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Friday, May 25, 2018

Covered Calls Position Established in Metlife Inc.

Today, a Covered Calls position was established by buying 500 shares of Metlife Inc. (ticker symbol MET) stock at $47.63 and selling 5 June 15th, 2018 $47.50 Call options at $.99 -- a net debit of $46.64 per share.   The Implied Volatility of these Call options was 20.4 when this position was established.  Given the Covered Calls Advisor's current Overall Market Meter sentiment of Slightly Bearish, a slightly in-the-money position was established.

As detailed below, a potential outcome for this investment is +1.8% absolute return-on-investment for the next 22 days (equivalent to +30.2% on an annualized return basis) if the stock closes above the $47.50 strike price on the June 15th options expiration date.

Metlife Inc. (MET) -- New Covered Calls Position
The transactions were as follows:
05/25/2018 Bought 500 MET shares @ $47.63
05/25/2018 Sold 5 MET June 15, 2018 $47.50 Call options @ $.99
Note: a simultaneous buy/write transaction was executed.

A possible overall performance result (including commissions) for this MET Covered Calls position is as follows:
Stock Purchase Cost Basis: $23,328.30
= ($47.63 -$.99) *500 shares +$8.30 commission

Net Profit:
(a) Options Income: +$495.00
= ($.99*500 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If price of Metlife stock is above $47.50 strike price at June 15th options expiration date): -$69.95
=+($47.50-$47.63)*500 - $4.95 commission

Total Net Profit (If Metlife stock assigned at $47.50 at June 15, 2018 expiration): +$425.05
= (+$495.00 +$0.00 -$69.95)

Absolute Return (If MET assigned at $47.50 at June 15, 2017 expiration): +1.8%
= +$425.05/$23,328.30
Annualized Return: +30.2%
= (+$425.05/$23,328.30)*(365/22 days)

The downside 'breakeven price' at expiration is at $46.64 ($47.63 - $.99), which is 2.1% below the current market price of $47.63. 

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the June 15th, 2018 options expiration) for this Metlife Covered Calls position is 52.3%, so the expected value annualized ROI of this investment (if held until expiration) is +15.8% (+30.2% * 52.3%), a satisfactory expected value profit for this in-the-money Covered Calls position. 

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