Today, a new position was established in Voya Financial Inc.(ticker VOYA) by selling seven July 21, 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 30 days (equivalent to a +19.2% annualized
Voya Financial Inc. (VOYA) -- New 100% Cash-Secured Puts Position
The implied volatility of the Put options was 23.5 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
options (i.e. strike price below the current stock price).
The transaction was as follows:
06/22/2017 Sold 7 VOYA July 21, 2017 $34.00 100% cash-secured Put options @ $.55
Note: the price of VOYA was $35.04 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 seven Put options sold.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $23,800.00
= $34.00*700 shares
(a) Options Income: +$375.50
= ($.55*700 shares) - $9.50 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If VOYA is above $34.00 strike price at July 21st expiration): +$0.00
= ($34.00-$34.00)*700 shares
Total Net Profit (If Voya Financial Inc. stock price is above $34.00 strike price at July 21st options expiration): +$375.50
= (+$375.50 options income +$0.00 dividend income +$0.00 capital appreciation)
Absolute Return (If Voya Financial Inc. stock price is above $34.00 strike price at July 21st options expiration) : +1.6%
Annualized Return: +19.2%
= (+$375.50/$23,800.00)*(365/30 days)
downside 'breakeven price' at expiration is at $33.45 ($34.00 - $.55),
which is 4.5% below the current market price of $35.04.
The probability of
making a profit (if held until the July 21, 2017 options expiration) for
this Voya Financial Inc. short Puts position is 68.6%. 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 68.6%, the expected value annualized return-on-investment (if held until expiration) is +13.2% (+19.2% *
68.6%), a satisfactory risk/reward profile for this relatively conservative investment.
'crossover price' at expiration is $35.59 ($35.04 + $.55). This is the
price above which it would have been more profitable to simply
buy-and-hold Voya stock until the July 21st, 2017 options expiration date
rather than selling these Put options.