Thursday, June 22, 2017

Established New Position in Voya Financial Inc.

Today, a new position was established in Voya Financial Inc.(ticker VOYA) by selling seven July 21, 2017 100% cash-secured Put options at the $34.00 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 +1.6% absolute return in 30 days (equivalent to a +19.2% annualized return-on-investment).

Voya Financial Inc. (VOYA) -- New 100% Cash-Secured Puts Position
This position was established when the price of Voya Financial Inc. was $35.04 (3.0% downside protection to the strike price) and 30 days remaining until the options expiration date.

The implied volatility of the Put options was 23.5 when this position was established; so the $.55 price received per share received when the Puts were sold is a nice premium to receive for these out-of-the-money Put options (i.e. strike price below the current stock price).    

The transaction was as follows:
06/22/2017  Sold 7 VOYA July 21, 2017 $34.00 100% cash-secured Put options @ $.55
Note: the price of VOYA was $35.04 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 seven Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $23,800.00
= $34.00*700 shares

Net Profit:
(a) Options Income: +$375.50
= ($.55*700 shares) - $9.50 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If VOYA is above $34.00 strike price at July 21st expiration): +$0.00
= ($34.00-$34.00)*700 shares

Total Net Profit (If Voya Financial Inc. stock price is above $34.00 strike price at July 21st options expiration): +$375.50
= (+$375.50 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Voya Financial Inc. stock price is above $34.00 strike price at July 21st options expiration) : +1.6%
= +$375.50/$23,800.00
Annualized Return: +19.2%
= (+$375.50/$23,800.00)*(365/30 days)

The downside 'breakeven price' at expiration is at $33.45 ($34.00 - $.55), which is 4.5% below the current market price of $35.04.

The probability of making a profit (if held until the July 21, 2017 options expiration) for this Voya Financial Inc. short Puts position is 68.6%. This compares with a probability of profit of 50.3% for a buy-and-hold of VOYA shares over the same time period. Using this probability of profit of 68.6%, the expected value annualized return-on-investment (if held until expiration) is +13.2% (+19.2% * 68.6%), a satisfactory risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $35.59 ($35.04 + $.55).  This is the price above which it would have been more profitable to simply buy-and-hold Voya stock until the July 21st, 2017 options expiration date rather than selling these Put options.

Tuesday, June 20, 2017

Established New Position in Range Resources Corp.

During the first half hour of  trading this morning, a good-til-cancelled order was placed to sell ten July 21st, 2017 Range Resources Corp. (ticker RRC) Put options at the $20.00 strike price for $.45 per share.  At 11:00am, the order was executed when the stock was at $21.44.

As detailed below, there is potential for a +2.2% absolute return in 32 days (equivalent to a +25.0% annualized return-on-investment).

Range Resources Corp. (RRC) -- New 100% Cash-Secured Puts Position
This position was established when the price of Range Resources Corp. was $21.44 (6.7% downside protection to the strike price) and 32 days remaining until the July 21st options expiration date.

With the recent decline in the price of oil and gas being accompanied by a swift decline in energy-related stocks, the implied volatility of options in Range Resources have increased substantially from an average of 33.0 during the last quarter to 41.2 this morning when this position was established; so the $.45 price per share received when the Puts were sold is an attractive premium to receive for these out-of-the-money Put options.    

The transaction was as follows:
06/20/2017  Sold 10 RRC July 21, 2017 $20.00 100% cash-secured Put options @ $.45

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) would be as follows:
100% Cash-Secured Cost Basis: $20,000.00
= $20.00*1,000

Net Profit:
(a) Options Income: +$438.55
= ($.45*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If RRC is above $20.00 strike price at July 21,2017 expiration): +$0.00
= ($20.00-$20.00)*1,000 shares

Total Net Profit (If Range Resources stock price is above $20.00 strike price at July 21st options expiration): +$438.55
= (+$438.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If RRC is above $20.00 strike price at July 21st, 2017 options expiration): +2.2%
= +$438.55/$20,000.00
Annualized Return: +25.0%
= (+$438.55/$20,000.00)*(365/32 days)

The downside 'breakeven price' at expiration is at $19.55 ($20.00 - $.45), which is 8.8% below the current market price of $21.44.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the July 21st, 2017 options expiration) for this Range Resources Corp. short Puts position is 74.1%. This compares with a probability of profit of 50.4% for a buy-and-hold of RRC shares over the same time period. Using this probability of profit of 74.1%, the expected value annualized return-on-investment (if held until expiration) is +18.5% (+25.0% * 74.1%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $21.89 ($21.44 + $.45).  This is the price above which it would have been more profitable to simply buy-and-hold Range Resources stock until the July 21st, 2017 options expiration date rather than selling these Put options.

Monday, June 19, 2017

Continuation of Quanta Services Inc. and Twenty-First Century Fox Inc. Covered Calls Positions

The Covered Calls Advisor Portfolio held six positions at the June 2017 options expiration.  Three of these positions (Antero Resources Corp., D R Horton Inc., and Voya Financial Inc.) were assigned upon expiration and the maximum return-on-investment results were achieved as shown in this prior post: Link
For the other three positions (Devon Energy Corp., Quanta Services Inc, and Twenty-First Century Fox), the price of the equities closed below their strike prices so the options expired worthless and the long shares were retained in the Portfolio.  Today, covered calls were established for two of these companies (Quanta Services and Twenty-First Century Fox) by selling July 21st, 2017 Call options against the stock holdings.  As detailed below, the results if the stocks are assigned upon expiration are:
  • Quanta Services Inc. -- A +1.9% absolute return (equivalent to +17.6% annualized return-on-investment) over 40 days
  • Twenty-First Century Fox Inc. -- A +3.1% absolute return (equivalent to +15.4% annualized return-on-investment) over 74 days

1. Quanta Services Inc. (PWR) -- Continuing Covered Calls Position
The transactions have been as follows:
05/08/2017  Sold 6 PWR Jun2017 $33.00 100% cash-secured Put options @ $.65
Note: the price of PWR was $34.27 today when this transaction was executed.
06/16/2017 6 PWR Jun2017 Put options expired and 600 shares of PWR were purchased at $33.00 strike price
Note: the price of PWR was $32.10 upon the market close last Friday at Jun2017 expiration
06/19/2017 Sold 6 PWR July 21, 2017 $33.00 Call options @ $.55
Note: the price of PWR was $32.28 when these Call options were sold

Two possible overall performance results (including commissions) would be as follows:
Cost Basis: $19,804.95
= $33.00*600 + $4.95 commission

Net Profit:
(a) Options Income: +$702.30
= ($.65 + $.55) *600 shares - 2*$8.85 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PWR stock is unchanged at $32.28 at July 21, 2017 expiration): -$432.00
= ($32.28-$33.00)*600 shares; or
(c) Capital Appreciation (If PWR is above $33.00 strike price at July 21, 2017 expiration): +$0.00
= ($33.00-$33.00)*600 shares

1. Total Net Profit (If Quanta Services stock price is unchanged at $32.28 at July 21, 2017 options expiration): +$381.15; or
= (+$381.15 options income +$0.00 dividend income +$0.00 capital appreciation)
2. Total Net Profit (If Quanta Services stock price is above $33.00 strike price at July 21, 2017 options expiration): +$381.15
= (+$381.15 options income +$0.00 dividend income +$0.00 capital appreciation)

1. Absolute Return (If PWR is above $33.00 strike price at Jun2017 options expiration): +1.9%
= +$381.15/$19,800.00
Annualized Return: +17.6%
= (+$381.15/$19,800.00)*(365/40 days); or
2. Absolute Return (If PWR is above $33.00 strike price at Jun2017 options expiration): +1.9%
= +$381.15/$19,800.00
Annualized Return: +17.6%
= (+$381.15/$19,800.00)*(365/40 days)


2. Twenty-First Century Fox Inc. (FOXA) -- Continuing Covered Calls Position
The transactions have been as follows:
05/08/2017  Sold 10 FOXA Jun2017 $28.00 100% cash-secured Put options @ $.65
Note: the price of FOXA stock was $28.88 today when this transaction was executed.
06/16/2017 10 FOXA Jun2017 Put options expired and 1,000 shares of FOXA were purchased at $28.00 strike price
Note: the price of FOXA was $27.45 upon the market close last Friday at Jun2017 expiration
06/19/2017 Sold 10 FOXA July 21, 2017 $27.00 Call options @ $1.25
Note: the price of FOXA was $27.76 when these Call options were sold

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $28,004.95
= $28.00*1,000 + $4.05 commission

Net Profit:
(a) Options Income: +$1,877.10
= ($.65 +$1.25) *1,000 shares - 2*$11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FOXA is above $27.00 strike price at July 21, 2017 expiration): -$1,000.00
= ($27.00-$28.00)*1,000 shares

Total Net Profit: +$877.10
= (+$1,877.10 options income +$0.00 dividend income -1,000.00 capital appreciation)

Absolute Return: +3.1%
= +$877.10/$28,004.95
Annualized Return: +15.4%
= (+$877.10/$28,004.95)*(365/74 days)

Saturday, June 17, 2017

June 2017 Option Expiration Results

The Covered Calls Advisor Portfolio had six positions with June 16th, 2017 options expirations.  Three positions (Antero Resources Corp., D R Horton Inc., and Voya Financial Inc.) closed in-the-money, so the maximum possible return-on-investment result was achieved.  Details of the transactions and results for each of these positions are provided below.

The return-on-investment results for each position was:
  • Antero Resources Corp.:  +2.2% absolute return (+22.2% annualized return) in 36 days
  • D R Horton Inc.:  +1.1% absolute return (+37.6% annualized return) in 11 days  
  • Voya Financial Inc.:  +1.6% absolute return (+23.9% annualized return) in 24 days 
The cash now available in the Covered Calls Advisor Portfolio from the closing of these three positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new position(s) established with this available cash will be posted on this site on the same day the transactions occur.  

The other three positions (Devon Energy Corp., Quanta Services Inc., and Twenty-First Century Fox Inc.) closed yesterday with their stock price below their strike prices, so those shares will remain in the Covered Calls Advisor Portfolio (see holdings in right sidebar) until they are either sold or a continuation covered calls position is established. 

The details for each of the closed positions is as follows:

1.  Antero Resources Corp. -- 100% Cash-Secured Put Options Position Closed at Expiration
The Covered Calls Advisor had a position in Antero Resources Corp. (ticker symbol AR) by selling ten Jun2017 Put options at the $20.00 strike price. This position was a conservative one since it was established when the price of Antero Resources was $20.86 (4.1% downside protection to the strike price) and 36 days remaining until the options expiration date.

The implied volatility of the Put options was 30.6 when this position was established; so the $.45 price per share received when the Puts were sold was a nice premium to receive for these 4.1% out-of-the-money Put options.    

The transactions were as follows:
05/12/2017  Sold 10 AR Jun2017 $20.00 100% cash-secured Put options @ $.45
Note: the price of Antero was $20.86 when this transaction was executed.
06/16/2017 Put options expired with AR stock price of $22.60 above the $20.00 strike price

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 ten Put options sold.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $20,000.00
= $20.00*1,000
Note: the price of AR was $20.86 when these options were sold

Net Profit:
(a) Options Income: +$438.55
= ($.45*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Antero stock is above $20.00 strike price at Jun2017 expiration): +$0.00
= ($20.00-$20.00)*1,000 shares

Total Net Profit: +$438.55
= (+$438.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +2.2%
= +$438.55/$20,000.00
Annualized Return: +22.2%
= (+$438.55/$20,000.00)*(365/36 days)




2.  D R Horton Inc. -- 100% Cash-Secured Put Options Position Closed at Expiration
The transactions were as follows:
06/06/2017  Sold 5 DHI Jun2017 $33.00 100% cash-secured Put options @ $.39
Note: the price of DHI was $33.10 when this transaction was executed.
06/16/2017 Put options expired with DHI stock price of $33.65 above the $33.00 strike price

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $16,500.00
= $33.00*500
Note: the price of DHI was $33.10 when these options were sold

Net Profit:
(a) Options Income: +$186.80
= ($.39*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($33.00-$33.00)*500 shares

Total Net Profit: +$186.80
= (+$186.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return:: +1.1%
= +$186.80/$16,500.00
Annualized Return: +37.6%
= (+$186.80/$16,500.00)*(365/11 days)




3.  Voya Financial Inc. -- 100% Cash-Secured Put Options Position Closed at Expiration
The transactions were as follows:
05/24/2017  Sold 5 VOYA Jun2017 $34.00 100% cash-secured Put options @ $.55
Note: the price of VOYA was $34.75 today when this transaction was executed.
06/16/2017 Put options expired with VOYA stock price of $36.95 above the $34.00 strike price

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $17,000.00
= $34.00*500

Net Profit:
(a) Options Income: +$266.80
= ($.55*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($34.00-$34.00)*500 shares

Total Net Profit: +$266.80
= (+$266.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.6%
= +$266.80/$17,000.00
Annualized Return: +23.9%
= (+$266.80/$17,000.00)*(365/24 days)

Friday, June 16, 2017

Established New Position in Pioneer Natural Resources Co.

Today, a new position was established in Pioneer Natural Resources Co.(ticker PXD) by selling one July 21st, 2017 100% cash-secured Put option at the $150.00 strike price.  The short Put option was chosen instead of the comparable covered call since the potential return-on-investment result was slightly higher for the Put option in this instance.

As detailed below, there is potential for a +1.8% absolute return in 36 days (equivalent to a +17.9% annualized return-on-investment).

Pioneer Natural Resources Co. (PXD) -- New 100% Cash-Secured Puts Position
This position was established when the price of Pioneer Natural Resources was $156.93 (4.4% downside protection to the $150.00 strike price) and 36 days remaining until the July 21st options expiration date.

The implied volatility of the Put options was 27.8 when this position was established; so the $2.70 price received per share received when the Puts were sold is a nice premium to receive for these out-of-the-money Put options.    

The transaction was as follows:
06/16/2017  Sold 1 PXD July 21, 2017 $150.00 100% cash-secured Put option @ $2.70

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 Put option sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $15,000.00
= $150.00*100

Net Profit:
(a) Options Income: +$264.40
= ($2.70*100 shares) - $5.60 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PXD is above $150.00 strike price at Jul2017 expiration): +$0.00
= ($150.00-$150.00)*100 shares

Total Net Profit (If Pioneer Natural Resources Co. stock price is above $150.00 strike price at July 21st options expiration): +$264.40
= (+$264.40 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If PXD is above $150.00 strike price at July 21st, 2017 options expiration): +1.8%
= +$264.40/$15,000.00
Annualized Return: +17.9%
= (+$264.40/$15,000.00)*(365/36 days)

The downside 'breakeven price' at expiration is at $147.30 ($150.00 - $2.70), which is 6.1% below the current market price of $156.91.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the July 21st, 2017 options expiration) for this Pioneer Resources short Put position is 71.0%. This compares with a probability of profit of 50.3% for a buy-and-hold of PXD shares over the same time period. Using this probability of profit of 71.0%, the expected value annualized return-on-investment (if held until expiration) is +12.7% (+17.9% * 71.0%), a satisfactory risk/reward profile for this conservative investment.  

The 'crossover price' at expiration is $159.61 ($156.91 + $2.70).  This is the price above which it would have been more profitable to simply buy-and-hold PXD stock until the July 21st, 2017 options expiration date rather than selling these Put options.

Tuesday, June 6, 2017

Established New Position in D R Horton Inc.

Earlier today, a covered calls position in home builder PulteGroup Inc.(ticker PHM) was liquidated when the Jun2017 Call options were assigned early and the stock sold (see detailed result of PHM position here: link). The majority of this cash was used to establish five June 2017 100% cash-secured Put options position in another home builder (D R Horton Inc.) at the $33.00 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 +1.1% absolute return in 11 days (equivalent to a +37.6% annualized return-on-investment) with this investment.

D R Horton screens attractively on the Covered Calls Advisor's preferred quality, value, and growth metrics and currently receives the highest rating (5 stars) from S&P Capital along with a $38 12-month price target.  A discounted cash flow estimate (shown in the chart below) using a 6% discount rate and 9% growth rate results in an even more attractive $46.70 fair value estimate.
Note: the $35 'Buy Price' shown provides a 25% margin-of-safety below the DCF Fair Value price.
 


















D R Horton Inc. (DHI) -- New 100% Cash-Secured Puts Position
This position was established when the price of D.R. Horton was $33.10 (0.3% downside protection to the strike price) and 11 days remaining until the options expiration date.

The implied volatility of the Put options was 18.2 when this position was established and the price received was $.39 per share.    

The transaction was as follows:
06/06/2017  Sold 5 DHI Jun2017 $33.00 100% cash-secured Put options @ $.39
Note: the price of DHI was $33.10 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: $16,500.00
= $33.00*500
Note: the price of DHI was $33.10 when these options were sold

Net Profit:
(a) Options Income: +$186.80
= ($.39*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If D R Horton is above $33.00 strike price at Jun2017 expiration): +$0.00
= ($33.00-$33.00)*500 shares

Total Net Profit (If D R Horton stock price is above $33.00 strike price at Jun2017 options expiration): +$186.80
= (+$186.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return:: +1.1%
= +$186.80/$16,500.00
Annualized Return: +37.6%
= (+$186.80/$16,500.00)*(365/11 days)

The downside 'breakeven price' at expiration is at $32.61 ($33.00 - $.39), which is 1.5% below the current market price of $33.10.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Jun 16th, 2017 options expiration) for this DHI short Puts position is 54.3%%. This compares with a probability of profit of 50.3% for a buy-and-hold of DHI shares over the same time period. Using this probability of profit of 54.3%, the expected value annualized return-on-investment (if held until expiration) is +20.4% (+37.6% * 54.3%), a satisfactory risk/reward profile for this short-term investment.  

The 'crossover price' at expiration is $33.49 ($33.10 + $.39).  This is the price above which it would have been more profitable to simply buy-and-hold D R Horton stock until the June 16th, 2017 options expiration date rather than selling these Put options.

Early Assignment of PulteGroup Inc. Covered Calls

PulteGroup Inc. (ticker symbol PHM) goes ex-dividend today at $.09 per share.  The Covered Calls Advisor owned a Pulte June 2017 covered calls position at the $22.00 strike price.  Early this morning (Tuesday morning), I received email and text notifications from my broker (Schwab) that the 10 PHM Call options were exercised early, so the 1,000 shares of PHM stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $22.00 strike price. 

Details of the transactions and the result for this Pulte position are provided below.  The per share price had increased from $22.80 when the position was originally established (on May 12th) to $23.31 at yesterday's market close.  The time value remaining in the Call options (based on the $1.40 midpoint of the $1.37/$1.43 bid/ask spread at the market close yesterday) was $.09 [$1.40- ($23.31- $22.00)] and the Call owners exercised their option to buy the shares in order to capture the dividend.  I am pleased since this early assignment resulted in a slightly higher annualized return-on-investment (see original post link for details) than if the position had instead been assigned on June 16, 2017 (the June 2017 options expiration date).

As detailed below, the actual return-on-investment result achieved for this PulteGroup position was a +1.1% absolute return (equivalent to +15.6% annualized return) for the 25 days this position was held.  The Covered Calls Advisor will retain the cash received in the Covered Calls Advisor Portfolio until a new covered calls position is established.  The transactions details will be posted on this blog site the same day that they occur. 


PulteGroup Inc. (PHM) -- Position Closed
The transactions were as follows:
05/12/2017 Bought 1,000 Pulte shares @ $22.80
05/12/2017 Sold 10 Pulte Jun2017 $22.00 Call options @ $1.06
Note: a simultaneous buy/write transaction was executed.
06/05/2017 10 PHM Jun2017 Call options exercised, so 1,000 shares of PHM sold at $22.00 strike price

The performance result (including commissions) for this Pulte covered calls position were as follows:
Stock Purchase Cost: $22,804.95
= ($22.80*1,000+$4.95 commission)

Net Profit:
(a) Options Income: +$1,048.55
= ($1.06*1,000 shares) - $11.45 commissions
(b) Dividend Income (stock assigned on day prior to June 6th ex-div date): +$0.00
(c) Capital Appreciation: -$804.95
=+($22.00-$22.80)*1,000 - $4.95 commissions

Total Net Profit (Pulte stock assigned early on June 5th): +$243.60
= (+$1,048.55 options income +$0.00 dividend income -$804.95 capital appreciation)


Absolute Return: +1.1%
= +$243.60/$22,804.95
Annualized Return: +15.6%
= (+$243.60/$22,804.95)*(365/25 days)

Friday, June 2, 2017

Early Close of General Motors Covered Calls

Today, the Covered Calls Advisor closed out the General Motors Co. (ticker symbol GM) covered calls position.  This decision was made since the price of GM has risen quickly from the $32.20 purchase price to $34.27 today so that there was only $.02 of time value remaining in the Call options.  Thus, the overwhelming majority of the maximum potential profit has already been achieved with 4 days remaining until the ex-div date and 14 days remaining until the Jun2017 options expiration date.  It is highly likely the Call options would have been exercised early on Monday in which case an annualized return-on-investment result (as shown in the post describing the original position here: link )would be +33.6%.

The actual return-on-investment result for this closed position was a +1.1% absolute return (equivalent to +50.2% annualized return) for the 8 days holding period.  This 50.2% annualized return result was higher than the +33.6% annualized ROI that would have occurred if the covered calls had instead been exercised next Monday (the day prior to the GM ex-div date).

The details achieved from closing this GM position today are as follows:

General Motors Co. (GM) -- Covered Calls Position Closed
The transactions were:
05/25/2017 Bought 400 GM shares @ $32.20
05/25/2017 Sold 4 GM Jun2017 $31.50 Call options @ $1.10
Note: a simultaneous buy/write transaction was executed.
06/07/2017 Upcoming ex-dividend of $.38 per share
06/02/2017 Sold 400 GM shares @ $34.27
06/02/2017 Bought-to-Close 4 GM Jun2017 $31.50 Call options @ $2.79
Note: this was a simultaneous covered calls unwind transaction

The overall performance result (including commissions) for this General Motors covered calls position were as follows:
Stock Purchase Cost: $12,884.95
= ($32.20*400+$4.95 commission)

Net Profit:
(a) Options Income: -$681.20
= ($1.10-$2.79) *400 shares) - $5.20 commissions
(b) Dividend Income: +$0.00;
(c) Capital Appreciation (GM stock sold at $34.27 on June 2nd): +823.05
+($34.27-$32.20)*400 - $4.95 commissions
 Total Net Profit: +$141.85
= (-681.20 options income +$0.00 dividend income +$823.05 capital appreciation)

 Absolute Return: +1.1%
= +$141.85/$12,884.95
Annualized Return: +50.2%
= (+$141.85/$12,884.95)*(365/8 days)

Tuesday, May 30, 2017

Established Covered Calls Position in JPMorgan Chase & Co.

Today, a covered calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) with a July 2017 expiration and at the $82.50 strike price.  This position has an upcoming quarterly ex-dividend on July 3rd 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 July 21st options expiration date.  Given the Covered Calls Advisor's current overall market outlook, an in-the-money covered calls position was established. 

As detailed below, a potential return-on-investment result is +1.4% absolute return (equivalent to +16.1% annualized return for the next 32 days) if the stock is assigned early (business day prior to July 3rd ex-date); OR +2.0% absolute return (equivalent to +13.8% annualized return over the next 53 days) if the stock is assigned on the July 21, 2017 options expiration date.


JPMorgan Chase & Co. (JPM) -- New Covered Calls Position
An ex-dividend occurs on July 3rd for $.50.  If the current time value (i.e. extrinsic value) of $1.23 [$3.46 option premium - ($84.73 stock price - $82.50 strike price)] remaining in the short call options decays substantially (down to about $.15 or less) by June 30th (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:
05/30/2017 Bought 400 JPM shares @ $84.73
05/20/2017 Sold 4 JPM Jul2017 $82.50 Call options @ $3.46
Note: a simultaneous buy/write transaction was executed.
07/03/2017 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: $33,896.95
= ($84.73*400+$4.95 commission)

Net Profit:
(a) Options Income: +$1,376.45
= ($3.46*400 shares) - $7.55 commissions
(b) Dividend Income (If option exercised early on June 30th, the business day prior to July 3rd ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at Jul2017 expiration): +$200.00
= ($.50 dividend per share x 400 shares)
(c) Capital Appreciation (If JPM assigned early on June 30th): -$896.95
+($82.50-$84.73)*400 - $4.95 commissions; or
(c) Capital Appreciation (If JPM assigned at $82.50 strike price at Jul2017 expiration): -$896.95
+($82.50-$84.73)*400 - $4.95 commissions

1. Total Net Profit [If option exercised on June 30th (business day prior to July 3rd ex-dividend date)]: +$479.50
= (+$1,376.45 +$0.00 -$896.95); or
2. Total Net Profit (If JPM assigned at $82.50 at Jul2017 expiration): +$679.50
= (+$1,376.45 +$200.00 -$896.95)

1. Absolute Return [If option exercised on Jun 30th (business day prior to ex-dividend date)]: +1.4%
= +$479.50/$33,896.95
Annualized Return (If option exercised early): +16.1%
= (+$479.50/$33,896.95)*(365/32 days); or
2. Absolute Return (If JPM assigned at $82.50 at Jul2017 expiration): +2.0%
= +$679.50/$33,896.95
Annualized Return (If JPM assigned at $82.50 at Jul2017 expiration): +13.8%
= (+$679.50/$33,896.95)*(365/53 days)

Either outcome provides a satisfactory return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $82.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $80.77 ($84.73 -$3.46 -$.50) provides 4.7% 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 desired to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, eight of the eleven criteria are achieved for this JPMorgan position.


Monday, May 29, 2017

Overall Market Meter is 'Neutral'

Today, the Covered Calls Advisor recalculated the current values for each of the seven factors used to determine the "Overall Market Meter" rating.  The result is that the Covered Calls Advisor's current market viewpoint changed from Slightly Bearish to a current rating of Neutral.  A graphical representation of the "Overall Market Meter" is shown in the right sidebar on this page.    

The seven factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next two indicators), and
- growth (the last indicator).
Note: The rating for each of these factors is not subjective.  Each factor is calculated using objective, quantifiable measures.


















The current Market Meter average of 3.14 (see blue line at the bottom of the chart above) is in the Neutral range (Note: the Neutral range is from 3.10 to 3.59).  As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Neutral sentiment is to "on-average sell 1% out-of-the-money covered calls for the next options expiration month".

The Macroeconomic and Momentum factors are Bullish, the Value factors are Bearish, and the Growth factor is Neutral.  The current P/E ratio for the S&P 500 (based on the average of the Operating and As Reported earnings for the past year) is high at 22.8.  This is higher than the expected current P/E ratio of 18.6 (based on the current 2.2% CPI-U inflation rate for the past year).  The market would have to decline by 18.4% from its current level to reach a P/E ratio of 18.6.  This relatively high current market valuation coupled with expected modest sales and earnings growth over the next year explains why the Covered Calls Advisor Portfolio is now establishing only conservative positions and because of the scarcity of good new investment opportunities as well as the low current implied volatility in options, the portfolio is now only 20% invested and holds 80% in cash.


Your comments or questions regarding this post (or the details related to any of the seven factors used in this model) are welcomed. Please email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Saturday, May 27, 2017

Early Assignment of Goldman Sachs Group Inc. Covered Calls

Goldman Sachs Group Inc. (ticker symbol GS) goes ex-dividend at $.75 per share on Tuesday morning (the next trading day since Monday is Memorial Day and the U.S. stock markets are closed then).  The Covered Calls Advisor owned a GS June 2017 covered calls position at the $205.00 strike price.  Early this morning (Saturday morning), I received email and text notifications from my broker (Schwab) that the 2 GS Call options were exercised early, so the 200 shares of GS stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $205.00 strike price. 

Details of the transactions and the result for this Goldman Sachs position are provided below.  The shares had risen from $216.70 when the position was originally established (on May 19th) to $223.53 at yesterday's market close.  There was no time value remaining in the Call options (based on the $18.53 midpoint of the $18.20/$18.85 bid/ask spread at the market close yesterday), so I was not surprised that the Call owners exercised their option to buy the shares in order to capture the dividend.  But I am not disappointed (instead I am very pleased) since this was the optimal result for this position because early assignment resulted in a higher annualized return-on-investment (see original post link for details) than if the position had instead been assigned on June 16, 2017 (the June 2017 options expiration date).

As detailed below, the actual return-on-investment result achieved for this Goldman Sachs position was a +0.6% absolute return (equivalent to +19.8% annualized return) for the 11 days this position was held.  The Covered Calls Advisor will retain the cash received in the Covered Calls Advisor Portfolio until a new covered calls position is established, the details of which will be posted on this blog site the same day that it occurs. 


Goldman Sachs Group Inc. (GS) -- Position Closed
The transactions were:
05/19/2017 Bought 200 GS shares @ $216.70
05/19/2017 Sold 2 GS Jun2017 $205.00 Call options @ $13.05
Note: a simultaneous buy/write transaction was executed.
05/26/2017 Owner of Call options exercised their option and 200 shares were assigned at $205.00 strike price
Note: the price of GS was $223.53 at yesterday's (Friday's) market close

The performance result (including commissions) for this GS covered calls position was as follows:
Stock Purchase Cost: $43,344.95
= ($216.70*200+$4.95 commission)

Net Profit:
(a) Options Income: +$2,603.75
= ($13.05*200 shares) - $6.25 commissions
(b) Dividend Income (Options exercised early on May 26th which was the business day prior to the May 30th ex-div date): +$0.00
(c) Capital Appreciation: -$2,344.95
+($205.00-$216.70)*200 - $4.95 commissions

Total Net Profit: +$258.80
= (+$2,603.75 options income +$0.00 dividend income -$2,344.95 capital appreciation)

Absolute Return: +0.6%
= +$258.80/$43,344.95
Annualized Return: +19.8%
= (+$258.80/$43,344.95)*(365/11 days)

Friday, May 26, 2017

Established Covered Calls Position in General Motors Co.

Yesterday, a new covered calls position was established in General Motors Co. (ticker symbol GM) with a Jun2017 options expiration.  This position has an upcoming quarterly ex-dividends on June 7th, so the potential return for this position includes the possibility of early exercise since the ex-dividend date is prior to the June 16th 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 this GM position are: 
  • If Early Assignment: +1.2% absolute return (equivalent to +36.0% annualized return for the next 12 days) if the stock is assigned early (business day prior to June 7th ex-date); OR
  • If Dividend Capture: +2.4% absolute return (equivalent to +37.5% annualized return over the next 23 days) if the stock is assigned at the Jun2017 expiration on June 16th.

General Motors Co. (GM) -- New Covered Calls Position
The $.38 dividend of June 7th is included in the potential results detailed below.  Although unlikely, if the current time value (i.e. extrinsic value) of $.40 [$1.10 option premium - ($32.20 stock price - $31.50 strike price)] remaining in the short call option decays to about $.10 or less by June 6th (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:
05/25/2017 Bought 400 GM shares @ $32.20
05/25/2017 Sold 4 GM Jun2017 $31.50 Call options @ $1.10
Note: a simultaneous buy/write transaction was executed.
06/07/2017 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: $12,884.95
= ($32.20*400+$4.95 commission)

Net Profit:
(a) Options Income: +$437.40
= ($1.10*400 shares) - $2.60 commissions
(b) Dividend Income (If option exercised early on business day prior to June 7th ex-div date): +$0.00; or
(b) Dividend Income (If GM assigned at Jun2017 expiration): +$152.00
= ($.38 dividend per share x 400 shares)
(c) Capital Appreciation (If GM assigned early on June 6th): -$284.95
+($31.50-$32.20)*400 - $4.95 commissions; or
(c) Capital Appreciation (If GM assigned at $31.50 at Jun2017 expiration): -$284.95
+($31.50-$32.20)*400 - $4.95 commissions

1. Total Net Profit (If option exercised on day prior to June 7th ex-dividend date): +$152.45
= (+$437.40 options income +$0.00 dividend income -$284.95 capital appreciation); or

2. Total Net Profit (If GM assigned at $31.50 at Jun2017 expiration): +$304.45
= (+$437.40 options income +$152.00 dividend income -$284.95 capital appreciation)


1. Absolute Return [If option exercised on June 6th (business day prior to ex-dividend date)]: +1.2%
= +$152.45/$12,884.95
Annualized Return (If option exercised early): +36.0%
= (+$152.45/$12,884.95)*(365/12 days); or
2. Absolute Return (If GM assigned at $31.50 at Jun2017 expiration): +2.4%
= +$304.45/$12,884.95
Annualized Return: +37.5%
= (+$304.45/$12,884.95)*(365/23 days)


In this instance, assignment at Jun2017 options expiration provides a slightly higher annualized return, so that outcome is preferable -- but either outcome would provide a very attractive return-on-investment result.  These returns will be achieved as long as the stock is above the $31.50 strike price at assignment.  If the stock declines below the strike price at expiration, the breakeven price of $30.72 ($32.20 -$.38 -$1.10) provides 4.6% 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 June 16th, 2017 options expiration) for this GM position is 66.8%. This compares with a probability of profit of 50.2% for a buy-and-hold of this GM stock over the same time period. Using this probability of profit of 66.8%, the expected value annualized return-on-investment (if held until expiration) is +25.1% (+37.5% maximum potential annualized return on investment * 66.8%), a very attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $32.92 ($32.20 - $.38 + $1.10).  This is the price above which it would have been more profitable to simply buy-and-hold GM stock until the Jun2017 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.

Thursday, May 25, 2017

Established Covered Calls Position in Devon Energy Corp.

Yesterday, a covered calls position was established in Devon Energy Corp. (ticker symbol DVN) with a Jun2017 expiration.  This covered calls position includes consideration of the upcoming $.06 quarterly dividend on June 13th. 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 $36.00 (below the stock purchase price of $37.45).

As detailed below, a potential return is +1.8% absolute return in 24 days (equivalent to a +27.8% annualized return-on-investment) which is above the Covered Calls Advisor's minimum desired return-on-investment of 20.0%.

Devon Energy Corp. (DVN) -- New Covered Calls Position
The transactions were as follows:
05/25/2017  Bought 500 Devon Energy Corp. shares @ $37.45
05/25/2017 Sold 5 DVN Jun2017 $36.00 Call options @ $2.10
Note: this was a simultaneous buy/write transaction.
06/13/2017 Ex-dividend of $30.00 ($.06 x 500 shares)

A possible overall performance result (including commissions) would be as follows:
Bought 500 shares DVN: $18,729.95
= $37.45*500 + $4.95 commission

Net Profit:
(a) Options Income: +$1,041.80
= ($2.10*500 shares) - $8.20 commissions
(b) Dividend Income: +$30.00
= $.06 * 500 shares
(c) Capital Appreciation (If DVN is above $36.00 strike price at Jun2017 expiration): -$729.95
= ($36.00-$37.45)*500 shares - $4.95 commissions

Total Net Profit (If DVN stock is above $36.00 strike price at Jun2017 options expiration): +$341.85
= (+$1,041.80 options income +$30.00 dividends -$729.95 capital appreciation)

Absolute Return: +1.8%
= +$341.85/$18,729.95
Annualized Return: +27.8%
= (+$341.85/$18,729.95)*(365/24 days)

The downside 'breakeven price' at expiration is at $35.29 ($37.45 - $.06 -$2.10), which is 5.8% below the current market price of $37.45.

Wednesday, May 24, 2017

Established New Position in Voya Financial Inc.

Today, a new position was established in Voya Financial Inc.(ticker VOYA) by selling five Jun 2017 100% cash-secured Put options at the $34.00 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 +1.6% absolute return in 24 days (equivalent to a +23.9% annualized return-on-investment).

Voya Financial Inc. (VOYA) -- New 100% Cash-Secured Puts Position
This position was established when the price of Voya Financial Inc. was $34.75 (2.2% downside protection to the strike price) and 24 days remaining until the options expiration date.

The implied volatility of the Put options was 23.6 when this position was established; so the $.55 price received per share received when the Puts were sold is a nice premium to receive for these out-of-the-money Put options.    

The transaction was as follows:
05/24/2017  Sold 5 VOYA Jun2017 $34.00 100% cash-secured Put options @ $.55
Note: the price of VOYA was $34.75 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: $17,000.00
= $34.00*500

Net Profit:
(a) Options Income: +$266.80
= ($.55*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If VOYA is above $34.00 strike price at Jun2017 expiration): +$0.00
= ($34.00-$34.00)*500 shares

Total Net Profit (If Voya Financial Inc. stock price is above $34.00 strike price at Jun2017 options expiration): +$266.80
= (+$266.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If VOYA is above $34.00 strike price at Jun2017 options expiration): +1.6%
= +$266.80/$17,000.00
Annualized Return: +23.9%
= (+$266.80/$17,000.00)*(365/24 days)

The downside 'breakeven price' at expiration is at $33.45 ($34.00 - $.55), which is 3.7% below the current market price of $34.75.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the June 16th, 2017 options expiration) for this Voya Financial Inc. short Puts position is 64.5%. This compares with a probability of profit of 50.3% for a buy-and-hold of VOYA shares over the same time period. Using this probability of profit of 64.5%, the expected value annualized return-on-investment (if held until expiration) is +15.4% (+23.9% * 64.5%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $35.30 ($34.75 + $.55).  This is the price above which it would have been more profitable to simply buy-and-hold Voya stock until the June 16th, 2017 options expiration date rather than selling these Put options.

Tuesday, May 23, 2017

JPMorgan Chase and Co. Position Closed

The May2017 covered calls position in JPMorgan Chase and Co. (ticker JPM) expired upon last Friday's options expiration. Today, the Covered Calls Advisor decided to sell the 400 long shares of JPM.   As detailed below, the result of this JPMorgan Chase position was a +4.4% absolute return in 61 days (equivalent to a +26.1% annualized return-on-investment).  


JPMorgan Chase and Co. (JPM) - Position Closed
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
05/19/2017 4 May2017 Call options expired
05/23/2017 Sold 400 JPM shares at $84.90

The overall performance result (including commissions) for this JPM covered calls position was 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 (JPM sold at $84.90): -$928.95
+($84.90-$87.21)*400 - $4.95 commissions

Total Net Profit: +$1,519.95
= (+$2,248.90 +$200.00 -$928.95)

Absolute Return: +4.4%
= +$1,519.95/$34,888.95
Annualized Return: +26.1%
= (+$1,519.95/$34,888.95)*(365/61 days)

Saturday, May 20, 2017

May 2017 Option Expiration Results

The Covered Calls Advisor Portfolio had two positions (Devon Energy Corp and JPMorgan Chase & Co.) with May 2017 options expirations.   

For the JPMorgan Chase & Co. covered calls, the price of the stock closed yesterday at $84.78 which was below the $85.00 strike price, 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 is established by selling four June2017 Call options against the 400 JPMorgan shares now owned.

The Devon Energy short Put options position closed in-the-money, so the maximum possible return-on-investment result was achieved.  The return-on-investment result was +1.5% absolute return (+33.5% annualized return) in 16 days.  Details of this position are provided below.  The cash now available in the Covered Calls Advisor Portfolio from the closing of this Devon Energy position will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new position(s) established with this available cash will be posted on this site on the same day the transactions occur.

Devon Energy Corp. -- 100% Cash-Secured Put Options Position Closed at Expiration
This position was established when the price of Devon Energy Corp. (ticker DVN) was $37.21 (3.3% downside protection to the $36.00 strike price) and 16 days remaining until the options expiration date.

The implied volatility of the Put options was 33.3 when this position was established; so the $.54 price received per share received when the Puts were sold was a good premium to receive for these 3.3% out-of-the-money Put options.    

The transactions were as follows:
05/04/2017  Sold 10 DVN May2017 $36.00 100% cash-secured Put options @ $.54
Note: the price of DVN was $37.21 when this transaction was executed.
05/19/2017 10 May2017 DVN Put options expired
Note: the price of DVN was $38.39 at options expiration

The Covered Calls Advisor does not use margin, so the results shown below reflect the fact that this position was established using 100% cash securitization for the ten Put options sold.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $36,000.00
= $36.00*1,000

Net Profit:
(a) Options Income: +$528.55
= ($.54*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (DVN stock closed above $36.00 strike price at May2017 expiration): +$0.00
= ($36.00-$36.00)*1,000 shares

Total Net Profit: +$528.55
= (+$528.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.5%
= +$528.55/$36,000.00
Annualized Return: +33.5%
= (+$528.55/$36,000.00)*(365/16 days)

Friday, May 19, 2017

Established Covered Calls Position in Goldman Sachs Group Inc.

Today, a covered calls position was established in Goldman Sachs Group Inc. (ticker symbol GS) with a Jun2017 expiration and at the $205.00 strike price.  This position has an upcoming quarterly ex-dividend on May 30th of $.75 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 June 16th 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 +0.6% absolute return (equivalent to +19.8% annualized return for the next 11 days) if the stock is assigned early (business day prior to May 30th ex-date); OR +0.9% absolute return (equivalent to +11.9% annualized return over the next 29 days) if the stock is assigned on the June 16, 2017 options expiration date.


Goldman Sachs Group Inc. (GS) -- New Covered Calls Position
An ex-dividend occurs on May 30th for $.75.  Although somewhat unlikely, if the current time value (i.e. extrinsic value) of $1.35 [$13.05 option premium - ($216.70 stock price - $205.00 strike price)] remaining in the short call options decays substantially (down to about $.15 or less) by May 26th (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 200 JPM shares away to capture the dividend payment.


The transactions were:
05/19/2017 Bought 200 GS shares @ $216.70
05/19/2017 Sold 2 GS Jun2017 $205.00 Call options @ $13.05
Note: a simultaneous buy/write transaction was executed.
05/30/2017 Upcoming quarterly ex-dividend of $.75 per share

Two possible overall performance results (including commissions) for this GS covered calls position are as follows:
Stock Purchase Cost: $43,344.95
= ($216.70*200+$4.95 commission)

Net Profit:
(a) Options Income: +$2,603.75
= ($13.05*200 shares) - $6.25 commissions
(b) Dividend Income (If option exercised early on May 26th which is the business day prior to the May 30th ex-div date): +$0.00; or
(b) Dividend Income (If GS assigned at Jun2017 expiration): +$150.00
= ($.75 dividend per share x 200 shares)
(c) Capital Appreciation (If GS assigned early on May 26th): -$2,344.95
+($205.00-$216.70)*200 - $4.95 commissions; or
(c) Capital Appreciation (If GS assigned at $205.00 at Jun2017 expiration): -$2,344.95
+($205.00-$216.70)*200 - $4.95 commissions

1. Total Net Profit (If option exercised on day prior to May 30th ex-dividend date): +$258.80
= (+$2,603.75 +$0.00 -$2,344.95); or
2. Total Net Profit (If GS assigned at $205.00 at Jun2017 expiration): +$408.80
= (+$2,603.75 +$150.00 -$2,344.95)

1. Absolute Return [If option exercised on May 26th (business day prior to ex-dividend date)]: +0.6%
= +$258.80/$43,344.95
Annualized Return (If option exercised early): +19.8%
= (+$258.80/$43,344.95)*(365/11 days); or
2. Absolute Return (If GS assigned at $205.00 at Jun2017 expiration): +0.9%
= +$408.80/$43,344.95
Annualized Return: +11.9%
= (+$408.80/$43,344.95)*(365/29 days)

Either outcome provides a nice attractive return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $205.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $202.90 ($216.70 -$13.05 -$.75) provides 6.4% 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, only eight of the eleven criteria are achieved for this Goldman Sachs position.


Friday, May 12, 2017

Established Positions in PulteGroup Inc. and Antero Resources Corp.

Two positions have been established in PulteGroup Inc.(ticker symbol PHM) and Antero Resources Corp.(ticker AR).  PulteGroup Inc. is a covered calls position with a Jun2017 expiration at the $22.00 strike price that includes the expected upcoming quarterly ex-dividend of $.09 on June 6th.  For Antero Resources Corp., ten June 2017 100% cash-secured Put options were sold at the $20 strike price.  The short Puts were chosen instead of covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.

As detailed below, some potential returns are:
1. PulteGroup Inc.: +1.5% absolute return in 36 days (equivalent to a +14.8% annualized return-on-investment) if the price of Pulte remains above the strike price at expiration.
2. Antero Resources Corp.: +2.2% absolute return in 36 days (equivalent to a +22.2% annualized return-on-investment)

The details for each position are provided below.

1. PulteGroup Inc. (PHM) -- New Covered Calls Position

The transactions were as follows:
05/12/2017 Bought 1,000 Pulte shares @ $22.80
05/12/2017 Sold 10 Pulte Jun2017 $22.00 Call options @ $1.06
Note: a simultaneous buy/write transaction was executed.
06/06/2017 Upcoming ex-dividend of $.09 per share

Two possible overall performance results (including commissions) for this Pulte covered calls position are as follows:
Stock Purchase Cost: $22,804.95
= ($22.80*1,000+$4.95 commission)

Net Profit:
(a) Options Income: +$1,048.55
= ($1.06*1,000 shares) - $11.45 commissions
(b) Dividend Income (if stock assigned on day prior to June 6th ex-div date): +$0.00; or
(b) Dividend Income (if dividend captured on 6/6/2017): +$90.00
= ($.09 dividend per share x 1,000 shares)
(c) Capital Appreciation (if stock assigned on day prior to June 6th ex-div date): -$804.95
=+($22.00-$22.80)*1,000 - $4.95 commissions; or
(c) Capital Appreciation (If stock assigned at Jun2017 options expiration): -$804.95
=+($22.00-$22.80)*1,000 - $4.95 commissions

1. Total Net Profit (If Pulte stock assigned on June 5th): +$243.60
= (+$1,048.55 options income +$0.00 dividend income -$804.95 capital appreciation); or
2. Total Net Profit (If Pulte stock assigned at $22.00 at Jun2017 expiration): +$333.60
= (+$1,048.55 +$90.00 +$804.95)

1. Absolute Return (If Pulte stock assigned on June 5th -- day prior to ex-div date): +1.1%
= +$243.60/$22,804.95
Annualized Return: +15.6%
= (+$243.60/$22,804.95)*(365/25 days); OR

2. Absolute Return (If Pulte assigned at $22.00 on June 16th options expiration date): +1.5%
= +$333.60/$22,804.95
Annualized Return: +14.8%
= (+$333.60/$22,804.95)*(365/36 days)



2. Antero Resources Corp. (AR) -- New 100% Cash-Secured Puts Position

Today, the Covered Calls Advisor established a new position in Antero Resources Corp. (ticker symbol AR) by selling ten Jun2017 Put options at the $20.00 strike price. This position is a conservative one since it was established when the price of Antero Resources was $20.86 (4.1% downside protection to the strike price) and 36 days remaining until the options expiration date.

The implied volatility of the Put options was 30.6 when this position was established; so the $.45 price per share received when the Puts were sold is a nice premium to receive for these 4.1% out-of-the-money Put options.    

The transaction was as follows:
05/12/2017  Sold 10 AR Jun2017 $20.00 100% cash-secured Put options @ $.45
Note: the price of Antero was $20.86 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 ten Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $20,000.00
= $20.00*1,000
Note: the price of AR was $20.86 when these options were sold

Net Profit:
(a) Options Income: +$438.55
= ($.45*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Antero stock is above $20.00 strike price at Jun2017 expiration): +$0.00
= ($20.00-$20.00)*1,000 shares

Total Net Profit (If Antero Resources stock price is above $20.00 strike price at Jun2017 options expiration): +$438.55
= (+$438.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If AR is above $20.00 strike price at Jun2017 options expiration): +2.2%
= +$438.55/$20,000.00
Annualized Return: +22.2%
= (+$438.55/$20,000.00)*(365/36 days)

The downside 'breakeven price' at expiration is at $19.55 ($20.00 - $.45), which is 6.3% below the current market price of $20.86.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the June 16th, 2017 options expiration) for this Antero Resources Corp. short Puts position is 68.5%. This compares with a probability of profit of 50.3% for a buy-and-hold of Antero shares 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 +15.2% (+22.2% * 68.5%), an attractive risk/reward profile for this conservative investment.  

The 'crossover price' at expiration is $21.31 ($20.86 + $.45).  This is the price above which it would have been more profitable to simply buy-and-hold AR stock until the June 2017 options expiration date of June 16th rather than selling these Put options.

Monday, May 8, 2017

Established Two New Short Put Positions

Today, two new 100% cash-secured Put option positions were established in Quanta Services Inc. (ticker PWR) and Twenty-First Century Fox Inc.(ticker FOXA) by selling June 2017 Put options. The price received was $.65 for both positions. Put options were chosen instead of the comparable covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.  The Covered Calls Advisor does not use margin, so the detailed information on these positions and the potential results shown below reflect the fact that these positions were established using 100% cash securitization for the Jun2017 Put options sold.

 The potential returns for each investment are:
  • Quanta Services:  A +1.9% absolute return in 40 days (equivalent to a +17.6% annualized return-on-investment); and
  • Twenty-First Century Fox Inc.:  A +2.3% absolute return in 40 days (equivalent to a +20.8% annualized return-on-investment)

1. Quanta Services Inc. (PWR) -- New 100% Cash-Secured Puts Position
This position was established when the price of Quanta Services was $34.27 (3.7% downside protection to the strike price).

The implied volatility of the Put options was 25.6 when this position was established; so the $.65 price received per share received when the Puts were sold is a nice premium to receive for these 3.7% out-of-the-money Put options.    

The transaction was as follows:
05/08/2017  Sold 6 PWR Jun2017 $33.00 100% cash-secured Put options @ $.65
Note: the price of PWR was $34.27 today when this transaction was executed.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $19,800.00
= $33.00*600
Note: the price of PWR was $34.27 when these options were sold

Net Profit:
(a) Options Income: +$381.15
= ($.65*600 shares) - $8.85 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PWR is above $33.00 strike price at Jun2017 expiration): +$0.00
= ($33.00-$33.00)*600 shares

Total Net Profit (If Quanta Services stock price is above $33.00 strike price at Jun2017 options expiration): +$381.15
= (+$381.15 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If PWR is above $33.00 strike price at Jun2017 options expiration): +1.9%
= +$381.15/$19,800.00
Annualized Return: +17.6%
= (+$381.15/$19,800.00)*(365/40 days)

The downside 'breakeven price' at expiration is at $32.35 ($33.00 - $.65), which is 5.6% below the current market price of $34.27.


2. Twenty-First Century Fox Inc. (FOXA) -- New 100% Cash-Secured Puts Position
This position was established when the price of Fox stock was $28.88 (3.0% downside protection to the $28.00 strike price) and 40 days remaining until the options expiration date.

The implied volatility of the Put options was 26.2 when this position was established; so the $.65 price received per share received when the Puts were sold is a nice premium to receive for these 3.0% out-of-the-money Put options.    

The transaction was as follows:
05/08/2017  Sold 10 FOXA Jun2017 $28.00 100% cash-secured Put options @ $.65
Note: the price of FOXA stock was $28.88 today when this transaction was executed.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $28,000.00
= $28.00*1,000


Net Profit:
(a) Options Income: +$638.55
= ($.65*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FOXA is above $28.00 strike price at Jun2017 expiration): +$0.00
= ($28.00-$28.00)*1,000 shares

Total Net Profit: +$638.55
= (+$638.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +2.3%
= +$638.55/$28,000.00
Annualized Return: +20.8%
= (+$638.55/$28,000.00)*(365/40 days)

The downside 'breakeven price' at expiration is at $27.35 ($28.00 - $.65), which is 5.3% below the current market price of $28.88.

Thursday, May 4, 2017

Established New Position in Devon Energy Corp

Today, a new position was established in Devon Energy Corp.(ticker DVN) by selling ten May 2017 100% cash-secured Put options at the $36.00 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 +1.5% absolute return in 16 days (equivalent to a +33.5% annualized return-on-investment).

Devon Energy Corp. (DVN) -- New 100% Cash-Secured Puts Position
This position was established when the price of Devon Energy Corp was $37.21 (3.3% downside protection to the strike price) and 16 days remaining until the options expiration date.

The implied volatility of the Put options was 33.3 when this position was established; so the $.54 price received per share received when the Puts were sold is a nice premium to receive for these 3.3% out-of-the-money Put options.    

The transaction was as follows:
05/04/2017  Sold 10 DVN May2017 $36.00 100% cash-secured Put options @ $.54
Note: the price of DVN was $37.21 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 ten Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $36,000.00
= $36.00*1,000
Note: the price of DVN was $37.21 when these options were sold

Net Profit:
(a) Options Income: +$528.55
= ($.54*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If DVN is above $36.00 strike price at May2017 expiration): +$0.00
= ($36.00-$36.00)*1,000 shares

Total Net Profit (If Devon Energy stock price is above $36.00 strike price at May2017 options expiration): +$528.55
= (+$528.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If DVN is above $36.00 strike price at May2017 options expiration): +1.5%
= +$528.55/$36,000.00
Annualized Return: +33.5%
= (+$528.55/$36,000.00)*(365/16 days)

The downside 'breakeven price' at expiration is at $35.46 ($36.00 - $.54), which is 4.7% below the current market price of $37.21.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the May 19th, 2017 options expiration) for this Devon Energy Corp short Puts position is 69.8%. This compares with a probability of profit of 50.3% for a buy-and-hold of DVN shares over the same time period. Using this probability of profit of 69.8%, the expected value annualized return-on-investment (if held until expiration) is +23.4% (+33.5% * 69.8%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $37.75 ($37.21 + $.54).  This is the price above which it would have been more profitable to simply buy-and-hold Devon stock until the May 19th, 2017 options expiration date rather than selling these Put options.

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: +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)