Friday, July 14, 2017

Closed Position in Alibaba Group Holding Ltd.

Today, the Covered Calls Advisor closed out the Alibaba Group Holding Ltd (ticker symbol BABA) July 21, 2017 short Put options position at the $135.00 strike price.  This decision was made since the price of BABA has risen quickly from the $138.41 price originally to $150.69 today so that there was only $.05 of time value remaining in the Put options.  Thus, the overwhelming majority of the maximum potential profit has already been achieved with 7 days remaining until the July 21, 2017 options expiration date.  Another benefit is that Schwab now offers commission-free transactions on option buy-to-close transactions at $.05 or less.

As detailed below, the actual return-on-investment result for this closed position was a +1.84% absolute return (equivalent to +44.7% annualized return) for the 15 days holding period.  This 44.7% annualized return result was higher than the +29.7% annualized ROI that would have occurred if the Put options had instead expired on the July 21st options expiration date.

The details achieved from closing this Alibaba position today are as follows:

Alibaba Group Holding Ltd (BABA) -- Closing Position
The transactions were as follows:
06/29/2017  Sold 2 BABA 100% cash-secured $135.00 Put options with July 21, 2017 expirations @ $2.56
Note: the price of Alibaba was $138.41 today when this transaction was executed.
07/14/2017 Bought-to-Close 2 BABA Put options @ $.05 per share
Note: the price of BABA was $150.69 when this transaction was executed.

The overall performance result (including commissions) was follows:
100% Cash-Secured Cost Basis: $27,000.00
= $135.00*200 shares

Net Profit:
(a) Options Income: +$495.75
= ($2.56 -$.05) * 200 shares - $6.25 commissions
Note: No commission by Schwab on buy-to-close transactions at or below $.05 per share
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($135.00 -$135.00)*200 shares

Total Net Profit: +$495.75
= (+$495.75 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.84%
= +$495.75/$27,000.00
Annualized Return: +44.7%
= (+$505.75/$27,000.00)*(365/15 days)