Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in Fusion-io Inc.(Ticker Symbol FIO) with a Feb2012 expiration.The transaction was as follows:
01/30/2012 Sold 3 Fusion-io Inc.(FIO) Feb2012 $25.00 Put Options @ $1.90
Note: the price of FIO was $24.36 today when these Puts were sold.
The Covered Calls Advisor does not use margin, so the detailed information on this position and some potential results shown below reflect the fact that this position was established using 100% cash securitization for the three Put options sold.
Fusion-io has what the Covered Calls Advisor considers to be a 'disruptive technology' (that's a good thing!) advantage in the high-growth memory hardware/software industry.
Two possible overall performance results(including commissions) for this Fusion-io Inc.(FIO) transaction would be as follows:
100% Cash-Secured Cost Basis: $7,500.00
= $25.00*300
Net Profit:
(a) Options Income: +$558.80
= ($1.90*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FIO price unchanged at $24.36 at expiration): +$0.00
= ($24.36-$24.36)*300
(c) Capital Appreciation (If FIO above $25.00 at Feb2012 expiration): +$183.05
= ($25.00-$24.36)*300 -$8.95 commissions
Total Net Profit(If FIO price unchanged at $24.36): +$558.80
= (+$558.80 options income +$0.00 dividends +$0.00 capital appreciation)
Total Net Profit(If FIO above $25.00 at Feb2012 options expiration): +$741.85
= (+$558.80 +$0.00 +$183.05)
1. Absolute Return if Unchanged at $24.36: +7.5%
= +$558.80/$7,500.00
Annualized Return If Unchanged (ARIU): +143.1%
= (+$558.80/$7,500.00)*(365/19 days)
2. Absolute Return (If FIO above $25.00 at Feb2012 options expiration and Put options thus expire worthless): +9.9%
= +$741.85/$7,500.00
Annualized Return (If stock price above $22.00 at expiration): +190.0%
= (+$741.85/$7,500.00)*(365/19 days)
The downside 'breakeven price' at expiration is at $23.10 ($25.00 - $1.90).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Feb2012 options expiration) for this Fusion-io Inc.(FIO) cash-secured Puts position is 66.1%. This compares with a probability of profit of 53.0% for a buy-and-hold of Fusion-io over the same time period.
The 'crossover price' at expiration is $26.26 ($24.36 + $1.90).
This is the price above which it would have been more profitable to simply buy-and-hold Fusion-io stock until Feb 17, 2012 (the Feb2012 options expiration date) rather than holding the short Put options.
