stock commission decreases from $6.95 to $4.95 (and to $.65 per option contract).

Net Profit:
(a) Options Income: +$473.50
= ($.48*1,000 shares) - $6.50 commissions
(b) Dividend Income (If option exercised early on business day prior to Mar 8th ex-div date): +$0.00; or
(b) Dividend Income (If PHM shares assigned at Mar2017 expiration): +$90.00
= ($.09 dividend per share x 1,000 shares)
(c) Capital Appreciation (If PHM assigned early on Mar 7th): -$234.95
+($22.00-$22.23)*1,000 - $4.95 commissions; or
(c) Capital Appreciation (If PHM assigned at $22.00 at Mar2017 expiration): -$234.95
+($22.00-$22.23)*1,000 - $4.95 commissions

Total Net Profit (If option exercised on day prior to Mar 8th ex-dividend date): +$238.55
= (+$473.50 +$0.00 -$234.95); or
Total Net Profit (If PHM assigned at $22.00 at Mar2017 expiration): +$328.55
= (+$473.50 +$90.00 -$234.95)

1. Absolute Return [If option exercised on Mar 7th (business day prior to ex-dividend date)]: +1.1%
= +$238.55/$22,234.95
Annualized Return (If option exercised early): +78.3%
= (+$238.55/$22,234.95)*(365/5 days); OR

2. Absolute Return (If PHM assigned at $36.00 at Mar2017 expiration): +1.5%
= +$328.55/$22,234.95
Annualized Return: +36.0%
= (+$328.55/$22,234.95)*(365/15 days)

In this instance, early assignment provides higher annualized return, so that outcome is preferable -- but either outcome would provide a very good return-on-investment result.  These returns will be achieved as long as the stock is above the $22.00 strike price at assignment.  If the stock declines below the strike price at expiration, the breakeven price of $21.66 ($22.23 -$.09 -$.48) provides 2.6% downside protection below today's purchase price.

The 'crossover price' at expiration is $22.62 ($22.23 - $.09 + $.48).  This is the price above which it would have been more profitable to simply buy-and-hold Pulte stock until the Mar2017 options expiration date rather than selling these Put options.

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

Wednesday, March 1, 2017

Dick's Sporting Goods Position Closed

This morning, the Covered Calls Advisor closed the five Mar2017 $48.00 100% cash-secured Put options position in Dick's Sporting Goods Inc. (ticker DKS).  Recent disappointing 4th quarter earnings reports from stalwart brick-and-mortar retailers such as Walmart and Target as well as Best Buy just this morning, have reinforced to me the ongoing disruptive nature of Amazon.com and consumers' growing acceptance of online shopping. So, brick-and-mortar retailer Dick's is likely not immune from this trend and their upcoming 4th quarter earnings report on March 7th seems increasingly likely to also be met with disappointment.  The details of this position are presented below.

Dick's Sporting Goods Inc. (DKS) --
The transaction was as follows:
02/14/2017  Sold 5 DKS 100% cash-secured $48.00 Put options with Mar2017 expirations @ $1.60
Note: the price of Dick's stock was $50.91 today when this transaction was executed.
03/01/2017 Bought-to-Close 5 DKS Mar2017 $48.00 Puts @ $1.55
Note: the price of Dick's stock was $50.22 today when this position was closed

A potential performance result (including commissions) could be as follows:
100% Cash-Secured Cost Basis: $24,000.00
= $48.00*500 shares

Net Income:
 (a) Options Income: +$18.00
= ($1.60 - $1.55) * 500 shares - 2* $3.50 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($48.00 -$48.00)*500 shares

Total Net Profit: +$18.00
= (+$18.00 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +0.1%
= +$18.00/$24,000.00
Annualized Return: +1.8%
= (+$18.00/$24,000.00)*(365/15 days)

Tuesday, February 28, 2017

Established Covered Calls in General Motors Co. and Magna International Inc.

Today, two new covered calls positions were established in General Motors Co. (ticker symbol GM) and Magna International Inc. (ticker MGA), both with Mar2017 expirations.  Both positions have upcoming quarterly ex-dividends on March 8th, so the potential returns for these positions detailed below includes the possibility of early exercise because of these ex-dividends prior to the March 17th options expiration date.  Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, in-the-money covered calls were established. 

As detailed below, potential return-on-investment results for these positions are: 
1. General Motors:
If Early Assignment: +0.8% absolute return (equivalent to +33.6% annualized return for the next 9 days) if the stock is assigned early (business day prior to Mar 8th ex-date); OR
If Dividend Capture: +1.9% absolute return (equivalent to +37.7% annualized return over the next 18 days) if the stock is assigned at the Mar2017 expiration on March 17th.
2.  Magna International Inc.:
If Early Assignment: +0.8% absolute return (equivalent to +31.6% annualized return for the next 9 days) if the stock is assigned early (business day prior to Mar 8th ex-date); OR
If Dividend Capture: +1.4% absolute return (equivalent to +28.6% annualized return over the next 18 days) if the stock is assigned at the Mar2017 expiration on March 17th. 


1. General Motors Co. (GM) -- New Covered Calls Position
The $.38 dividend of Mar 8th is included in the potential results detailed below.  Although unlikely, if the current time value (i.e. extrinsic value) of $.32 [$1.22 option premium - ($36.90 stock price - $36.00 strike price)] remaining in the short call option decays to about $.10 or less by March 7th (the business day prior to the ex-div date), then it is possible that the call options owner would exercise early and call the General Motors shares away to capture the dividend.

The transactions were:
02/28/2017 Bought 1,000 GM shares @ $36.90
02/28/2017 Sold 10 GM Mar2017 $36.00 Call options @ $1.22
Note: a simultaneous buy/write transaction was executed.
03/08/2017 Upcoming ex-dividend of $.38 per share

Two possible overall performance results (including commissions) for this General Motors covered calls position are as follows:
Stock Purchase Cost: $36,906.95
= ($36.90*1,000+$6.95 commission)

Net Profit:
(a) Options Income: +$1,213.00
= ($1.22*1,000 shares) - $7.00 commissions
(b) Dividend Income (If option exercised early on business day prior to Mar 8th ex-div date): +$0.00; or
(b) Dividend Income (If GM assigned at Mar2017 expiration): +$380.00
= ($.38 dividend per share x 1,000 shares)
(c) Capital Appreciation (If GM assigned early on Mar 7th): -$906.95
+($36.00-$36.90)*1,000 - $6.95 commissions; or
(c) Capital Appreciation (If GM assigned at $36.00 at Mar2017 expiration): -$906.95
+($36.00-$36.90)*1,000 - $6.95 commissions

Total Net Profit (If option exercised on day prior to Mar 8th ex-dividend date): +$306.05
= (+$1,213.00 +$0.00 -$906.95); or
Total Net Profit (If GM assigned at $36.00 at Mar2016 expiration): +$686.05
= (+$1,213.00 +$380.00 -$906.95)

1. Absolute Return [If option exercised on Mar 7th (business day prior to ex-dividend date)]: +0.8%
= +$306.05/$36,906.95
Annualized Return (If option exercised early): +33.6%
= (+$306.05/$36,906.95)*(365/9 days); OR

2. Absolute Return (If GM assigned at $36.00 at Mar2017 expiration): +1.9%
= +$686.05/$36,905.95
Annualized Return: +37.7%
= (+$686.05/$36,905.95)*(365/18 days)

In this instance, assignment at Mar2017 options expiration provides a slightly higher annualized return, so that outcome is preferable -- but either outcome would provide a very good return-on-investment result.  These returns will be achieved as long as the stock is above the $36.00 strike price at assignment.  If the stock declines below the strike price at expiration, the breakeven price of $35.30 ($36.90 -$.38 -$1.22) provides 4.3% downside protection below today's purchase price.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Mar 17th, 2017 options expiration) for this GM position is 68.5%. This compares with a probability of profit of 50.3% for a buy-and-hold of this GM stock over the same time period. Using this probability of profit of 68.5%, the expected value annualized return-on-investment (if held until expiration) is +25.8% (+37.7% maximum potential annualized return on investment * 68.5%), a very attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $37.74 ($36.90 - $.38 + $1.22).  This is the price above which it would have been more profitable to simply buy-and-hold GM stock until the Mar2017 options expiration date rather than selling these Put options.

The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls investments using a potential for dividend capture strategy.  The minimum threshold to establish a position is that at least nine of these eleven criteria must be achieved.  As detailed below, for this General Motors position, ten of eleven criteria were achieved.




























2. Magna International Inc. (MGA) -- New Covered Calls Position
The $.275 dividend of Mar 8th is included in the potential results detailed below.  Although unlikely, if the current time value (i.e. extrinsic value) of $.36 [$1.35 option premium - ($43.49 stock price - $42.50 strike price)] remaining in the short call option decays to about $.10 or less by March 7th (the business day prior to the ex-div date), then it is possible that the call options owner would exercise early and call the Magna shares away to capture the dividend.

The transactions were:
02/28/2017 Bought 500 MGA shares @ $43.49
02/28/2017 Sold 5 MGA Mar2017 $42.50 Call options @ $1.35
Note: a simultaneous buy/write transaction was executed.
03/08/2016 Upcoming ex-dividend of $.275 per share

Two possible overall performance results (including commissions) for this Magna International covered calls position are as follows:
Stock Purchase Cost: $21,751.95
= ($43.49*500+$6.95 commission)

Net Profit:
(a) Options Income: +$671.50
= ($1.35*500 shares) - $3.50 commissions
(b) Dividend Income (If option exercised early on business day prior to Mar 8th ex-div date): +$0.00; or
(b) Dividend Income (If MGA assigned at Mar2017 expiration): +$137.50
= ($.275 dividend per share x 500 shares)
(c) Capital Appreciation (If MGA assigned early on Mar 7th): -$501.95
+($42.50-$43.49)*500 - $6.95 commissions; or
(c) Capital Appreciation (If MGA assigned at $42.50 at Mar2017 expiration): -$501.95
+($42.50-$43.49)*500 - $6.95 commissions

Total Net Profit (If option exercised on day prior to Mar 8th ex-dividend date): +$169.55
= (+$671.50 +$0.00 -$501.95); or
Total Net Profit (If MGA assigned at $42.50 at Mar2017 expiration): +$307.05
= (+$671.50 +$137.50 -$501.95)

1. Absolute Return [If option exercised on Mar 7th (business day prior to ex-dividend date)]: +0.8%
= +$169.55/$21,751.95
Annualized Return (If option exercised early): +31.6%
= (+$169.55/$21,751.95)*(365/9 days); OR

2. Absolute Return (If MGA assigned at $42.50 at Mar2017 expiration): +1.4%
= +$307.05/$21,751.95
Annualized Return: +28.6%
= (+$307.05/$21,751.95)*(365/18 days)

In this instance, early assignment provides a higher annualized return, so early assignment is preferable; but either outcome would provide a good return-on-investment result.  These returns will be achieved as long as the stock is above the $42.50 strike price at assignment.  If the stock declines below the strike price at expiration, the breakeven price of $41.865 ($43.49 -$.275 -$1.35) provides 3.7% downside protection below today's purchase price.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Mar 17th, 2017 options expiration) for this Magna position is 68.4%. This compares with a probability of profit of 50.2% for a buy-and-hold of this MGA stock over the same time period. Using this probability of profit of 68.4%, the expected value annualized return-on-investment (if held until expiration) is +19.6% (+28.6% maximum potential annualized return on investment * 68.4%), a nice risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $44.565 ($43.49 - $.275 + $1.35).  This is the price above which it would have been more profitable to simply buy-and-hold MGA stock until the Mar2017 options expiration date rather than selling these Put options.


The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls investments 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 detailed below, for this Magna position, all eleven criteria were achieved.

Thursday, February 23, 2017

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 five Mar2017 Put options at the $100.00 strike price. This position is a conservative one since it was established when the price of Alibaba was $102.77 (2.7% downside protection to the strike price) and 23 calendar days remaining until the options expiration date.

As detailed below, the Alibaba Group Holding Ltd. investment will yield a +1.25% absolute return in 23 days (which is equivalent to a +19.9% annualized return-on-investment) if Alibaba stock closes above the $100.00 strike price on the March 17th options expiration date. 

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 five Put options sold.

Alibaba Group Holding Ltd (BABA) --New 100% Cash-Secured Put Options Position
The transaction was as follows:
02/23/2017  Sold 5 BABA 100% cash-secured $100.00 Put options with Mar2017 expirations @ $1.26
Note: the price of Alibaba was $102.77 today when this transaction was executed.

A potential performance result (including commissions) could be as follows:
100% Cash-Secured Cost Basis: $50,000.00
= $100.00*500

Net Profit:
(a) Options Income: +$626.50
= ($1.26 * 500 shares) - $3.50 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BABA closes above $100.00 strike price at Mar2017 expiration): +$0.00
= ($100.00 -$100.00)*500 shares

Total Net Profit: +$626.50
= (+$626.50 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.25%
= +$626.50/$50,000.00
Annualized Return: +19.9%
= (+$626.50/$50,000.00)*(365/23 days)

The downside 'breakeven price' at expiration is at $98.74 ($100.00 - $1.26), which is 3.9% below the current market price of $102.77.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Mar 17th, 2017 options expiration) for this Alibaba short Puts position is 69%. This compares with a probability of profit of 50.2% for a buy-and-hold of this Alibaba stock over the same time period. Using this probability of profit of 69%, the expected value annualized return-on-investment (if held until expiration) is +13.7% (+19.9% maximum potential annualized return on investment * 69%), an attractive risk/reward profile for this somewhat conservative investment.  
The 'crossover price' at expiration is $104.03 ($102.77 + $1.26).  This is the price above which it would have been more profitable to simply buy-and-hold Alibaba stock until the Mar2017 options expiration date rather than selling these Put options.