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Saturday, July 21, 2018

July 20th, 2018 Options Expiration Results

The Covered Calls Advisor Portfolio had eight positions with July 20th, 2018 options expirations:
  • Six Covered Calls positions (Alibaba Group Holding Ltd., Blackstone Group, Citigroup Inc., Halliburton Corp., JPMorgan Chase & Co., and Lam Research Corp.) closed at yesterday's July 20th monthly options expiration in-the-money (stock price above the options strike price), so those shares were assigned (sold) at their respective strike prices.
  • Two positions (Deere & Co. and U.S. Steel Corp.) closed with the stock price below the strike price, so the options expired and the long stock positions now remain in the Covered Calls Advisor Portfolio.  Within the next few days, these stocks will either be sold or next month Call options will be sold against the stock to re-establish Covered Calls positions.  As always, all transactions will be posted on this blog on the same day they occur. 

For the six positions assigned on the July 20th expiration, the average annualized return-on-investment was +33.2%.  The results for each position was:
  • Alibaba Group Holding Ltd.:  +1.8% absolute return (+24.7% annualized return) in 26 days
  • Blackstone Group:  +3.0% absolute return (+6.4% annualized return) in 170 days
  • Citigroup Inc.:  +5.5% absolute return (+22.9% annualized return) in 88 days
  • Halliburton Corp.:  +1.9% absolute return (+75.0% annualized return) in 9 days
  • JPMorgan Chase & Co.:  +1.9% absolute return (+23.7% annualized return) in 30 days
  • Lam Research Corp.:  +3.8% absolute return (+46.4% annualized return) in 30 days
The cash now available in the Covered Calls Advisor Portfolio from the closing of these six positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new position(s) established with this available cash will be posted on this site on the same day the transactions occur.  However, there are three important factors (near all-time high stock market valuations, tightening monetary policies, and rising trade tensions) that are, for the time being, causing the Covered Calls Advisor to increase cash (i.e. money-market) holdings to a majority position in the overall portfolio.   

So far in 2018, thirty-four of thirty-seven positions (91.9%) were assigned profitably.  This 91.9% year-to-date result exceeds the Covered Calls Advisor's overall long-term goal of having at least two-thirds (67%) of positions closed out at a profit.  None of the remaining three positions (Deere & Co., Citigroup Inc., Metlife Inc., and U.S.Steel Corp.) have yet to be closed out, but instead are currently held as open long stock positions in the Covered Calls Advisor Portfolio.

For the thirty-four positions closed so far in 2018, the average annualized return-on-investment is +28.2%.  

To demonstrate how return-on-investment results for a closed Covered Calls position are calculated, the details for one of the six assigned positions (Alibaba Group) is detailed below:

Alibaba Group Holding Ltd. (BABA) -- Covered Calls Position Closed
The transactions were as follows:
06/25/2018 Bought 200 shares of Alibaba stock @ $190.92 per share 
06/25/2018 Sold 2 Alibaba July 20th, 2018 $180.00 Call options @ $14.06 per share
Note: this was a simultaneous Buy/Write transaction
07/20/2018 2 BABA Call options closed in-the-money and stock assigned at $180.00 strike price
Note: Closing price of BABA stock was $187.25 upon 7/20/2018 options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $35,378.29
= ($190.92 - $14.06)* 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$2,812.00
= ($14.06* 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (BABA stock closed above $180.00 strike price at July 20th expiration): -$2,188.95
= ($180.00 -$190.92)* 200 shares - $4.95 commission

Total Net Profit: +$623.05
= (+$2,812.00 options income +$0.00 dividend income -$2,188.95 capital appreciation)

Absolute Return: +1.8%
= +$623.05/$35,378.29
Equivalent Annualized Return: +24.7%
= (+$623.05/$35,378.29)*(365/26 days)

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