Today, a new position was established in Pioneer Natural Resources Co.(ticker PXD) by selling one July 21st, 2017 100% cash-secured Put option at the $150.00 strike price. The short Put option was chosen instead of the comparable covered call since the potential return-on-investment result was slightly higher for the Put option in this instance.
As detailed below, there is potential for a +1.8% absolute
return in 36 days (equivalent to a +17.9% annualized
Pioneer Natural Resources Co. (PXD) -- New 100% Cash-Secured Puts Position
This position was established when the price of Pioneer Natural Resources was $156.93 (4.4%
downside protection to the $150.00 strike price) and 36 days remaining until the
July 21st options expiration date.
The implied volatility of the Put options was 27.8 when this position
was established; so the $2.70 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:
06/16/2017 Sold 1 PXD July 21, 2017 $150.00 100% cash-secured Put option @ $2.70
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 Put option sold.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $15,000.00
(a) Options Income: +$264.40
= ($2.70*100 shares) - $5.60 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PXD is above $150.00 strike price at Jul2017 expiration): +$0.00
= ($150.00-$150.00)*100 shares
Total Net Profit (If Pioneer Natural Resources Co. stock price is above $150.00 strike price at July 21st options expiration): +$264.40
= (+$264.40 options income +$0.00 dividend income +$0.00 capital appreciation)
Absolute Return (If PXD is above $150.00 strike price at July 21st, 2017 options expiration): +1.8%
Annualized Return: +17.9%
= (+$264.40/$15,000.00)*(365/36 days)
downside 'breakeven price' at expiration is at $147.30 ($150.00 - $2.70),
which is 6.1% below the current market price of $156.91.
Using the Black-Scholes Options Pricing Model in the Schwab
Hypothetical Options Pricing Calculator, the probability of
making a profit (if held until the July 21st, 2017 options expiration) for
this Pioneer Resources short Put position is 71.0%. This compares with a
profit of 50.3% for a buy-and-hold of PXD shares over the same
Using this probability of profit of 71.0%, the expected value annualized return-on-investment (if held until expiration) is +12.7% (+17.9% *
71.0%), a satisfactory risk/reward profile for this conservative investment.
'crossover price' at expiration is $159.61 ($156.91 + $2.70). This is the
price above which it would have been more profitable to simply
buy-and-hold PXD stock until the July 21st, 2017 options expiration date
rather than selling these Put options.