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
Hawaiian Holdings Inc. (HA) -- New 100% Cash-Secured Puts Position
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
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
Note: the price of HA was $46.88 when these options were sold
(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%
Annualized Return: +27.9%
= (+$516.80/$22,500.00)*(365/30 days)
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
profit of 50.3% for a buy-and-hold of HA shares over the same
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.
'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.