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Friday, July 13, 2018

Established Covered Calls Position in Halliburton Co.

Yesterday, a Covered Calls position has been established in Halliburton Co. (ticker HAL) at the $45.00 strike price and for the July 20th, 2018 options expiration date.  This position is slightly out-of-the-money since the 400 shares of HAL stock was purchased at $44.82 (just below the $45.00 strike price).

As detailed below, two potential return-on-investment results are:

  • +1.5% absolute return in 9 days (equivalent to a +59.7% annualized return-on-investment) if the price of HAL is unchanged upon the July 20th options expiration; OR
  • +1.9% absolute return in 9 days (equivalent to a +75.0% annualized return-on-investment) if the price of HAL increases above the $45.00 strike price on the expiration date 


  • Halliburton Co. (HAL) -- New Covered Calls Position
    The transactions were as follows:
    07/12/2018 Bought 400 shares of Halliburton Co. @ $44.82 
    07/12/2018 Sold 4 HAL July 20th, 2018 $45.00 Call options @ $.65 per share
    Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of these Call options was 24.0 

    Two possible overall performance result (including commissions) would be as follows:
    Covered Calls Cost Basis: $17,675.63
    = ($44.82 - $.65)* 400 shares + $7.63 commission

    Net Profit Components:
    (a) Options Income: +$260.00
    = ($.65* 400 shares)
    (b) Dividend Income: +$0.00
    (c) Capital Appreciation (If HAL is unchanged at $44.82 purchase price at July 20th expiration): +$0.00
    = ($44.82 -$44.82)* 400 shares; OR
    (c) Capital Appreciation (If HAL is above $45.00 strike price at Jul 20th expiration): +$67.05
    = ($45.00 -$44.82)* 400 shares - $4.95 commission

    (a) Total Net Profit (If HAL price unchanged at $44.82 at expiration): +$260.00
    = (+$260.00 options income +$0.00 dividend income -$0.00 capital appreciation); OR
    (b) Total Net Profit (If HAL shares assigned at expiration): +$327.05
    = (+$260.00 options income +$0.00 dividend income +$67.05 capital appreciation)

    (a) Absolute Return (If HAL price unchanged at expiration): +1.5%
    = +$260.00/$17,675.63
    Equivalent Annualized Return: +59.7%
    = (+$260.00/$17,675.63)*(365/9 days); OR
    (b) Absolute Return (If HAL shares assigned at expiration): +1.9%
    = +$327.05/$17,675.63
    Equivalent Annualized Return: +75.0%
    = (+$327.05/$17,675.63)*(365/9 days)

    The downside 'breakeven price' at expiration is at $44.17 ($44.82 price per share - $.65 options income), which is 1.5% below the current market price of $44.82.