Some potential return-on-investment results for each position are:
- MGM Resorts International -- A +1.2% absolute return in 19 days (equivalent to a +22.8% annualized return-on-investment if assigned at expiration; or a +0.8% absolute return in 11 days (equivalent to a +27.1% annualized return if assigned the day prior to the September 8th ex-dividend date).
- Nucor Corp. -- A +3.2% absolute return in 54 days (equivalent to a +21.8% annualized return-on-investment if assigned at expiration); or a +2.5% absolute return in 31 days (equivalent to a +29.3% annualized return if assigned the day prior to the September 28th ex-dividend date).
1. MGM Resorts International -- New Covered Calls Position
08/28/2017 Bought 700 MGM Resorts International shares @ $31.56
08/28/2017 Sold 7 MGM Sept 15, 2017 $30.00 Call options @ $1.81 and the implied volatility of these options was 29.2 when this buy/write transaction was executed.
09/08/2017 Upcoming $.11 per share ex-dividend.
Two possible overall performance results (including commissions) would be as follows:
Cost Basis Purchase of 700 shares MGM: $20,834.64
= ($31.56 -$1.81)*700 + $9.64 commissions
Net Profit:
(a) Options Income: +$1,267.00
= ($1.81*700 shares)
(b) Dividend Income (If assigned at Sept 15th expiration): +$77.00
= $.11 per share x 700 shares; OR
(b) Dividend Income (If assigned early on Sept 7th -- day prior to Sept 8th ex-dividend): $0.00
(c) Capital Appreciation: -$1,096.95
= ($30.00-$31.56)*700 shares - $4.95 commissions
Total Net Profit:
(a) (If MGM is above $30.00 strike price at Sep 15, 2017 options expiration): +$247.05
= (+$1,267.00 options income +$77.00 dividends -$1,096.95 capital appreciation); OR
(b) (If MGM is called away early on day prior to Sept 8th ex-dividend date): +$170.05
= (+$1,267.00 options income +$0.00 dividends - $1,096.95 capital appreciation)
(a) Absolute Return if Assigned at Expiration: +1.2%
= +$247.05/$20,834.64
Equivalent Annualized Return: +22.8%
= (+$247.05/$20,834.64)*(365/19 days); OR
(b) Absolute Return if Assigned on Sept 7th (day prior to Ex-Dividend): +0.8%
= +$170.05/$20,834.64
Equivalent Annualized Return: +27.1%
= (+$170.05/$20,834.64)*(365/11 days)
The downside 'breakeven price' at expiration is at $29.64 ($54.16 - $2.96 -$.3775), which is 6.1% below the current market price of $31.56.
Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the Sep 15th, 2017 options expiration) for this MGM Covered Calls position is 79.8%, so the expected value annualized ROI of this investment (if held until expiration) is +18.2% (+22.8% * 79.8%), an attractive result for this moderately in-the-money covered calls position.
The 'crossover price' at expiration is $33.26 ($31.56 + $1.81 -$.11). This is the price above which it would have been more profitable to simply buy-and-hold MGM stock until September 15th (the September monthly options expiration date) rather than establishing this Covered Calls position.
2. Nucor Corp. -- New Covered Calls Position
08/28/2017 Bought 200 Nucor Corp. shares @ $54.16
08/28/2017 Sold 2 NUE October 20, 2017 $52.50 Call options @ $2.96
Note: this was a simultaneous buy/write transaction.
09/28/2017 Expected upcoming $.3775 ex-dividend per share
Two possible overall performance results (including commissions) would be as follows:
Cost Basis Purchase of 200 shares NUE: $10,246.29
= ($54.16 -$2.96)*200 + $6.29 commissions
Net Profit:
(a) Options Income: +$592.00
= ($2.96*200 shares)
(b) Dividend Income (If assigned at Oct 20th expiration): +$75.50
= $.3775 per share x 200 shares; OR
(b) Dividend Income (If assigned early on Sept 27th -- day prior to Sept 28th ex-dividend): $0.00
(c) Capital Appreciation (If NUE is above $52.50 strike price at assignment): -$336.95
= ($52.50-$54.16)*200 shares - $4.95 commissions
Total Net Profit:
(a) (If NUE is above $52.50 strike price at Oct 20, 2017 options expiration): +$330.55
= (+$592.00 options income +$75.50 dividends -$336.95 capital appreciation); OR
(b) (If NUE is called away early on day prior to Sept 28th ex-dividend date): +$255.05
= (+$592.00 options income +$0.00 dividends - $336.95 capital appreciation)
(a) Absolute Return if Assigned at Expiration: +3.2%
= +$330.55/$10,246.29
Equivalent Annualized Return: +21.8%
= (+$330.55/$10,246.29)*(365/54 days); OR
(b) Absolute Return if Assigned on Sept 27th (day prior to Ex-Dividend date): +2.5%
= +$255.05/$10,246.29
Equivalent Annualized Return: +29.3%
= (+$255.05/$10,246.29)*(365/31 days)
The downside 'breakeven price' at expiration is at $50.8225 ($54.16 - $2.96 -$.3775), which is 6.2% below the current market price of $54.16.
Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the Oct 20th, 2017 options expiration) for this Nucor Covered Calls position is 63.0%, so the expected value annualized ROI of this investment (if held until expiration) is +13.7% (+21.8% * 63.0%), an attractive result for this moderately in-the-money covered calls position.
The 'crossover price' at expiration is $56.7425 ($54.16 + $2.96 -$.3775). This is the price above which it would have been more profitable to simply buy-and-hold Nucor stock until October 20th (the October monthly options expiration date) rather than establishing this Covered Calls position.
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