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Saturday, January 20, 2018

January 19th, 2018 Options Expiration Results

The Covered Calls Advisor Portfolio had eight positions with January 19th, 2018 options expirations.  All eight positions closed in-the-money, so the maximum potential return-on-investment result was achieved for every position: 
  • Alibaba Group Holding Ltd.:  +4.5% absolute return (+22.6% annualized return) in 72 days
  • Bristol-Myers Squibb Co.:  +1.3% absolute return (+26.6% annualized return) in 18 days
  • Gap Inc.: +2.2% absolute return (+34.1% annualized return) in 23 days
  • General Motors Co.:  +2.1% absolute return (+14.3% annualized return) in 54 days
  • iShares China Large-Cap ETF: +0.7% absolute return (+19.1% annualized return) in 13 days
  • JPMorgan Chase & Co.:  +1.2% absolute return (+17.9% annualized return) in 25 days
  • Las Vegas Sands Corp.:  +1.5% absolute return (+43.4% annualized return) in 13 days
  • Skyworks Solutions Inc.:  +2.6% absolute return (+21.5% annualized return) in 44 days
Two positions shown above (iShares China Large-Cap ETF and Las Vegas Sands) had early assignments (on the day prior to their ex-dividend date in each instance).  The remaining six Covered Calls positions expired in-the-money on their options expiration date yesterday.

The cash now available in the Covered Calls Advisor Portfolio from the closing of these positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  We have now entered earnings season and 4th quarter earnings reports have just begun.  Most companies will be reporting their results during the next three weeks, so we will be following these reports closely to identify Covered Calls positions to establish for next month's (Feb 16th, 2018) options expiration.  Given the stock market is at record highs and (1) overvalued by historic valuation metrics and (2) overbought by short-term metrics, the Covered Calls Advisor will be very cautious in investing the current mostly cash position in the Portfolio.  As always, any new position(s) established with this available cash will be posted on this site on the same day the transactions occur.  

To demonstrate how return-on-investment results for closed Covered Calls positions are calculated, the details for the first position listed above (Alibaba Group Holding Ltd.) is provided here:


Alibaba Group Holding Ltd. (BABA) -- Covered Calls Position Closed
The transactions were as follows:
11/09/2017 Bought 300 shares of Alibaba stock @ $182.08 per share 
11/09/2017 Sold 3 Alibaba December 15th, 2017 $175.00 Call options @ $11.28 per share
Note: this was a simultaneous Buy/Write transaction
12/15/2017 3 Dec 15th, 2017 Call options expired
12/18/2017 Sold 3 BABA Jan 19th, 2018 $170.00 Call options @ $8.45 per share
Note: the price of Alibaba was $174.15 when these Calls were sold
01/19/2018 3 BABA Jan 19th, 2018 $170.00 Call options expired in-the-money, so 300 shares of BABA owned were sold at the $170.00 strike price, thus closing out this Covered Calls position.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $51,246.96
= ($182.08 - $11.28)* 300 shares + $6.96 commission

Net Profit Components:
(a) Options Income: +$5,912.04
= ($11.28 + $8.45) * 300 shares - $6.96 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (BABA stock was sold at $170.00 strike price on Jan. 19th expiration date): -$3,628.95
= ($170.00 -$182.08)* 300 shares - $4.95 commission

Total Net Profit: +$2,283.09
= (+$5,912.04 options income +$0.00 dividend income -$3,628.95 capital appreciation)

Absolute Return: +4.5%
= +$2,283.09/$51,246.96
Equivalent Annualized Return: +22.6%
= (+$1,155.05/$51,246.96)*(365/72 days)

Your comments or questions related to this post or Covered Calls investing techniques are always welcomed.  To do so, click on the Comments link below.  Thank you.

12 comments:

  1. How do you screen for the stocks to write calls on?

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    Replies
    1. I have developed about 15 custom screeners on my broker's (Schwab's) website. I also subscribe to Old School Value and have developed a dozen custom screens so far there. OSV offers many more variables to use for developing screens than Schwab, so I use them when I want to use variables not offered by Schwab. Together, these 27 screeners help me narrow down potential investments so I can then do extensive reading and research on individual companies. I consider myself to be a value-oriented investor focused on fundamentals (rather than technicals), so many of my screens include variables related to quality, value, growth, and to a much lesser extent momentum metrics.

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    2. I have typically used ValueLine and their number 1 ranked stocks, but lately have found the premiums not that good. Are you familiar with Allen Ellman? He uses IBD to rank his stocks for calls. I think IBD uses a lot of momentum in their rankings.

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    3. I can access Value Line service online for free via my County's library system and like you have found it only marginally useful, so only occasionally refer to it.

      You are correct about the high priority IBD puts on momentum, so it is not a good match for me -- my primary emphasis being on quality, value, and growth metrics. I use a dashboard reading aggregator to upload all articles published from the approximately 80 investing-related sites I like to read/follow, and Ellman's "The Blue Collar Investor" is one of them.

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    4. For Old School Value, do you use their action score (or other pre-defined screens) to start your filtering process? I struggle with how to screen for stocks. Would really appreciate your comments. thank you.

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    5. Matt,
      I don't use the OSV pre-defined screens, but rather custom screens I've developed there based on my own preferred criteria. Rather than getting into details here, email me at partlow@cox.net if you want to discuss this in greater detail.
      Thank you.

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    6. I would be interested in it as well could you guys cc me at buster@busterwagner.com

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  2. What do you think about Ford for a covered call. The stock has dropped back down and with the extra dividend payment I wouldn't mind owning some more shares this year if it doesn't get called away.

    ReplyDelete
    Replies
    1. I'm not a fan of Ford given estimated flat sales and a decline in profits in 2018 compared with 2017 and their statement that their turnaround will take years. But if you think the current decline is overdone, the Feb 16th Covered Calls might work out for you.

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  3. My GM call expired worthless on Friday and I closed out the shares today @ $43 even. If I had waited I could have gotten out at 43.20+...oh well. 2.83% return over 62 days. Less than I wanted, but a win is a win.

    Also, assuming another relative slow & steady day tomorrow, I will close the FL position early. It is thru ex-div and I have captured ~67% of max profit in only 11 days. It is not worth keeping the capital locked up for less than 1% RoC over the next 25 days. Better off re-deploying or just taking risk off the table in case this run ever decides to roll over.

    Wynn is reporting earnings this week and has a dividend on 2/14. I will be keeping an eye on it

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    Replies
    1. Congrats re GM position.

      Like your strategy re FL -- good analysis.

      Good advance planning re WYNN. Only problem is that ex-div is on 2/14 which is only 2 days prior to Feb2018 options expiration date. So, if WYNN CC is substantially in-the-money on 2/13/2018, the Calls would be likely to be called away by the owner and thus you wouldn't capture the dividend. It would set up better for dividend capture potential if their ex-div date was in either last week of Jan or first week in Feb (thus a higher probability of not being assigned early; so greater likelihood of capturing the dividend and also profiting from options premium at expiration).
      Using a CC Dividend Capture Strategy in same industry as WYNN, I like next-month CCs in LVS once per quarter (Jan,Apr,July, and Oct) and MGM (Mar,Jun,Sep, and Dec) since their ex-div dates normally fall in my preferred last week or first week range.

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    2. Thanks Jeff.

      I was not able to get filled at my price on FL, so will try again tomorrow.

      For Wynn, I was thinking the March expiration pulling the trigger maybe next week once beyond earnings. I like how you have MGM / LVS organized. Very organized. Thanks again.

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