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Tuesday, February 21, 2017

Continuation of Las Vegas Sands Corp. Position

Upon the February options expiration last Friday, twelve of the thirteen positions were in-the-money and the positions were closed.  The one position that was out-of-the-money (strike price of $52.50 and stock closed Friday at $52.03) was Las Vegas Sands.  So, the five Put options in Las Vegas Sands Corp. (ticker symbol LVS) were assigned and 500 shares of Las Vegas Sands stock were purchased at the $52.50 strike price.  Today, the Covered Calls Advisor continued the LVS investment by establishing a covered calls position by selling five Apr2017 Call options against the 500 LVS shares held. The company has also declared a quarterly dividend of $.73 which will go ex-dividend on March 21st (before the Apr2017 options expiration on Apr 21st).

A potential return-on-investment is +4.0% absolute return (equivalent to +16.6% annualized) for the 88 days of this Las Vegas Sands investment. Details of the transactions to-date including the potential return-on-investment result are provided below:

Las Vegas Sands Corp (LVS) -- Continuation
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
03/21/2017 Ex-dividend of $365.00 = 500 shares x $.73 per share
04/21/2017 Future Apr2017 options expiration date

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

Net Profit:
(a) Options Income: +$1,933.00
= ($.78 + $3.10) *500 shares) - $7.00 commissions
(b) Dividend Income: +$365.00
= $.73 per share x 500 shares
(c) Capital Appreciation (If LVS is above $50.00 strike price at Apr2017 expiration): -$1,250.00
= ($50.00-$52.50)*500 shares

Total Net Profit (If LVS is above $50.00 strike price upon the Apr2017 options expiration): +$1,048.00
= (+$1,933.00 +$365.00 -$1,250.00)

Absolute Return (If LVS is above $50.00 strike price at Apr2017 options expiration): +4.0%
= +$1,048.00/$26,256.95
Annualized Return: +16.6%
= (+$1,048.00/$26,256.95)*(365/88 days)

For the covered calls position established today, the downside 'breakeven price' at expiration is at $48.31 ($52.14 - $.73 -$3.10), which is 7.3% below the current market price of $52.14.

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 Las Vegas Sands covered calls position is 63.7%. This compares with a probability of profit of 50.3% for a buy-and-hold of LVS stock over the same time period. Using this probability of profit of 63.7%, the Expected Value annualized ROI of this investment (if held until expiration over the next 60 days) is +13.5% (+21.2% * 63.7%).

The 'crossover price' at expiration is $54.51 ($52.14 + $3.10 - $.73).  This is the price above which it would have been more profitable to simply buy-and-hold Las Vegas Sands stock until April 21st (the Apr2017 options expiration date) rather than establishing this covered calls position.