Two positions have been established in Citigroup Inc.(ticker symbol C) and Hawaiian Holdings Inc.(ticker HA). Citigroup Inc. is a covered calls position with a Feb2017 expiration at the $60.00 strike price that includes the expected upcoming quarterly ex-dividend of $.16 around Jan 30th. For Hawaiian Holdings Inc., five February 2017 100% cash-secured Put options were sold at the $50 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. Citigroup Inc.: +1.4% absolute
return in 31 days (equivalent to a +16.9% annualized
return-on-investment) if the price of Citigroup is unchanged at expiration. If the stock increases above the strike price at expiration, there would be a +5.8% absolute return and a +68.5% annualized roi.
2. Hawaiian Holdings Inc.: +1.4% absolute
return in 32 days (equivalent to a +15.4% annualized
The details for each position are provided below.
1. Citigroup Inc. (C) -- New Covered Calls Position
The transactions were as follows:
01/18/2017 Bought 500 Citi shares @ $57.48
01/18/2017 Sold 5 Citi Feb2017 $60.00 Call options @ $.63
Note: a simultaneous buy/write transaction was executed.
01/30/2017 Estimated upcoming ex-dividend of $.16 per share
Two possible overall performance results (including commissions) for this Citi covered calls position are as follows:
Stock Purchase Cost: $28,747.95
= ($57.48*500+$7.95 commission)
(a) Options Income: +$340.80
= ($.63*500 shares) - $11.70 commissions
(b) Dividend Income: +$80.00
= ($.16 dividend per share x 500 shares)
2. Hawaiian Holdings Inc. (HA) -- New 100% Cash-Secured Puts Position
The implied volatility of the Put options was 41.6 when this position
was established; so the $.70 price received per share received when the Puts
were sold is a nice premium to receive for these 11.5% out-of-the-money Put
The transaction was as follows:01/17/2017 Sold 5 HA Feb2017 $50.00 100% cash-secured Put options @ $.70
Note: the price of HAL was $56.50 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 Put options sold.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $24,992.05
= $50.00*500 - $7.95 commission
Note: the price of HA was $56.50 when these options were sold
(a) Options Income: +$338.30
= ($.70*500 shares) - $11.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HA is above $50.00 strike price at Feb2017 expiration): +$0.00
= ($55.00-$55.00)*500 shares
Total Net Profit (If Hawaiian Holdings stock price is above $50.00 strike price at Feb2017 options expiration): +$338.30
= (+$338.30 options income +$0.00 dividend income +$0.00 capital appreciation)
Absolute Return (If HA is above $50.00 strike price at Feb2017 options expiration): +1.4%
Annualized Return: +15.4%
= (+$338.30/$24,992.05)*(365/32 days)
downside 'breakeven price' at expiration is at $449.30 ($50.00 - $.70),
which is 12.7% below the current market price of $56.50.
Using the Black-Scholes Options Pricing Model in the Schwab
Hypothetical Options Pricing Calculator, the probability of
making a profit (if held until the Feb 17th, 2017 options expiration) for
this Hawaiian Holdings short Puts position is 84.4%. This compares with a
profit of 50.3% for a buy-and-hold of HA shares over the same
Using this probability of profit of 84.4%, the expected value annualized return-on-investment (if held until expiration) is +13.0% (+15.4% *
84.4%), an attractive risk/reward profile for this very conservative investment.
'crossover price' at expiration is $57.20 ($56.50 + $.70). This is the
price above which it would have been more profitable to simply
buy-and-hold HA stock until the Feb2017 options expiration date
rather than selling these Put options.