Friday, July 14, 2017

Closed Position in Range Resources Corp.

Today, the Covered Calls Advisor closed out the ten Range Resources Corp. (ticker symbol RRC) July 21, 2017 short Put options position at the $20.00 strike price.  This decision was made since the price of Range Resources stock has risen from $21.44 when the Puts were originally sold to $22.53 today.  So, the majority of the maximum potential profit has already been achieved since the Put options that originally were sold for $.45 per share were today bought back at only $.05 and with 7 days remaining until the July 21, 2017 options expiration date.  Another benefit of closing the position today 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 +1.94% absolute return (equivalent to +29.5% annualized return) for the 24 days holding period.  This +29.5% annualized return result was slightly higher than the +25.0% 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 Range Resources Corp. position today are as follows:

Range Resources Corp. (RRC) -- Closing Position
This position was established when the price of Range Resources Corp. was $21.44 (6.7% downside protection to the strike price) and 32 days remaining until the July 21st options expiration date.

With the recent decline in the price of oil and gas being accompanied by a swift decline in energy-related stocks, the implied volatility of options in Range Resources have increased substantially from an average of 33.0 during the last quarter to 41.2 this morning when this position was established; so the $.45 price per share received when the Puts were sold is an attractive premium to receive for these out-of-the-money Put options.    

The transactions were as follows:
06/20/2017  Sold 10 RRC July 21, 2017 $20.00 100% cash-secured Put options @ $.45
Note: the price of RRC was $21.44 when these Put options were sold
07/14/2017 Bought-to-Close 10 RRC Put options @ $.05 per share
Note: the price of RRC was $22.53 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.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $20,000.00
= $20.00*1,000

Net Profit:
(a) Options Income: +$388.55
= ($.45 -$.05)*1,000 shares - $11.45 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
= ($20.00-$20.00)*1,000 shares

Total Net Profit: +$388.55
= (+$388.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.94%
= +$388.55/$20,000.00
Annualized Return: +29.5%
= (+$388.55/$20,000.00)*(365/24 days)