September 2013 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained nine positions with September 2013 expirations.  A summary of the results is as follows:

-  Seven of the nine positions (Blackstone Group, Citigroup Inc., Hertz Global Holdings Inc., iShares MSCI China ETF, Potash Corp. of Saskatchewan Inc., SanDisk Corp, and United Continental Holdings Inc.) were closed out at expiration.  This was the optimal result for these seven positions in that the maximum potential return-on-investment (ROI) results from when the positions were established were actually achieved.  The annualized ROIs for these seven closed positions are:
Blackstone Group = +2.5% absolute return (equivalent to +18.8% annualized return for the 48 day holding period)
Citigroup Inc. = +2.3% absolute return (equivalent to +24.2% annualized return for the 34 day holding period)
Hertz Global Holdings Inc. = +3.9% absolute return (equivalent to +30.6% annualized return for the 47 day holding period)
iShares MSCI China ETF = +1.8% absolute return (equivalent to +17.1% annualized return for 38 day holding period)
Potash Corp. of Saskatchewan Inc. = +2.8% absolute return (equivalent to +26.6% annualized return for 38 day holding period)
SanDisk Corp = +2.6% absolute return (equivalent to +35.9% annualized return for the 26 day holding period)
United Continental Holdings Inc. = +3.6% absolute return (equivalent to +34.4% annualized return for the 38 day holding period)

The detailed transactions history and results for each of the seven closed positions is detailed below.  The cash available from the closing of these positions will be retained in the Covered Calls Advisor Portfolio until new covered calls and/or 100% cash-secured puts positions are established (most likely in the next week or two).  These transactions will be posted on this blog the same day they occur.

- Two of the nine positions ended at expiration with long stock positions (Marthon Petroleum Corp and Transocean Inc.).  The two Marathon Petroleum Corp 100% cash-secured Puts were assigned at their $70.00 strike price since MPC closed at Sep2013 options expiration last Friday at $64.51, well below the $70.00 strike price.  The covered calls position in Transocean Inc. had its options expire since the stock price closed Friday at $45.06, below the Sep2013 options' $48.00 strike price.  So, the Covered Calls Advisor Portfolio (CCAP) now owns 200 long shares in Marathon Petroleum and 300 long shares in Transocean Inc.  A decision will be made early this week to either sell these shares or to continue with covered calls positions by selling Oct2013 call options against the current long stock holdings.  When these decisions are made and the accompanying transactions are completed, a post will be made on this blog on the same day with the transaction details.

Details of the transactions and associated return-on-investment results for the seven closed positions are as follows:

1. Blackstone Group(BX) -- Closed
The transaction was as follows:
8/5/2013 Sold 3 Sep2013 $22.00 Puts @ $.58
Note: The price of BX was $22.74 when this transaction was executed.

The return-on-investment result (including commissions) for this BX transaction was as follows:
100% Cash-Secured Cost Basis: $6,600.00 = $22.00*300

Net Profit:
(a) Options Income: +$162.80
= ($.58*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (BX closed above $22.00 at Sep2013 expiration): +$0.00
= ($22.00-$22.00)*300 shares

Total Net Profit: +$162.80 
= (+$162.80 +$0.00 +$0.00)

Absolute Return (BX Sep2013 Put options expired worthless): +2.5%
= +$162.80/$6,600.00

Annualized Return: +18.8%
= (+$162.80/$6,600.00)*(365/48 days)


2. Cititgroup Inc.(C) -- Closed
The transaction was as follows:
8/19/2013 Sold 3 Sep2013 $49.00 Puts @ $1.14
Note: The price of Citi was $49.73 when this transaction was executed.

The Covered Calls Advisor does not use margin, so the detailed information on this position and the performance result shown below reflect the fact that this position was established using 100% cash securitization for the three Put options sold.

The overall performance result (including commissions) for this Citigroup transaction was as follows:
100% Cash-Secured Cost Basis: $14,700.00 = $49.00*300
Note:  the price of C was $49.73 when these Put options were sold.

Net Profit:
(a) Options Income: +$330.80
= ($1.14*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Citigroup stock price was above $49.00 at Sep2013 expiration): +$0.00 = ($49.00-$49.00)*300 shares

Total Net Profit: +$330.80 
= (+$330.80 +$0.00 +$0.00)

Absolute Return (Citi Sep2013 Put options expired worthless): +2.3%
= +$330.80/$14,700.00
Annualized Return: +24.2%
= (+$330.80/$14,700.00)*(365/34 days)


3. Hertz Global Holdings Inc.(HTZ) -- Closed
The transactions were as follows:
08/06/2013 Bought 700 HTZ shares @ $24.50
08/06/2013 Sold 7 HTZ Sep2013 $24.00 Call Options @ $1.50

The return-on-investment performance result (including commissions) for these Hertz covered calls was as follows:
Stock Purchase Cost: $17,158.95
= ($24.50*700+$8.95 commission)

Net Profit:
(a) Options Income: +$1,035.80
= 700*$1.50 - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (HTZ assigned at $24.00) = -$358.95
= ($24.00-$24.50)*700 - $8.95 commissions

Total Net Profit: $676.85
= (+$1,035.80 +$0.00 -$358.95)

Absolute Return: +3.9%
= +$676.85/$17,158.95
Annualized Return: +30.6%
= (+$676.85/$17,158.95)*(365/47 days)


4. iShares MSCI China ETF (FXI) -- Closed
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.

The overall performance result (including commissions) for this FXI transaction was 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 (FXI above $35.00 at Sep2013 expiration): +$0.00
= ($35.00-$35.00)*500 shares

Total Net Profit: +$312.30  = (+$312.30 +$0.00 +$0.00)

Absolute Return: +1.8%
= +$312.30/$17,500.00
Annualized Return: +17.1%
= (+$312.30/$17,500.00)*(365/38 days)


5.  Potash Corp of Saskatchewan Inc. (POT) -- Closed
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

The overall performance result (including commissions) for these Potash Corp (POT) covered calls was as follows:

Stock Purchase Cost: $9,038.95
= ($30.10*300+$8.95 commission)

(a) Options Income: +$588.80
= 300*$2.00 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (POT assigned at $29.00) = -$338.95
= ($29.00-$30.10)*300 - $8.95 commissions

Total Net Profit: +$249.85
= +$588.80+$0.00-$338.95

Absolute Return: +2.8%

= +$249.85/$9,038.95
Annualized Return: +26.6%
= (+$249.85/$9,038.95)*(365/38 days)

6. SanDisk Corporation (SNDK) -- Closed

The transaction is as follows:
8/27/2013 Sold 2 Sep2013 $55.00 SNDK Puts @ $1.46
Note: The price of SNDK was $55.44 when this transaction was executed.

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 two Put options sold.
The performance result (including commissions) for this SanDisk transaction was as follows:
100% Cash-Secured Cost Basis: $11,000.00 = $55.00*200
Net Profit:
(a) Options Income: +$281.55
= ($1.46*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (SNDK was above $55.00 at Sep2013 expiration): +$0.00
= ($55.00-$55.00)*200 shares
Total Net Profit: +$281.55
= (+$281.55 +$0.00 +$0.00)

Absolute Return: +2.6%
= +$281.55/$11,000.00
Annualized Return: +35.9%
= (+$281.55/$11,000.00)*(365/26 days)


7. 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.

The overall performance result (including commissions) for this UAL transaction was 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 (UAL was above $28.00 at Sep2013 expiration): +$0.00
= ($28.00-$28.00)*300 shares

Total Net Profit: +$300.80
= (+$300.80 +$0.00 +$0.00)

Absolute Return (UAL was above $28.00 at Sep2013 options expiration and Put options thus expired worthless): +3.6%
= +$300.80/$8,400.00
Annualized Return: +34.4%

= (+$300.80/$8,400.00)*(365/38 days)

Established Noble Corp Covered Calls -- Example of Early Assignment or Dividend Capture Strategy

Today, a new covered calls position was established in Noble Corp  (Ticker Symbol NE).  This NE position was established at the $38.00 strike price and with an Oct2013 expiration.

As detailed below, this investment will provide a +2.9% absolute return in 37 days (which is equivalent to a +28.4% annualized return) if the stock closes at or above $38.00 at options expiration on Oct 18th.  The current Greek value of Delta for this option of 60.0% provides a good estimate of the probability that the stock price will be above the $38.00 strike price at Oct2013 options expiration. Thus, the resulting expected value of the annualized ROI for this investment is +17.0% = (+28.4%x 60.0%).
This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend of $.22 with an ex-dividend date of November 27th.  Although unlikely, if the current time value (i.e. extrinsic value) of $1.134 [$2.72 option premium - ($29.086 stock price - $27.50 strike price)] remaining in the short call option decays to less than $.22 by November 26th (the day prior to the ex-div date), then there is a possibility that the call options owner will exercise early and will call the stock away to capture the dividend. As shown below, two potential returns for this position are:

If Early Assignment: +3.8% absolute return (equivalent to +51.8% annualized return for the next 27 days) if the stock is assigned early (day prior to Nov 27th ex-div date); OR

If Dividend Capture:  +4.6% absolute return (equivalent to +32.2% annualized return over the next 52 days) if the stock is assigned at Dec 2013 expiration on December 20th.

As is often the case, early assignment provides a higher annualized return, so this is the Covered Calls Advisor's preferred outcome; but either outcome would provide a very good return.  These returns will be achieved as long as the stock is above the $27.50 strike price at assignment -- a nice 4.7% of downside protection.  Alternatively, if the stock declines below the strike price, the breakeven price of $26.146 ($29.086-$.22-$2.72) provides a very substantial 9.4% downside protection. 

In summary, this covered calls investment provides a very nice annualized ROI potential for such a conservative (hedged with substantial downside protection and the next earnings announcement is after the December options expiration date) investment. 

Two possible overall performance results (including commissions) for this Agnico Eagle(AEM) covered calls position are as follows:
The details of the associated transactions and a potential return-on-investment result are as follows:

1. Noble Corp. (NE)
The transactions were as follows:
09/13/2013 Bought 300 NE shares @ $38.91
09/13/2013 Sold 3 NE Oct2013 $38.00 Call Options @ $2.10

A possible overall performance result (including commissions) for these Noble Corp covered calls is as follows:
Stock Purchase Cost: $11,681.95
= ($38.91*300+$8.95 commission)

Net Profit:
(a) Options Income: +$618.80
= 300*$2.10 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If NE assigned at $38.00) = -$281.95
= ($38.00-$38.91)*300 - $8.95 commissions

Total Net Profit (If NE assigned at $38.00): +$336.85
= (+$618.80 +$0.00 -$281.95)

Absolute Return if Assigned (at $38.00): +2.9%
= +$336.85/$11,681.95
Annualized Return If Assigned (ARIA): +28.4%
= (+$336.85/$11,681.95)*(365/37 days)

The downside 'breakeven price' at expiration is at $36.81 ($38.91 - $2.10), which is 5.4% below the current market price of $38.91.

The 'crossover price' at expiration is $40.10 ($38.00 + $2.10). This is the price above which it would have been more profitable to simply buy-and-hold Noble Corp until October 18th (the Oct2013 options expiration date) rather than establishing this covered calls position.

Established Foot Locker Inc. Covered Calls

Today, a new covered calls position was established in Foot Locker Inc. (Ticker Symbol FL) with an Oct2013 expiration and at the $32.00 strike price. The transactions are as follows:
09/13/2013 Bought 300 FL shares @ $32.67
09/13/2013 Sold 3 FL Oct2013 $32.00 Call Options @ $1.35
Note: Oct2013 options expiration is 10/18/2013 and next FL ex-dividend of $.20 per share is on 10/16/2013.

This covered calls investment considers the upcoming quarterly dividend of $.20 with an ex-dividend date on October 16th.  If the current time value (i.e. extrinsic value) of $.68 = [$1.35 option premium - ($32.67 stock price - $32.00 strike price)] remaining in the short call option decays to less than the $.20 ex-dividend amount by Oct. 15th (the day prior to the ex-div date), then there is a reasonably good possibility that the call options owner would exercise early and would call the stock away to capture the dividend. As shown below, two potential returns for this position are:

If Early Assignment: +1.87% absolute return (equivalent to +20.7% annualized return) if the stock is assigned early (day prior to October 16th ex-div date); OR

If Dividend Capture and stock assigned at Oct2013 expiration: +2.49% absolute return (equivalent to +24.5% annualized return) if the stock is assigned at October 2013 expiration on October 18th

Either outcome would provide a very satisfactory return.  These returns will be achieved as long as the stock stays above the $32.00 strike price at assignment (2.05% of downside protection).  Alternatively, if the stock declines below the strike price, the breakeven price of $31.32 ($32.67-$1.35) provides a nice 4.13% downside protection from the original $32.67 stock purchase price. 


The detailed transactions and two possible performance results for this Foot Locker Inc.(FL) covered calls position is as follows:
Stock Purchase Cost: $9,809.95
= ($32.67*300+$8.95 commission)

Net Profit:
(a) Options Income: +$393.80
= ($1.35*300 shares) - $11.20 commissions
(b) Dividend Income (If option exercised early on day prior to Oct 16th ex-div date): +$0.00
(b) Dividend Income (If stock assigned at Oct2013 expiration): +$60.00
= ($.20 dividend per share x 300 shares); or

(c) Capital Appreciation (If stock assigned early on October 15th): -$209.95
+($32.00-$32.67)*300 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $32.00 at Oct2013 expiration): -$209.95
+($32.00-$32.67)*300 - $8.95 commissions

Total Net Profit (If option exercised on day prior to Oct 16th ex-div date): +$183.85
= (+$393.80 +$0.00 -$209.95); or
Total Net Profit (If stock assigned at $32.00 at Oct2013 expiration): +$243.85

= (+$393.80 +$60.00 -$209.95)

1. Absolute Return (If option exercised on day prior to Oct 16th ex-div date): +1.87%
= +$183.85/$9,809.95
Annualized Return (If option exercised early): +20.7%
= (+$183.85/$9,809.95)*(365/33 days); OR

2. Absolute Return (If stock assigned at $32.00 at Oct2013 expiration): +2.49%
= +$243.85/$9,809.95
Annualized Return (If stock assigned): +24.5%

= (+$243.85/$9,809.95)*(365/37 days)