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 both of these positions were established using 100% cash securitization for the Put options sold.
The transactions and potential return-on-investment results are detailed below:
1. Alcoa Inc.(AA) -- New Position
The transaction was as follows:
01/14/2015 Sold 4 Alcoa Inc. Feb2015 $14.00 Puts @ $.38
Note: The price of AA was $14.78 today when this transaction was executed.
A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $5,600.00
= $14.00*400
Note: the price of AA was $14.78 when these Put options were sold.
Net Profit:
(a) Options Income: +$140.05
= ($.38*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AA is above $14.00 strike price at Feb2015 expiration): +$0.00
= ($14.00-$14.00)*400 shares
Total Net Profit (If AA is above $14.00 strike price at Feb2015 options expiration): +$140.05
= (+$140.05 +$0.00 +$0.00)
Absolute Return (If AA is above $14.00 strike price at Feb2015 options expiration): +2.5%
= +$140.05/$5,600.00
Annualized Return (If AA is above $14.00 at expiration): +23.4%
= (+$140.05/$5,600.00)*(365/39 days)
The downside 'breakeven price' at expiration is at $13.62 ($14.00 - $.38), which is 7.8% below the current market price of $14.78.
The 'crossover price' at expiration is $15.16 ($14.78 + $.38). This is the price above which it would have been more profitable to simply buy-and-hold AA until Feb 20th (the Feb2015 options expiration date) rather than selling these Put options.
2. Alibaba Group Holding ADR (BABA) -- New Position
The transaction was as follows:
01/14/2015 Sold 1 Alibaba Group ADR Feb2015 $95.00 Put @ $3.00
Note: The price of BABA was $98.55 today when this transaction was executed.
A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $9,500.00
= $95.00*100
Note: the price of BABA was $98.55 when thise Put option was sold.
Net Profit:
(a) Options Income: +$292.30
= ($3.00*100 shares) - $9.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BABA is above $95.00 strike price at Feb2015 expiration): +$0.00
= ($95.00-$95.00)*100 shares
Total Net Profit (If BABA is above $95.00 strike price at Feb2015 options expiration): +$292.30
= (+$292.30 +$0.00 +$0.00)
Absolute Return (If BABA is above $95.00 strike price at Feb2015 options expiration): +3.1%
= +$292.30/$9,500.00
Annualized Return (If BABA is above $95.00 at expiration): +28.8%
= (+$292.30/$9,500.00)*(365/39 days)
The downside 'breakeven price' at expiration is at $92.00 ($95.00 - $3.00), which is 6.6% below the current market price of $98.55.
The 'crossover price' at expiration is $101.55 ($98.55 + $3.00). This is the price above which it would have been more profitable to simply buy-and-hold Alibaba until Feb 20th (the Feb2015 options expiration date) rather than selling this Put option.
