Today, a new position was established in Hawaiian Holdings Inc.(ticker HA) by selling ten March 2017 100% cash-secured Put options at the $50 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 +2.9% absolute
return in 30 days (equivalent to a +34.8% annualized
Hawaiian Holdings Inc. (HA) -- New 100% Cash-Secured Puts Position
The implied volatility of the Put options was 29.3 when this position
was established; so the $1.45 price received per share received when the Puts
were sold is a nice premium to receive for these 1.3% out-of-the-money Put
The transaction was as follows:
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.
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: $24,993.05
= $50.00*500 - $6.95 commission
Note: the price of HA was $50.65 when these options were sold
(a) Options Income: +$714.55
= ($1.45*500 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HA is above $50.00 strike price at Mar2017 expiration): +$0.00
= ($50.00-$50.00)*500 shares
Total Net Profit (If Hawaiian Holdings stock price is above $50.00 strike price at Mar2017 options expiration): +$714.55
= (+$714.55 options income +$0.00 dividend income +$0.00 capital appreciation)
Absolute Return (If HA is above $50.00 strike price at Mar2017 options expiration): +2.9%
Annualized Return: +34.8%
= (+$714.55/$24,993.05)*(365/30 days)
downside 'breakeven price' at expiration is at $48.55 ($50.00 - $1.45),
which is 4.1% below the current market price of $50.65.
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 Hawaiian Holdings short Puts position is 58.2%. 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 58.2%, the expected value annualized return-on-investment (if held until expiration) is +20.3% (+34.8% *
58.2%), an attractive risk/reward profile for this investment.
'crossover price' at expiration is $52.10 ($50.65 + $1.45). This is the
price above which it would have been more profitable to simply
buy-and-hold HA stock until the Mar2017 options expiration date
rather than selling these Put options.