The Covered Calls Advisor has established three new positions in United Continental Holdings Inc.(Ticker Symbol UAL), iShares MSCI China ETF (Ticker Symbol FXI), and Potash Corp of Saskatchewan Inc.(Ticker Symbol FXI). The UAL and FXI positions are 100% Cash-Secured Put Options. The Covered Calls Advisor does not use margin, so the potential results shown below reflect the fact that these positions were established using 100% cash securitization for the Put options positions sold. The position in POT was established as covered calls.
As we know, Covered Calls and 100% Cash-Secured Puts are synthetically equivalent positions when established at the same strike price and same expiration date. The Covered Calls Advisor's selection in each case was based on establishing a position where the Implied Volatility (IV) was ever-so-slightly higher (when comparing the comparable Puts and Calls for each equity).
Details for each position are provided below. In each case, Sep2013 expirations were selected and conservative positions were established at strike prices below the current market price of the equities.
1. United Continental Holdings Inc. (UAL)
The transaction is as follows:
8/15/2013 Sold 3 Sep2013 $28.00 Puts @ $1.04
Note: The price of UAL was $29.57 when this transaction was executed.
A possible overall performance results (including commissions) for this UAL transaction would be as follows:
100% Cash-Secured Cost Basis: $8,400.00 = $28.00*300
Net Profit:
(a) Options Income: +$300.80
= ($1.04*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UAL remains above $28.00 at Sep2013 expiration): +$0.00
= ($28.00-$28.00)*300 shares
Total Net Profit (If UAL is above $28.00 strike price at Sep2013 options expiration): +$300.80
= (+$300.80 +$0.00 +$0.00)
Absolute Return (If UAL is above $28.00 at Sep2013 options expiration and Put options thus expire worthless): +3.6%
= +$300.80/$8,400.00
Annualized Return (If UAL above $28.00 at expiration): +34.4%
= (+$300.80/$8,400.00)*(365/38 days) The downside 'breakeven price' at expiration is at $26.96 ($28.00 - $1.04). This is the price at which this 100% cash-secured Puts investment would make neither a profit or a loss.
The 'crossover price' at expiration is $30.61 ($29.57 + $1.04). This is the price above which it would have been more profitable to simply buy-and-hold UAL stock until Sep 20th (the Sep2013 options expiration date) rather than holding the short Put options.
2. iShares MSCI China ETF (FXI)
The transaction is as follows:
8/15/2013 Sold 5 Sep2013 $35.00 Puts @ $.65
Note: The price of FXI was $35.95 when this transaction was executed.
A possible overall performance results(including commissions) for this FXI transaction would be as follows:
100% Cash-Secured Cost Basis: $17,500.00 = $35.00*500
Net Profit:
(a) Options Income: +$312.30
= ($.65*500 shares) - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI remains above $35.00 at Sep2013 expiration): +$0.00
= ($35.00-$35.00)*500 shares
Total Net Profit (If FXI is above $35.00 strike price at Sep2013 options expiration): +$312.30 = (+$312.30 +$0.00 +$0.00)
Absolute Return (If FXI is above $35.00 at Sep2013 options expiration and Put options thus expire worthless): +1.8%
= +$312.30/$17,500.00
Annualized Return (If FXI above $35.00 at expiration): +17.1%
= (+$312.30/$17,500.00)*(365/38 days)
The downside 'breakeven price' at expiration is at $34.35 ($35.00 - $.65).
The 'crossover price' at expiration is $36.60 ($35.95 + $.65). This is the price above which it would have been more profitable to simply buy-and-hold FXI until Sep 20th (the Sep2013 options expiration date) rather than investing in the short Put options.
3. Potash Corp of Saskatchewan Inc. (POT)
The transactions were as follows:
08/15/2013 Bought 300 POT shares @ $30.10
08/06/2013 Sold 3 POT Sep2013 $29.00 Call Options @ $2.00
A possible overall performance result (including commissions) for these Potash (POT) covered calls is as follows:
Stock Purchase Cost: $9,038.95
= ($30.10*300+$8.95 commission)
Net Profit:
(a) Options Income: +$588.80
= 300*$2.00 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If POT assigned at $29.00) = -$338.95
= ($29.00-$30.10)*300 - $8.95 commissions
= ($29.00-$30.10)*300 - $8.95 commissions
Total Net Profit (If POT assigned at $29.00): +$249.85
= (+$588.80 +$0.00 -$338.95)
Absolute Return if Assigned (at $29.00): +2.8%
= +$249.85/$9,038.95
Annualized Return If Assigned (ARIA): +26.6%
= (+$249.85/$9,038.95)*(365/38 days)
The downside 'breakeven price' at expiration is at $28.10 ($30.10 - $2.00). This is the price at which this covered calls investment would make neither a profit or a loss.
The 'crossover price' at expiration is $31.00 ($29.00 + $2.00). This is the price above which it would have been more profitable to simply buy-and-hold POT stock until Sep 20th (the Sep2013 options expiration date) rather than establishing the covered calls in POT.
