09/04/2012 Bought 500 GM shares @ $21.20
09/04/2012 Sold 5 GM Sep2012 $21.00 Call Options @ $.71
Note: the price of GM shares was $21.24 today when these options were sold.
A possible overall performance result (including commissions) for this General Motors Co. (GM) covered calls position is as follows:
Stock Purchase Cost: $10,608.95
= ($21.20*500+$8.95 commission)
Net Profit:
(a) Options Income: +$342.30
= ($.71 X 500 shares) - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If GM assigned at $21.00 upon expiration): -$108.95
=+($21.00-$21.20)*500 - $8.95 commissions
Total Net Profit (If GM assigned at $21.00 at Sep2012 expiration): +$233.35
= (+$342.30 +$0.00 -$108.95)
Absolute Return (If GM assigned at $21.00 at Sep2012 expiration): +2.2%
= +$233.35/$10,608.95
Annualized Return (If stock assigned): +42.3%
= (+$233.35/$10,608.95)*(365/19 days)
The downside 'breakeven price' at expiration is at $20.49 ($21.20 - $.71). Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held 18 days until Sep2012 options expiration) for this General Motors covered calls position is 70.1%. This compares with a probability of profit of 51.4% for a buy-and-hold of GM over the same time period.
The 'crossover price' at expiration is $21.79 ($21.00 + $.71). This is the price above which it would have been more profitable to simply buy-and-hold GM stock until September 22, 2012 (the Sep2012 options expiration date) rather than establishing the covered calls position. The probability of exceeding this crossover price at expiration is 35.9%.
