Established Holly Frontier Corporation Covered Calls -- Example of Early Assignment or Dividend Capture Strategy

Today, a new covered calls position was established in Agnico Eagle Mines Ltd. (Ticker Symbol AEM) with a Dec2013 expiration and at the $27.50 strike price. The transactions are as follows:

10/31/2013 Bought 600 AEM shares @ $29.086
10/31/2013 Sold 6 AEM Dec2013 $27.50 Call Options @ $2.72
Note: the price of AEM was $29.20 today when these options were sold.
11/27/2013 Ex-dividend of $.22 per share

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:
Stock Purchase Cost: $17,460.55
= ($29.086*600+$8.95 commission)

Net Profit:
(a) Options Income: +$1,618.55
= ($2.72*600 shares) - $13.45 commissions
(b) Dividend Income (If option exercised early on day prior to Nov 27th ex-div date): +$0.00
(b) Dividend Income (If stock assigned at Dec2013 expiration): +$132.00 = ($.22 dividend per share x 600 shares); or

(c) Capital Appreciation (If stock assigned early on Nov 26th): -$949.75
+($27.50-$29.086)*600 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $27.50 at Dec2013 expiration): -$949.75
+($27.50-$29.086)*600 - $8.95 commissions

Total Net Profit (If option exercised on day prior to Nov 27th ex-div date): +$668.80
= (+$1,618.55 +$0.00 -$949.75); or
Total Net Profit (If stock assigned at $27.50 at Dec2013 expiration): +$800.80

= (+$1,618.55 +$132.00 -$949.75)

1. Absolute Return (If option exercised on day prior to Nov 27th ex-div date): +3.8%
= +$668.80/$17,460.55
Annualized Return (If option exercised early): +51.8%
= (+$668.80/$17,460.55)*(365/27 days); OR

2. Absolute Return (If stock assigned at $27.50 at Dec2013 expiration): +4.6%
= +$800.80/$17,460.55
Annualized Return (If stock assigned): +32.2%

= (+$800.80/$17,460.55)*(365/52 days);

Established iShares MSCI China ETF Covered Calls

Yesterday, a new covered calls position was established in iShares MSCI China ETF  (Ticker Symbol FXI).  This FXI position was established at the $36.00 strike price and with a Nov2013 expiration. As detailed below, this investment will provide a +1.5% absolute return in 23 days (which is equivalent to a +23.1% annualized return) if FXI closes at or above $36.00 at options expiration on Nov 15th.  The current Greek value of Delta for this option of 58.1% provides a good estimate of the probability that the stock price will be above the $36.00 strike price at Nov2013 options expiration. Thus, the resulting expected value of the annualized ROI for this investment is +13.4% = (+23.1%x 58.1%).

The details of the associated transactions and a potential return-on-investment result are as follows:

1. iShares MSCI China ETF (FXI)
The transactions were as follows:
10/25/2013 Bought 600 FXI shares @ $36.40
10/25/2013 Sold 6 FXI Nov2013 $36.00 Call Options @ $.95

A possible overall performance result (including commissions) for these iShares MSCI China ETF covered calls is as follows:
Stock Purchase Cost: $21,848.95
= ($36.40*600+$8.95 commission)

Net Profit:
(a) Options Income: +$566.55
= 600*$.95 - $13.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI assigned at $36.00) = -$248.95
= ($36.00-$36.40)*600 - $8.95 commissions

Total Net Profit (If FXI assigned at $36.00): +$317.60
= (+$566.55 +$0.00 -$248.95)

Absolute Return if Assigned (at $36.00): +1.5%
= +$317.60/$21,848.95
Annualized Return If Assigned (ARIA): +23.1%
= (+$317.60/$21,848.95)*(365/23 days)

The downside 'breakeven price' at expiration is at $35.45 ($36.40 - $.95), which is 2.6% below the current market price of $36.40.

The 'crossover price' at expiration is $37.35 ($36.40 + $.95). This is the price above which it would have been more profitable to simply buy-and-hold iShares MSCI China ETF until November 15th (the Nov2013 options expiration date) rather than establishing this covered calls position.

Established Covered Calls Position in Aetna Inc.

Today, a new covered calls position was established in Aetna Inc.  (Ticker Symbol AET).  This AET position was established at the $60.00 strike price and with a Nov2013 expiration. As detailed below, this investment will provide a +1.6% absolute return in 24 days (which is equivalent to a +24.0% annualized return) if the stock closes at or above $60.00 at options expiration on Nov 15th.  The current Greek value of Delta for this option of 65.6% provides a good estimate of the probability that the stock price will be above the $60.00 strike price at Nov2013 options expiration. Thus, the resulting expected value of the annualized ROI for this investment is +15.7% = (+24.0% x 65.6%).

The details of the associated transactions and a potential return-on-investment result are as follows:

Aetna Inc.(AET)
The transactions were as follows:
10/24/2013 Bought 300 AET shares @ $61.61
10/24/2013 Sold 3 AET Nov2013 $60.00 Call Options @ $2.65

A possible overall performance result (including commissions) for these Aetna Inc. covered calls is as follows:
Stock Purchase Cost: $18,491.95
= ($61.61*300+$8.95 commission)

Net Profit:
(a) Options Income: +$783.80
= 300*$2.65 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AET assigned at $60.00) = -$491.95
= ($60.00-$61.61)*300 - $8.95 commissions

Total Net Profit (If AET assigned at $60.00): +$291.85
= (+$783.80 +$0.00 -$491.95)

Absolute Return if Assigned (at $60.00): +1.6%
= +$291.85/$18,491.95
Annualized Return If Assigned (ARIA): +24.0%
= (+$291.85/$18,491.95)*(365/24 days)

The downside 'breakeven price' at expiration is at $58.96 ($61.61 - $2.65), which is 4.3% below the current market price of $61.61.

The 'crossover price' at expiration is $62.65 ($60.00 + $2.65). This is the price above which it would have been more profitable to simply buy-and-hold Aetna until November 15th (the Nov2013 options expiration date) rather than establishing this covered calls position.

Established a 100% Cash-Secured Puts Position in Hertz Global Holdings Inc.

Today, a new 100% cash-secured Puts position was established in Hertz Global Holdings Inc. (Ticker Symbol HTZ) with a Nov2013 expiration and at the $23.00 strike price.  As detailed below, this investment will provide a +3.6% absolute return in 24 days (which is equivalent to a +54.9% annualized return) if the stock closes at or above $23.00 at options expiration on Nov 15th.  The current Greek value of Delta for this option of 57.0% provides a good estimate of the probability that the stock price will be above the $23.00 strike price at Nov2013 options expiration. Thus, the resulting expected value of the annualized ROI for this investment is +31.3% = (+54.9% x 57.0%).

Details of this transaction along with a potential return-on-investment result are: 

Hertz Global Holdings Inc.

The transaction was as follows:
10/24/2013 Sold 7 Hertz (HTZ) Nov2013 $23.00 Put Options @ $.85
Note: the price of HTZ was $23.33 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 seven Put options sold.

A possible overall performance results(including commissions) for this HTZ transaction would be as follows:

100% Cash-Secured Cost Basis: $16,100.00
= $23.00*700

Net Profit:
(a) Options Income: +$580.80
= ($.85*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HTZ remains above $23.00 at Nov2013 expiration): +$0.00
= ($23.00-$23.00)*700 shares

Total Net Profit (If HTZ is above $23.00 strike price at Nov2013 options expiration): +$580.80
= (+$580.80 +$0.00 +$0.00)

Absolute Return (If HTZ above $23.00 at Nov2013 options expiration and Put options thus expire worthless): +3.6%
= +$580.80/$16,100.00
Annualized Return (If stock price above $25.00 at expiration): +54.9%
= (+$580.80/$16,100.00)*(365/24 days)

The downside 'breakeven price' at expiration is at $22.15 ($23.00 - $.85), which is 5.1% below the current market price of $23.33.
The 'crossover price' at expiration is $24.18 ($23.33 + $.85). This is the price above which it would have been more profitable to simply buy-and-hold Hertz until Nov 15th (the Nov2013 options expiration date) rather than investing in these short Put options.

Continuation -- Noble Corp. Covered Calls

This past Friday was Oct2013 options expiration and the covered calls position in Noble Corp (Ticker Symbol NE) expired with NE closing at $37.98 which was below the $38.00 strike price, thus leaving 300 long shares of NE in the Covered Calls Advisor Portfolio.  Today, a new covered calls position was established at the $38.00 strike price and with an Nov2013 expiration.  As detailed below, this investment will provide an overall +5.9% absolute return in 64 days (which is equivalent to a +33.8% annualized return) if the stock closes at or above $38.00 at options expiration on Nov 15th.
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
10/18/2013 Oct2013 options expired
Note: the price of NE was $37.98 upon Oct2013 options expiration
10/21/2013 Sold 3 NE Nov2013 Call options @ $.97
Note: the price of NE was $38.02 when these options were sold.
11/01/2013 Ex-dividend of $.25 per share

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: +$898.60
= 300*($2.10+$.97) - 2*$11.20 commissions
(b) Dividend Income: +$75.00 = $.25 *300 shares
(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): +$691.65
= (+$898.60 +$75.00 -$281.95)

Absolute Return if Assigned (at $38.00): +5.9%
= +$691.65/$11,681.95
Annualized Return If Assigned (ARIA): +33.8%
= (+$691.65/$11,681.95)*(365/64 days)

Continuation Position -- ProShares UltraShort 20+ Year Treasury ETF

Upon Oct2013 options expiration last Friday, the short Put options position in ProShares UltraShort 20+ Year Treasury ETF (Ticker Symbol TBT) expired with TBT at $73.78, so 700 shares of TBT were assigned to the Covered Calls Advisor Portfolio at $74.00 per share.  Today, a covered calls position at the Nov2013 $74.00 strike price was established by selling 7 call options against the 700 TBT shares now owned.  As detailed below, this investment will provide a +4.4% absolute return for the 45 days of this investment (which is equivalent to a +35.8% annualized return) if TBT closes at or above $74.00 at options expiration on Nov 15th.

Details of this transaction along with a potential return-on-investment result are: 

ProShares UltraShort 20+ Year Treasury ETF (TBT)
The transaction is as follows:
10/02/2013 Sold 7 Oct2013 $74.00 Puts @ $1.33
Note: The price of TBT was $74.93 when this transaction was executed.
10/18/2013 Oct2013 Put options expired and 700 shares of TBT purchased at $74.00
Note: the price of TBT was $73.78 upon Oct2013 options expiration
10/21/2013 Sold 7 TBT Nov2013 Call options @ $1.98

A possible overall performance result (including commissions) for this ProShares UltraShort 20+ Year Treasury ETF position would be as follows:
100% Cash-Secured Cost Basis: $51,800.00 = $74.00*700

Net Profit:
(a) Options Income: +$2,288.60
= ($1.33+$1.98)*700 shares - 2*$14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT remains above $74.00 at Nov2013 expiration): +$0.00
= ($74.00-$74.00)*700 shares

Total Net Profit (If TBT is above $74.00 strike price at Nov2013 options expiration): +$2,288.60 
= (+$2,288.60 +$0.00 +$0.00)

Absolute Return (If TBT closes above $74.00 at Nov2013 options expiration): +4.4%
= +$2,288.60/$51,800.00
Annualized Return: +35.8%
= (+$2,288.60/$51,800.00)*(365/45 days)

October 2013 Expiration Results

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

-  Three of the five positions (Foot Locker Inc., Marathon Petroleum Corp, and PulteGroup Inc.) were closed out at expiration.  This was the optimal result for these three 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 three closed positions are:
Foot Locker Inc. = +2.5% absolute return (equivalent to +25.4% annualized return for the 37 day holding period)
Marathon Petroleum Corp. = +2.9% absolute return (equivalent to +14.0% annualized return for the 75 day holding period)
PulteGroup Inc. = +3.7% absolute return (equivalent to +22.4% annualized return for the 61 day holding period)

The detailed transactions history and results for each of the three 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 five positions ended at expiration with long stock positions (Noble Corp and ProShares UltraShort 20+ Year Treasury ETF).  The seven ProShares UltraShort 20+ Year Treasury ETF 100% cash-secured Puts were assigned at their $74.00 strike price since TBT closed at Oct2013 options expiration last Friday at $73.78, slightly below the $74.00 strike price.  The covered calls position in Noble Corp had its options expire since the stock price closed Friday at $37.98, also slightly below the Oct2013 options' $38.00 strike price.  So, the Covered Calls Advisor Portfolio (CCAP) now owns 700 long shares in ProShares UltraShort 20+ Year Treasury ETF and 300 long shares in Noble Corp  A decision will be made early this week to either sell these shares or to continue with covered calls positions by selling Nov2013 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 three closed positions are as follows:

1. Foot Locker Inc.(FL) -- Closed
The transactions were 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.

10/16/2013 Ex-dividend = $60.00 ($.20/share * 300 shares)
10/18/2013 FL Oct2013 options exercised and stock sold at $32.00 per share strike price
Note: the price of FL stock was $33.80 upon Oct2012 options expiration.

The overall return-on-investment performance result for this Foot Locker covered calls position was 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 (Stock assigned at Oct2013 expiration): +$60.00
= ($.20 dividend per share x 300 shares)

(c) Capital Appreciation: -$209.95
+($32.00-$32.67)*300 - $8.95 commissions

Total Net Profit (Stock assigned at $32.00 at Oct2013 expiration): +$243.85

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

Absolute Return: +2.49%
= +$243.85/$9,809.95
Annualized Return: +24.5%

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

2. Marathon Petroleum Corp. -- Closed
The transaction is as follows:
8/5/2013 Sold 2 Aug2013 $70.00 Puts @ $1.25
Note: The price of MPC was $70.96 when this transaction was executed.
8/17/2013 MPC Puts assigned; so purchased 200 MPC shares @ $70.00 per share
8/19/2013 Ex-dividend = $84.00 ($.42 per share * 200 shares)
8/19/2013 Sold 2 MPC Sep2013 $67.50 Calls @ $2.10
9/23/2013 MPC options expired
9/26/2013 Sold 2 MPC Oct2013 $67.50 Calls @ $.90
10/18/2013 MPC options exercised and stock sold at $67.50 strike price
Note: price of MPC was $70.74 at Oct2013 expiration

The performance result (including commissions) for this MPC covered calls position was as follows:
100% Cash-Secured Cost Basis: $14,000.00
= $70.00*200
Note: the price of MPC was $70.96 when these Put options were sold.

Net Profit:
(a) Options Income: +$818.65
= ($1.25+$2.10+$.90)*200 shares) - 3*$10.45 commissions
(b) Dividend Income: +$84.00 ($.42 * 200 shares)
(c) Capital Appreciation: -$500.00
= ($67.50-$70.00)*200 shares

Total Net Profit: +$402.65
= (+$818.65 +$84.00 -$500.00)

Absolute Return: +2.9%
= +$402.65/$14,000.00
Annualized Return on Investment (AROI): +14.0%
= (+$402.65/$14,000.00)*(365/75 days)


3. PulteGroup Inc. -- Closed
The transactions were as follows:
08/20/2013 Bought 300 PHM shares @ $16.08
08/20/2013 Sold 3 PHM Oct2013 $15.00 Call Options @ $1.75
10/18/2013 PHM options exercised and stock sold at $15.00 strike price.
Note: the price of PHM was $16.58 at expiration.
The overall performance result (including commissions) for these Pulte covered calls was as follows:
Stock Purchase Cost: $4,832.95
= ($16.08*300+$8.95 commission)

Net Profit:
(a) Options Income: +$513.80
= 300*$1.75 - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation = -$332.95
= ($15.00-$16.08)*300 - $8.95 commissions

Total Net Profit: +$180.85
= (+$513.80 +$0.00 -$332.95)

Absolute Return: +3.7%
= +$180.85/$4,832.95
Annualized Return: +22.4%
= (+$180.85/$4,832.95)*(365/61 days)

Established a 100% Cash-Secured Puts Position in ProShares UltraShort 20+ Year Treasury ETF

Today, the Covered Calls Advisor established a second 100% Cash-Secured Puts position in ProShares UltraShort 20+ Year Treasury ETF (Ticker Symbol TBT) with a Nov2013 expiration and at the $74.00 strike price.  As detailed below, this investment will provide a +2.8% absolute return in 31 days (which is equivalent to a +33.4% annualized return) if TBT closes at or above $74.00 at options expiration on Nov 15th.

Details of this transaction along with a potential return-on-investment result are: 

ProShares UltraShort 20+ Year Treasury ETF (TBT)
The transaction is as follows:
10/17/2013 Sold 3 Nov2013 $74.00 Puts @ $2.10
Note: The price of TBT was $74.00 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 three Put options sold.

A possible overall performance result (including commissions) for this ProShares UltraShort 20+ Year Treasury ETF transaction would be as follows:
100% Cash-Secured Cost Basis: $22,200.00 = $74.00*300
Note:  the price of TBT was $74.00 when these Put options were sold.

Net Profit:
(a) Options Income: +$630.00
= ($2.10*300 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT remains above $74.00 at Nov2013 expiration): +$0.00
= ($74.00-$74.00)*300 shares

Total Net Profit (If TBT is above $74.00 strike price at Nov2013 options expiration):+$630.00 
= (+$630.00 +$0.00 +$0.00)

Absolute Return (If TBT is above $74.00 at Nov2013 options expiration and Put options thus expire worthless): +2.8%
= +$630.00/$22,200.00
Annualized Return (If TBT above $74.00 at expiration): +33.4%
= (+$630.00/$22,200.00)*(365/31 days)

The downside 'breakeven price' at expiration is at $71.90 ($74.00 - $2.10), which is 2.8% below the current market price of $74.00.
The 'crossover price' at expiration is $76.10 ($74.00 + $2.10). This is the price above which it would have been more profitable to simply buy-and-hold the ProShares UltraShort 20+ Year Treasury ETF until Nov 15th (the Nov2013 options expiration date) rather than holding these short Put options.

Continuation -- Transocean Inc. Covered Calls

Today, two November 2013 call options were sold in Transocean Inc.(Symbol RIG) to re-establish the covered calls position. As shown below, the September 2014 covered call options expired and the new position today was established at the Nov2013 $47.00 strike price. The transactions to date and some potential return on investment results are detailed below.

Transocean Inc. (RIG) -- Continuation
08/08/2013 Bought 200 RIG shares @ $48.76
08/08/2013 Sold 2 RIG Sep2013 $48.00 Call Options @ $1.65
08/21/2013 Ex-dividend of $.56 per share
09/20/2013 2 RIG Sep2013 $48.00 Calls expired 10/17/2013
Sold 2 RIG Nov2013 $47.00 Call Options @ $.75
Note: the price of RIG was $45.82 when these options were sold
11/13/2013 Ex-dividend of $.56 per share
Two possible overall performance results (including commissions) for this Transocean Inc. (RIG) covered calls position are as follows:

Stock Purchase Cost: $9,760.95
= ($48.76*200+$8.95 commission)

Net Profit:
(a) Options Income: +$459.10
= ($1.65+$.75)*200 shares - 2*$10.45 commissions
(b) Dividend Income: +$224.00 = ($.56 x 2 dividend per share x 200 shares);
(c) Capital Appreciation (If stock price unchanged at current price of $45.82): -$596.95
= +($45.82-$48.76)*200 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $47.00 at Nov2013 expiration): -$360.95
= +($47.00-$48.76)*200 - $8.95 commissions

Total Net Profit (If stock price unchanged at current price of $45.82): =-+94.15
= (+$459.10 +$224.00 -$596.95);
or Total Net Profit (If stock assigned at $47.00 at Nov2013 expiration): +$322.15
= (+$459.10 +$224.00 -$360.95)

1. Absolute Return (If stock price unchanged at current price of $45.82): +1.0%
= +$94.15/$9,760.95
Annualized Return: +3.5%
= (+$94.15/$9,760.95)*(365/100 days); OR

2. Absolute Return (If stock assigned at $47.00 at Nov2013 expiration): +3.3%
= +$322.15/$9,760.95
Annualized Return: +12.0%
= (+$322.15/$9,760.95)*(365/100 days)

Overall Market Meter Rating Remains at "Neutral"

The Covered Calls Advisor recalculated the current values for each of the eight factors used to determine the "Overall Market Meter" rating.  This month, the Overall Market Meter rating remains unchanged at Neutral.

The eight factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next three indicators), and
- growth (the last indicator).

The current Market Meter average of 3.25 (see blue line at the bottom of the chart above) is identical to the 3.25 average when the rating was last calculated in June.  The ratings in each of the eight factors are identical to the result obtained in June.  This 3.25 overall rating is in the Neutral range (Neutral range is from 2.51 to 3.50). 

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Neutral sentiment is to "on-average sell 1% out-of-the-money covered calls for the next options expiration month" (which is Nov2013 in this instance).

Your comments or questions regarding this post (or the details related to any of the eight factors used in this model) are welcomed. Please email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Established a 100% Cash-Secured Puts Position in ProShares UltraShort 20+ Year Treasury ETF

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in ProShares UltraShort 20+ Year Treasury ETF (Ticker Symbol TBT) with an Oct2013 expiration and at the $74.00 strike price.  As detailed below, this investment will provide a +1.8% absolute return in 18 days (which is equivalent to a +35.9% annualized return) if TBT closes at or above $74.00 at options expiration on Oct 18th.

Details of this transaction along with a potential return-on-investment result are: 

ProShares UltraShort 20+ Year Treasury ETF (TBT)
The transaction is as follows:
10/02/2013 Sold 7 Oct2013 $74.00 Puts @ $1.33
Note: The price of TBT was $74.93 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 seven Put options sold.

A possible overall performance result (including commissions) for this ProShares UltraShort 20+ Year Treasury ETF transaction would be as follows:
100% Cash-Secured Cost Basis: $51,800.00 = $74.00*700
Note:  the price of TBT was $74.93 when these Put options were sold.

Net Profit:
(a) Options Income: +$916.80
= ($1.33*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TBT remains above $74.00 at Oct2013 expiration): +$0.00
= ($74.00-$74.00)*700 shares

Total Net Profit (If TBT is above $74.00 strike price at Oct2013 options expiration): +$916.80 
= (+$916.80 +$0.00 +$0.00)

Absolute Return (If TBT is above $74.00 at Oct2013 options expiration and Put options thus expire worthless): +1.8%
= +$916.80/$51,800.00
Annualized Return (If TBT above $74.00 at expiration): +35.9%
= (+$916.80/$51,800.00)*(365/18 days)

The downside 'breakeven price' at expiration is at $72.67 ($74.00 - $1.33), which is 3.0% below the current market price of $74.93.
The 'crossover price' at expiration is $76.26 ($74.93 + $1.33). This is the price above which it would have been more profitable to simply buy-and-hold the ProShares UltraShort 20+ Year Treasury ETF until Oct 18th (the Oct2013 options expiration date) rather than holding these short Put options.