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Monday, November 20, 2017

Covered Calls Positions Continued in Citigroup Inc. and Freeport-McMoRan Inc.

Last Friday, the November 17th, 2017 Covered Calls positions in Citigroup Inc. (ticker symbol C) and Freeport-McMoRan Inc. (ticker FCX) expired with the stock prices below their strike prices.  So, their Call options expired and their stock shares were retained in the Covered Calls Advisor's Portfolio.  This morning, the Covered Calls Advisor continued both Covered Calls positions by selling December 15th, 2017 Call options against both long stock positions.

Some potential return-on-investment results for each position are:  

  • Citigroup Inc. -- A +2.0% absolute return in 53 days (equivalent to a +13.9% annualized return-on-investment if stock price unchanged at $71.86 at the December 15th expiration; OR a +2.9% absolute return in 53 days (equivalent to a +20.0% annualized return if Citi stock closes above the $72.50 strike price on the December 15th expiration date.
  • Freeport-McMoRan Inc. -- A +6.2% absolute return in 42 days (equivalent to a +53.6% annualized return if FCX stock remains above the $14.00 strike price on the December 15th expiration date.
The transactions to-date and potential return-on-investment results for both positions are detailed below. 

1. Citigroup Inc.(C) -- Covered Calls Position Continued
The transactions to-date are as follows:
10/23/2017 Bought 400 shares of Citigroup stock @ $73.76 per share 
10/23/2017 Sold 4 Citigroup Nov 17th, 2017 $72.50 Call options @ $1.97 per share
Note: this was a simultaneous Buy/Write transaction
11/03/2017 $128.00 ex-dividend ($.32 per share x 400 shares)
11/17/2017 4 Citi Nov. 17th Call options expired and 400 shares of Citi stock were retained in the Covered Calls Advisor Portfolio
Note: the price of Citi stock was $71.33 upon the options expiration.
11/20/2017 Continuation of Citi Covered Calls position by selling 4 Dec 15th, 2017 Call options at the $72.50 strike @ $1.09 per share
Note: Citi stock was at $71.86 when this transaction occurred

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $28,723.63
= ($73.76 - $1.97)* 400 shares + $7.63 commission

Net Profit Components:
(a) Options Income: +$1,216.37
= ($1.97 + $1.09) * 400 shares -$7.63 commission
(b) Dividend Income: +$128.00
= $.32 per share * 400 shares 
(c) Capital Appreciation (If Citi stock price is unchanged at current $71.86 at Dec 15th expiration): -$764.95
= ($71.86 -$73.76)* 400 shares - $4.95 commission; OR
(c) Capital Appreciation (If Citi stock closes above $72.50 strike price at expiration) : -$508.95
= ($72.50 -$73.76)* 400 shares - $4.95 commission

Two Potential Total Net Profits:
(a) If Citi stock price is unchanged at current $71.86 at Dec 15th expiration: +$579.42
= (+$1,216.37 options income +$128.00 dividend income -$764.95 capital appreciation); OR
(b) If Citi stock price is above $72.50 strike price at Dec 15th expiration) +$835.42
= (+$1,216.37 options income +$128.00 dividend income -$508.95 capital appreciation)

Two Potential Return-on-Investment Results:
(a) If Citi stock price is unchanged at current $71.86 at Dec 15th expiration:
Absolute Return : +2.0%
= +$579.42/$28,723.63
Equivalent Annualized Return: +13.9%
= (+$579.42/$28,723.63)*(365/53 days); OR
(b) If Citi stock price is above $72.50 strike price at Dec 15th expiration:
Absolute Return : +2.9%
= +$835.42/$28,723.63
Equivalent Annualized Return: +20.0%
= (+$835.42/$28,723.63)*(365/53 days)


2. Freeport-McMoRan Inc. (FCX) -- Covered Calls Position Continued
The implied volatility of the Call options was 34.2 when this position was originally established and 33.8 when the Dec 15th Calls were sold today.  There are no ex-dividend dates or earnings reports scheduled prior to the December 15th options expiration date.

The transactions were as follows:
11/03/2017 Bought 1,000 shares of Freeport-McMoRan stock @ $14.11 per share 
11/03/2017 Sold 10 FCX November 17th, 2017 $14.00 Call options @ $.44 per share
Note: this was a simultaneous Buy/Write transaction with excellent options liquidity at 38,263 open interest.
11/17/2017 10 FCX Nov. 17th Call options expired and 1,000 shares of Freeport McMoRan stock were retained in the Covered Calls Advisor Portfolio
Note: the price of FCX stock was $13.86 upon the options expiration.
11/20/2017 Continuation of FCX Covered Calls position by selling 10 Dec 15th, 2017 Call options at the $14.00 strike @ $.53 per share
Note: Freeport-McMoRan stock was at $14.03 when this transaction occurred

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $13,681.65
= ($14.11 - $.44)* 1,000 shares + $11.65 commissions

Net Profit Components:
(a) Options Income: +$958.35
= ($.44 + $.53)* 1,000 shares - $11.65 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If FCX stock is above $14.00 strike price at Dec 15th expiration): -$114.95
= ($14.00 -$14.11)* 1,000 shares - $4.95 commission

Total Net Profit: +$843.40
= (+$958.35 options income +$0.00 dividend income -$114.95 capital appreciation)

Absolute Return: +6.2%
= +$843.40/$13,681.65
Equivalent Annualized Return: +53.6%
= (+$843.40/$13,681.65)*(365/42 days)

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