Search This Blog

Friday, November 3, 2017

Established Covered Calls in Freeport-McMoRan Inc.

Today, a new Covered Calls positions was entered in Freeport-McMoRan Inc. (ticker FCX) for the November 17th, 2017 options expiration and at the $14.00 strike price when the stock was at $14.11.  Based on the Covered Calls Advisor's current Neutral sentiment, the closest at-the-money position was established.

As detailed below, a potential return-on-investment is +2.4% absolute return in 15 days (equivalent to a +57.8% annualized return-on-investment).

Freeport-McMoRan Inc. (FCX) -- New Covered Calls Position
The implied volatility of the Call options was 34.2 when this position was established.  There are no ex-dividend dates or earnings reports scheduled prior to the November 17th 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.

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: +$440.00
= ($.44* 1,000 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If FCX stock is above $14.00 strike price at Nov 17th expiration): -$114.95
= ($14.00 -$14.11)* 1,000 shares - $4.95 commission

Total Net Profit: +$325.05
= (+$440.00 options income +$0.00 dividend income -$114.95 capital appreciation)

Absolute Return: +2.4%
= +$325.05/$13,681.65
Equivalent Annualized Return: +57.8%
= (+$325.05/$13,681.65)*(365/15 days)

The downside 'breakeven price' at expiration is at $13.67 ($14.11 - $.44), which is 3.1% below the current market price of $14.11.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the November 17th, 2017 options expiration) for this Freeport-McMoRan Covered Calls position is 56.8%, so the expected value annualized ROI of this investment (if held until expiration) is +33.4% (+57.8% * 56.8%), a very good result for this moderately in-the-money Covered Calls position.

The 'crossover price' at expiration is $44.55 ($44.11 + $.44).  This is the price above which it would have been more profitable to buy-and-hold Freeport-McMoRan stock until the November 17th, 2017 options expiration date.

No comments:

Post a Comment