Two positions have been established in PulteGroup Inc.(ticker symbol PHM) and Antero Resources Corp.(ticker AR). PulteGroup Inc. is a covered calls position with a Jun2017 expiration at the $22.00 strike price that includes the expected upcoming quarterly ex-dividend of $.09 on June 6th. For Antero Resources Corp., ten June 2017 100% cash-secured Put options were sold at the $20 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. PulteGroup Inc.: +1.5% absolute
return in 36 days (equivalent to a +14.8% annualized
return-on-investment) if the price of Pulte remains above the strike price at expiration.
2. Antero Resources Corp.: +2.2% absolute
return in 36 days (equivalent to a +22.2% annualized
The details for each position are provided below.
1. PulteGroup Inc. (PHM) -- New Covered Calls Position
The transactions were as follows:
05/12/2017 Bought 1,000 Pulte shares @ $22.80
05/12/2017 Sold 10 Pulte Jun2017 $22.00 Call options @ $1.06
Note: a simultaneous buy/write transaction was executed.
06/06/2017 Upcoming ex-dividend of $.09 per share
Two possible overall performance results (including commissions) for this Pulte covered calls position are as follows:
Stock Purchase Cost: $22,804.95
= ($22.80*1,000+$4.95 commission)
(a) Options Income: +$1,048.55
= ($1.06*1,000 shares) - $11.45 commissions
(b) Dividend Income (if stock assigned on day prior to June 6th ex-div date): +$0.00; or
2. Antero Resources Corp. (AR) -- New 100% Cash-Secured Puts Position
The implied volatility of the Put options was 30.6 when this position
was established; so the $.45 price per share received when the Puts
were sold is a nice premium to receive for these 4.1% out-of-the-money Put
The transaction was as follows:
05/12/2017 Sold 10 AR Jun2017 $20.00 100% cash-secured Put options @ $.45
Note: the price of Antero was $20.86 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 ten Put options sold.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $20,000.00
Note: the price of AR was $20.86 when these options were sold
(a) Options Income: +$438.55
= ($.45*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Antero stock is above $20.00 strike price at Jun2017 expiration): +$0.00
= ($20.00-$20.00)*1,000 shares
Total Net Profit (If Antero Resources stock price is above $20.00 strike price at Jun2017 options expiration): +$438.55
= (+$438.55 options income +$0.00 dividend income +$0.00 capital appreciation)
Absolute Return (If AR is above $20.00 strike price at Jun2017 options expiration): +2.2%
Annualized Return: +22.2%
= (+$438.55/$20,000.00)*(365/36 days)
downside 'breakeven price' at expiration is at $19.55 ($20.00 - $.45),
which is 6.3% below the current market price of $20.86.
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 Antero Resources Corp. short Puts position is 68.5%. This compares with a
profit of 50.3% for a buy-and-hold of Antero shares over the same
Using this probability of profit of 68.5%, the expected value annualized return-on-investment (if held until expiration) is +15.2% (+22.2% *
68.5%), an attractive risk/reward profile for this conservative investment.
'crossover price' at expiration is $21.31 ($20.86 + $.45). This is the
price above which it would have been more profitable to simply
buy-and-hold AR stock until the June 2017 options expiration date
of June 16th rather than selling these Put options.