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
Voya Financial Inc. (VOYA) -- New 100% Cash-Secured Puts Position
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
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
(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%
Annualized Return: +23.9%
= (+$266.80/$17,000.00)*(365/24 days)
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
profit of 50.3% for a buy-and-hold of VOYA shares over the same
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.
'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.