Established Short Put Options Positions in Apple Inc. and Baidu Inc.

Today, a two new short Put option positions were established in Apple Inc. (ticker AAPL) and Baidu Inc. (ticker BIDU).  The Apple position is a Weekly position established with an April 2nd, 2015 expiration and at the $122.00 strike price.  The Baidu position is a Monthly position established with an April 17, 2015 expiration and at the $205.00.  As described below, both positions are conservative ones that were established at out-of-the money strike prices. 

The Covered Calls Advisor does not use margin, so the detailed information below for these position reflect the fact that both of these positions were established using 100% cash securitization for the Put options sold.

As shown below, some potential results are as follows:

• Apple Inc. investment will provide a +0.6% absolute return in 9 days (which is equivalent to a +25.4% annualized return) if the stock closes above the $122.00 strike price on the April 9th expiration date.
• Baidu Inc. investment will provide a +1.9% absolute return in 24 days (which is equivalent to a +28.2% annualized return) if the stock closes above the $205.00 strike price on the April 17th expiration date.

These potential return-on-investment results are attractive to us option sellers since they are relatively conservative investments -- the breakeven point provides 2.7% downside protection in the Apple position and 3.2% downside protection in the Baidu position.  The implied volatility in both options positions was approximately 24 when they were established and there is no quarterly earnings reports prior to their expiration.

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

1. Apple Inc. (AAPL)

The transactions were as follows:
03/25/2015 Sold 2 AAPL Apr 2nd $122.00 Put Options @ $.86
Note: the price of AAPL was $124.46 today when these options were sold.

Apple earnings should continue to be substantially higher for the next two quarterly reports compared with the prior year since they will continue to benefit from sales of their new iPhone 6 products, similar to the dramatic improvement shown when they reported last quarter's results.

A possible overall performance result (including commissions) for these short Apple Inc. Put options is as follows:
Stock Purchase Cost: $24,408.95
= ($122.00*200+$8.95 commission)

Net Profit:
(a) Options Income: +$161.55
= 200*$.86 - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AAPL assigned at $122.00) = -$8.95
= ($122.00-$122.00)*200 - $8.95 commissions

Total Net Profit (If AAPL assigned at $122.00): +$152.60
= (+$161.55 +$0.00 -$8.95)

Absolute Return if Assigned (at $122.00 strike price): +0.6%
= +$152.60/$24,408.95
Annualized Return If Assigned (ARIA): +25.4%
= (+$152.60/$24,408.95)*(365/9 days)

The downside 'breakeven price' at expiration is at $121.14 ($122.00 - $.86), which is 2.7% below the current market price of $124.46.
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until the Apr 9th, 2015 options expiration) for this Apple Inc.short Puts position is 62%. This compares with a probability of profit of 50.3% for a buy-and-hold of Apple Inc. stock over the same time period. Using this probability of profit of 62%, the Expected Value annualized ROI of this investment (if held until expiration) is +15.7% (+25.4% * 62%).

The 'crossover price' at expiration is $125.32 ($124.46 + $.86). This is the price above which it would have been more profitable to simply buy-and-hold Apple stock for 9 days (until the April 2nd options expiration date) rather than establish this short Put options position.


2. Baidu Inc.(BIDU)

The transactions were as follows:
03/25/2015 Sold 2 BIDU Apr2015 $205.00 Put Options @ $3.90
Note: the price of BIDU was $207.85 today when these two Put options were sold.

A simple, but mostly accurate, way to understand Baidu's business model is to know that they are often termed "the Google of China".  They are dominating the rapidly growing (30%+) internet search market in China with a 75% market share.  They are reasonably valued at 35 times their trailing-twelve-months earnings and in addition to basic search, there is huge future growth potential in mobile and video.  Baidu is the closest thing to a no-brainer investment for the long term as currently exists in the large-cap company universe; so I expect to continue to sell BIDU options each month for several years to come .

A possible overall performance result (including commissions) for these Baidu short Put options is as follows:
Stock Purchase Cost: $41,008.95
= ($205.00*200+$8.95 commission)

Net Profit:
(a) Options Income: +$769.55
= 200*$3.90 - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BIDU assigned at $205.00) = -$8.95
= ($205.00-$205.00)*200 - $8.95 commissions

Total Net Profit (If Baidu assigned at $205.00): +$760.60
= (+$769.55 +$0.00 -$8.95)

Absolute Return if Assigned (at $205.00 strike price): +1.9%
= +$760.60/$41,008.95
Annualized Return If Assigned (ARIA): +28.2%
= (+$760.60/$41,008.95)*(365/24 days)

The downside 'breakeven price' at expiration is at $201.10 ($205.00 - $3.90), which is 3.2% below the current market price of $207.85.
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Apr2015 options expiration) for this Baidu position is 72%. This compares with a probability of profit of 50.1% for a buy-and-hold of BIDU over the same time period. Using this probability of profit of 72%, the Expected Value annualized ROI of this investment (if held until expiration) is +20.3% = (+28.2% * 72%).

The 'crossover price' at expiration is $211.75 ($207.85 + $3.90).  This is the price above which it would have been more profitable to simply buy-and-hold BIDU stock until April 17th (the Apr2015 options expiration date) rather than establish this short Put options position.

Established New Position in United Continental Holdings Inc.

Yesterday, the Covered Calls Advisor established a new position in United Continental Holdings Inc.(ticker symbol UAL) by selling three Apr2015 Put options at the $64.00 strike price.  This position is similar to several recent UAL short Put positions that have achieved maximum return-on-investment (roi) results since the stock price was above the strike price upon the options expiration, so the entire options premium received was retained as profit.

The Covered Calls Advisor does not use margin, so the detailed information below for this position reflect the fact that both of these positions were established using 100% cash securitization for the three Put options sold.

This United Continental investment will yield a +1.9% absolute return in 25 days (which is equivalent to a +27.7% annualized return-on-investment) if UAL closes above the $64.00 strike price on the Apr2015 options expiration date. 

This potential return is very nice given the conservative nature (5.5% downside protection from the current $67.70 stock price to the $64.00 strike price) of this position.  The implied volatility in the options was relatively high at 39 when this position was established; so the $1.25 price per share received when the Puts were sold is attractive to us option sellers, especially since the level of unknowns between now and the Apr2015 options expiration is relatively low -- UAL has announced their 4th quarter earnings results as well as both their January and February monthly operating results.  With about 30% of airline companies' operating earnings coming from fuel expense, airlines will likely continue to achieve substantial earnings benefits (compared with last year) for at least the next two quarters from oil prices that are substantially below where they were at the comparable period during 2014.  Their bookings are stable and their pricing remains strong.  This situation does not appear to be fully appreciated in the price of many airlines stocks, including United Continental.    

1.  United Continental Holdings Inc. (UAL) -- New Position
The transaction was as follows:
03/24/2015  Sold 3 UAL 100% cash-secured $64.00 Put options @ $1.25
Note: The price of UAL was $67.70 when this transaction was executed.



A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $19,200.00
= $64.00*300

Net Profit:
(a) Options Income: +$363.80
= ($1.25*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UAL is above $64.00 strike price at Apr2015 expiration): +$0.00
= ($64.00-$64.00)*300 shares

Total Net Profit (If UAL is above $64.00 strike price at Apr2015 options expiration): +$363.80
= (+$363.80 +$0.00 +$0.00)

Absolute Return (If UAL is above $64.00 strike price at Apr2015 options expiration): +1.9%
= +$363.80/$19,200.00
Annualized Return: +27.7%
= (+$363.80/$19,200.00)*(365/25 days)

The downside 'breakeven price' at expiration is at $62.75 ($64.00 - $1.25), which is 7.3% below the current market price of $67.70.
The 'crossover price' at expiration is $68.95 ($67.70 + $1.25).  This is the price above which it would have been more profitable to simply buy-and-hold UAL until April 17th (the Apr2015 options expiration date) rather than selling these Put options.

Continuing Positions -- Alcoa Inc., Micron Technology Inc., Yamana Gold Inc., and YRC Worldwide Inc.

Covered call positions were established in the Covered Calls Advisor portfolio for four companies (Alcoa Inc., Micron Technology Inc., Yamana Gold Inc., and YRC Worldwide Inc.).  In each instance, the Mar2015 options expired worthless last Friday when the stock prices closed below the strike prices.  Today, for all four positions, covered calls positions were established by selling Call options for the Apr2015 options expiration against the existing long stock positions. The transactions to-date for these positions and the respective potential return-on-investment results are detailed below:

1.  Alcoa Inc.  (Ticker AA) --Continuation
The transactions are as follows:
02/23/2015  Sold 3 AA Mar2015 $15.00 100% cash-secured Put options @ $.33
Note: The price of AA was $15.47 when this transaction was executed.

03/20/2015 3 AA Mar2015 Put options assigned and 300 shares of AA purchased at $15.00 strike price
Note: the price of Alcoa was $12.97 upon Mar2015 options expiration.
03/23/2015 Sold 3 Apr2015 $13.00 Call options @ $.53
Note: AA stock was $13.02 when these options were sold.

A possible overall performance result (including commissions) for this Alcoa position would be as follows:
100% Cash-Secured Cost Basis: $4,500.00
= $15.00*300

Net Profit:
(a) Options Income: +$235.60
= ($.33+$.53)*300 shares - 2*$11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Alcoa closes above $13.00 at the Apr2015 options expiration): -$600.00
= ($13.00 - $15.00)*300 shares

Total Net Profit (If Alcoa is above $13.00 strike price upon Apr2015 options expiration): -$364.40 
= (+$235.60 +$0.00 -$600.00)

Absolute Return (If Alcoa is above $13.00 at Apr2015 options expiration): -8.1%
= -$364.40/$4,500.00
Annualized Return: -55.8%
= (-$364.40/$4,500.00)*(365/53 days)

2.  Micron Technology Inc. (MU) -- ContinuationThe transactions are as follows:
02/19/2015 Sold 4 Micron Technology Inc. Mar2015 $30.00 Puts @ $.53
Note: The price of Micron was $31.88 when this transaction was executed.

03/20/2015 4 MU Mar2015 Put options assigned and 300 shares of MU purchased at $30.00 strike price
Note: the price of Micron was $28.68 upon Mar2015 options expiration.
03/23/2015 Sold 4 MU Apr2015 $30.00 Call options @ $.54
Note: MU stock was $28.68 when these options were sold.

A possible overall performance result (including commissions) for these Micron Technology transactions would be as follows:
100% Cash-Secured Cost Basis: $12,000.00
= $30.00*400

Net Profit:
(a) Options Income: +$404.10
= ($.53+$.54)*400 shares - 2*$11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MU closes above $30.00 at Apr2015 expiration): -$8.95
= ($30.00 - $30.00) * 400 shares - $8.95 commission

Total Net Profit (If MU is above $30.00 strike price at Apr2015 options expiration): +$395.15 
= (+$404.10 +$0.00 -$8.95)

Absolute Return (If MU closes above $30.00 at Apr2015 options expiration): +3.3%
= +$395.15/$12,000.00
Annualized Return (If MU is above $30.00 at expiration): +21.1%
= (+$395.15/$12,000.00)*(365/57 days)

3.  Yamana Gold Inc. (AUY) -- Continuation
The transactions are as follows:
02/17/2015 Sold 10 Yamana Gold Mar2015 $4.00 Puts @ $.28
Note: The price of AUY was $3.99 when this transaction was executed.
03/20/2015 10 AUY Mar2015 Put options expired
Note: the price of Yamana Gold was $3.91 upon Mar2015 options expiration.
03/23/2015 Sold 10 Apr2015 $4.00 Call options @ $.21
Note: AUY stock was $4.01 when these options were sold.

A possible overall performance result (including commissions) for these transactions would be as follows:
100% Cash-Secured Cost Basis: $4,000.00
= $4.00*1,000
Note:  the price of AUY was $4.00 when these Put options were sold.

Net Profit:
(a) Options Income: +$457.10
= ($.28 + $.21)*1,000 shares - 2*$16.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AUY is above $4.00 strike price at Apr2015 expiration): +$0.00
= ($4.00 - $4.00)*1,000 shares

Total Net Profit (If AUY is above $4.00 strike price at Apr2015 options expiration): +$457.10
= (+457.10 +$0.00 +$0.00)

Absolute Return: +11.4%
= +$457.10/$4,000.00
Annualized Return (If AUY closes above $4.00 at expiration): +70.7%
= (+$457.10/$4,000.00)*(365/59 days)


4.  YRC Worldwide Inc. (YRCW) -- Continuation
The transactions are as follows:
02/23/2015  Sold 4 YRCW Mar2015 $20.00 100% cash-secured Put options @ $1.30
Note: The price of YRCW was $19.67 when this transaction was executed.

03/20/2015 4 YRCW Mar2015 Put options expired
Note: the price of YRC Worldwide was $18.98 upon Mar2015 options expiration.
03/23/2015 Sold 4 YRCW Apr2015 $20.00 Call options @ $.50
Note: YRCW stock was $19.00 when these options were sold.


Two possible overall performance results (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $8,000.00
= $20.00*400

Net Profit:
(a) Options Income: +$696.10
= ($1.30 + $.50)*400 shares - 2*$11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If YRCW stock price is unchanged at $19.00 at Apr2015 expiration): -$400.00
= ($19.00 - $20.00)*400 shares; OR
(c) Capital Appreciation (If YRCW is above $20.00 strike price at Apr2015 expiration): +$0.00
= ($20.00-$20.00)*400 shares

1. Total Net Profit (If YRCW is unchanged at $19.67 at Apr2015 options expiration): +$606.80
= (+$738.80 +$0.00 -$132.00); OR
2. Total Net Profit (If YRCW is above $20.00 strike price at Apr2015 options expiration): +$738.80
= (+$738.80 +$0.00 +$0.00)

1. Absolute Return (If YRCW is unchanged at $19.00 at Apr2015 options expiration): +7.6%
= +$606.80/$8,000.00
Annualized Return: +52.2%
= (+$606.80/$18,000.00)*(365/53 days); or
2. Absolute Return (If YRCW is above $20.00 strike price at Apr2015 options expiration): +9.2%
= +$738.80/$8,000.00
Annualized Return: +63.6%
= (+$738.80/$8,000.00)*(365/53 days)

March 2015 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained twelve positions with March 2015 expirations.  The results are as follows:

- Nine of the twelve positions (Community Health Systems Inc., Delta Air Lines Inc., iShares China Large-Cap ETF, Pilgrim's Pride Corp., 2 positions in United Continental Holdings Inc., United States Steel Corp., VeriFone Systems Inc., and VMware Inc.) were closed out at expiration. This was the optimal result for these positions in that the maximum potential return-on-investment (ROI) results was achieved from when each of these positions was established.  The annualized ROI for these closed positions are:

• Community Health Systems Inc. = +2.4% absolute return (equivalent to +32.7% annualized return for the 27 days holding period)
• Delta Air Lines Inc. = +2.1% absolute return (equivalent to +42.5% annualized return for the 18 days holding period)
• iShares Large-Cap China ETF = +1.5% absolute return (equivalent to +55.4% annualized return for the 10 days holding period)
• Pilgrim's Pride Corp. = +1.5% absolute return (equivalent to +31.6% annualized return for the 17 days holding period)
• United Continental Holdings Inc. (1st position) = +4.1% absolute return (equivalent to +36.5% annualized return for the 41 days holding period)
• United Continental Holdings Inc. (2nd position) = +1.4% absolute return (equivalent to +34.1% annualized return for the 15 days holding period)
• United States Steel Corp. = +1.8% absolute return (equivalent to +37.0% annualized return for the 18 days holding period)
• VeriFone Systems Inc. = +1.4% absolute return (equivalent to +48.0% annualized return for the 11 days holding period)
• VMware Inc. = +1.2% absolute return (equivalent to +45.5% annualized return for the 10 days holding period)

The detailed transactions history and results for each of these 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.

- Three of the twelve positions (Alcoa Inc., Micron Technology Inc., and YRC Worldwide Inc.) ended at expiration with the price of the stocks below the strike prices.  So the respective options expired and the long shares are now retained in the Covered Calls Advisor Portfolio.  A decision will be made soon to either sell these shares or to establish a covered calls position by selling future 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 along with the detailed transactions to-date for each position.

Details of the nine closed positions summarized above and the associated return-on-investment results are as follows:

1. Community Health Systems Inc. (CYH) -- Closed
 The transactions were as follows:
02/23/2015  Sold 3 CYH Mar2015 $46.00 100% cash-secured Put options @ $1.15
Note: The price of CYH was $47.68 when this transaction was executed.
03/20/2015 CYH Mar2015 $46.00 Put options expired
Note: the price of CYH was $53.08 upon options expiration

The overall performance result (including commissions) is as follows:
100% Cash-Secured Cost Basis: $13,800.00
= $46.00*300

Net Profit:
(a) Options Income: +$333.80
= ($1.15*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (CYH is above $46.00 strike price at Mar2015 expiration): +$0.00
= ($46.00-$46.00)*300 shares

Total Net Profit: +$333.80
= (+$333.80 +$0.00 +$0.00)

Absolute Return: +2.4%
= +$333.80/$13,800.00
Annualized Return: +32.7%
= (+$333.80/$13,800.00)*(365/27 days)


2. Delta Air Lines Inc. (DAL) -- Closed
The transactions were as follows:
03/04/2015 Sold 3 Delta Air Lines Inc. Mar2015 $44.00 Puts @ $.96
Note: The price of DAL was $44.93 when this transaction was executed.
03/20/2015 3 DAL Mar2015 $44.00 Put options expired
Note: the price of DAL was $47.42 upon options expiration

The overall performance result (including commissions) for this transaction was:
100% Cash-Secured Cost Basis: $13,200.00
= $44.00*300
Note:  the price of DAL was $44.93 when these Put options were sold.

Net Profit:
(a) Options Income: +$276.80
= ($.96*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (DAL closed above $44.00 strike price at Mar 20th, 2015 expiration): +$0.00
= ($44.00-$44.00)*300 shares

Total Net Profit: +$276.80
= (+$276.80 +$0.00 +$0.00)

Absolute Return: +2.1%
= +$276.80/$13,200.00

Annualized Return: +42.5%
= (+$276.80/$13,200.00)*(365/18 days)


3. iShares Large-Cap China ETF (FXI) -- Closed
The transactions were as follows:
03/11/2015  Sold 3 FXI Mar2015 $41.00 100% cash-secured Put options @ $.66
Note: The price of FXI was $40.85 when this transaction was executed.
03/20/2015 3 FXI Mar2015 $41.00 Put options expired
Note: the price of FXI was $43.34 upon options expiration

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $12,300.00
= $41.00*300

Net Profit:
(a) Options Income: +$186.80
= ($.66*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (FXI closed above $41.00 strike price at Mar2015 expiration): +$0.00
= ($41.00-$41.00)*300 shares

Total Net Profit: +$186.80
= (+$186.80 +$0.00 +$0.00)

Absolute Return: +1.5%
= +$186.80/$12,300.00
Annualized Return: +55.4%
= (+$186.80/$12,300.00)*(365/10 days)


4. Pilgrim's Pride Corp. (PPC) -- Closed
The transactions were as follows:
03/05/2015 Sold 3  Pilgrims Pride Corp. Mar2015 $26.00 Puts @ $.42
Note: The price of PPC was $27.23 when this transaction was executed.
03/20/2015 3 PPC Mar2015 $26.00 Put options expired
Note: the price of PPC was $26.84 upon options expiration

The overall performance result (including commissions) for these transactions was:
100% Cash-Secured Cost Basis: $7,800.00
= $26.00*300
Note:  the price of  Pilgrims Pride was $27.23 when these Put options were sold.

Net Profit:
(a) Options Income: +$114.80
= ($.42*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (PPC was above $26.00 strike price at Mar 20th, 2015 expiration): +$0.00
= ($26.00-$26.00)*300 shares

Total Net Profit: +$114.80
= (+$114.80 +$0.00 +$0.00)

Absolute Return: +1.5%
= +$114.80/$7,800.00

Annualized Return: +31.6%
= (+$114.80/$7,800.00)*(365/17 days)


5. United Continental Holdings Inc. (UAL) -- Closed
 The transactions were as follows:
02/09/2015  Sold 3 UAL Mar2015 100% cash-secured $60.00 Put options @ $2.50
Note: The price of UAL was $65.60 when this transaction was executed.
03/20/2015 UAL Mar2015 $60.00 Put options expired
Note: the price of UAL was $69.45 upon options expiration

The overall performance result (including commissions) is as follows:
100% Cash-Secured Cost Basis: $18,000.00
= $60.00*300

Net Profit:
(a) Options Income: +$738.80
= ($2.50*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (UAL was above $60.00 strike price at Mar2015 expiration): +$0.00
= ($60.00-$60.00)*300 shares

Total Net Profit: +$738.80
= (+$738.80 +$0.00 +$0.00)

Absolute Return: +4.1%
= +$738.80/$18,000.00
Annualized Return: +36.5%
= (+$738.80/$18,000.00)*(365/41 days)


6. United Continental Holdings Inc. (UAL) -- Closed
The transactions were as follows:
03/06/2015  Sold 3 UAL 100% cash-secured $63.00 Put options @ $.92
Note: The price of UAL was $67.11 when this transaction was executed.
03/20/2015 UAL Mar2015 $63.00 Put options expired
Note: the price of UAL was $69.45 upon options expiration

The overall performance result (including commissions) is as follows:
100% Cash-Secured Cost Basis: $18,900.00
= $63.00*300

Net Profit:
(a) Options Income: +$264.80
= ($.92*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (UAL was above $63.00 strike price at Mar2015 expiration): +$0.00
= ($63.00-$63.00)*300 shares

Total Net Profit: +$264.80
= (+$264.80 +$0.00 +$0.00)

Absolute Return: +1.4%
= +$264.80/$18,900.00
Annualized Return: +34.1%
= (+$264.80/$18,900.00)*(365/15 days)


7.  United States Steel Corp. (X) -- Closed
The transactions were as follows:
03/04/2015 Sold 3 United States Steel Corp. Mar2015 $21.00 Puts @ $.42
Note: The price of X was $22.20 when this transaction was executed.
03/20/2015 3 U.S. Steel Mar2015 $21.00 Put options expired
Note: the price of X was $23.18 upon options expiration

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $6,300.00
= $21.00*300
Note:  the price of U.S. Steel was $22.20 when these Put options were sold.

Net Profit:
(a) Options Income: +$114.80
= ($.42*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (X was above $21.00 strike price at Mar 20th, 2015 expiration): +$0.00
= ($21.00-$21.00)*300 shares

Total Net Profit (X was above $21.00 strike price upon Mar2015 options expiration): +$114.80
= (+$114.80 +$0.00 +$0.00)

Absolute Return: +1.8%
= +$114.80/$6,300.00

Annualized Return: +37.0%
= (+$114.80/$6,300.00)*(365/18 days)


8. VeriFone Systems Inc. (PAY) -- Closed
The transactions were as follows:
03/10/2015  Sold 3 PAY Mar2015 $32.00 100% cash-secured Put options @ $.50
Note: The price of PAY was $33.72 when this transaction was executed.

03/20/2015 3 PAY Mar2015 $32.00 Put options expired
Note: the price of PAY was $36.08 upon options expiration

The overall performance result (including commissions) for these transactions was:
100% Cash-Secured Cost Basis: $9,600.00
= $32.00*300

Net Profit:
(a) Options Income: +$138.80
= ($.50*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (PAY was above $32.00 strike price at Mar2015 expiration): +$0.00
= ($32.00-$32.00)*300 shares

Total Net Profit: +$138.80
= (+$138.80 +$0.00 +$0.00)

Absolute Return: +1.4%
= +$138.80/$9,600.00
Annualized Return: +48.0%
= (+$138.80/$9,600.00)*(365/11 days)


9. VMware Inc. (VMW) -- Closed
The transactions were as follows:
03/11/2015  Sold 2 VMW Mar2015 $80.00 100% cash-secured Put options @ $1.05
Note: The price of VMW was $80.82 when this transaction was executed.

03/20/2015 3 VMW Mar2015 $80.00 Put options expired
Note: the price of VMW was $82.82 upon options expiration


The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $16,000.00
= $80.00*200

Net Profit:
(a) Options Income: +$199.55
= ($1.05*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (VMW was above $80.00 strike price at Mar2015 expiration): +$0.00
= ($80.00-$80.00)*200 shares

Total Net Profit: +$199.55
= (+$199.55 +$0.00 +$0.00)

Absolute Return: +1.2%
= +$199.55/$16,000.00
Annualized Return: +45.5%
= (+$199.55/$16,000.00)*(365/10 days)

Established Two New Covered Calls Positions -- Examples of Early Assignment or Dividend Capture Strategy

Today, two new covered call positions were established in Dow Chemical Co. (ticker symbol DOW) and JPMorgan Chase and Co. (ticker symbol JPM) with Apr2015 expirations.  The DOW stock was purchased at $46.59 and the Call options were sold at the $46.00 strike price.  The JPM stock was purchased at $61.26 and the Call options were sold at the $60.00 strike price.

Both of these covered calls investments are strategic ones that explicitly consider the upcoming quarterly dividends with ex-dividend dates prior to the April 17th options expiration date.  Details of each covered calls position is provided below.

1. Dow Chemical Co. (DOW)

A $.42 quarterly dividend goes ex-dividend on March 27th.  Although unlikely, if the current time value (i.e. extrinsic value) of $.65 [$1.24 option premium - ($46.59 stock price - $46.00 strike price)] remaining in the short call options decay substantially below the $.42 dividend amount by March 26th (the day prior to the ex-div date), then there is a possibility that the call option owner will exercise early and will call the stock away to capture the dividend.

As shown below, two potential return-on-investment results for this position are:

If Early Assignment: +1.2% absolute return (equivalent to +54.1% annualized return for the next 8 days) if the stock is assigned early (day prior to Mar 27th ex-div date); OR

If Dividend Capture:  +2.1% absolute return (equivalent to +25.4% annualized return over the next 30 days) if the stock is assigned at Apr2015 expiration on April 17th.

03/19/2015 Bought 200 DOW shares @ $46.59
03/19/2015 Sold 2 DOW Apr2015 $46.00 Call options @ $1.24
Note: the price of DOW was $46.59 today when these Call options were sold.
03/27/2015 Upcoming ex-dividend of $.42 per share

Two possible overall performance results (including commissions) for this Dow Chemical Co. (DOW) covered calls position are as follows:
Stock Purchase Cost: $9,326.95
= ($46.59*200+$8.95 commission)

Net Profit:
(a) Options Income: +$237.55
= ($1.24*200 shares) - $10.45 commissions
(b) Dividend Income (If option exercised early on day prior to Mar 27th ex-div date): +$0.00
(b) Dividend Income (If stock assigned at Apr2015 expiration): +$84.00
= ($.42 dividend per share x 200 shares); or

(c) Capital Appreciation (If stock assigned early on Mar 26th): -$126.95
+($46.00-$46.59)*200 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $46.00 at Apr2015 expiration): -$126.95
+($46.00-$46.59)*200 - $8.95 commissions

Total Net Profit (If option exercised on day prior to Mar 27th ex-div date): +$110.60

= (+$237.55 +$0.00 -$126.95); or

Total Net Profit (If stock assigned at $46.00 at Apr2015 expiration): +$194.60

= (+$237.55 +$84.00 -$126.95)

1. Absolute Return (If option exercised on day prior to ex-div date): +1.2%

= +$110.60/$9,326.95

Annualized Return (If option exercised early): +54.1%

= (+$110.60/$9,326.95)*(365/8 days); OR

2. Absolute Return (If stock assigned at $46.00 at Apr2015 expiration): +2.1%

= +$194.60/$9,326.95

Annualized Return (If stock assigned): +25.4%

= (+$194.60/$9,326.95)*(365/30 days)

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 $46.00 strike price at assignment, with 0.7% of downside protection.  Alternatively, if the stock declines below the strike price, the breakeven price of $44.93 ($46.59 -$.42 -$1.24) provides a nice 3.6% downside protection. 


2. JPMorgan Chase Co. (JPM)

A $.40 quarterly dividend goes ex-dividend on April 1st.  Although unlikely, if the current time value (i.e. extrinsic value) of $.75 [$2.01 option premium - ($61.26 stock price - $60.00 strike price)] remaining in the short call options decay substantially below the $.40 dividend amount by March 31st (the day prior to the ex-div date), then there is a possibility that the call option owner will exercise early and will call the stock away to capture the dividend.

As shown below, two potential return-on-investment results for this position are:

If Early Assignment: +1.1% absolute return (equivalent to +29.9% annualized return for the next 8 days) if the stock is assigned early (day prior to Apr 1st ex-div date); OR

If Dividend Capture:  +1.7% absolute return (equivalent to +20.9% annualized return over the next 30 days) if the stock is assigned at Apr2015 expiration on April 17th.

03/19/2015 Bought 200 JPM shares @ $61.26
03/19/2015 Sold 2 JPM Apr2015 $60.00 Call options @ $2.01
Note: the price of JPM was $61.26 today when these Call options were sold.
04/01/2015 Upcoming ex-dividend of $.40 per share

Two possible overall performance results (including commissions) for this JPMorgan Chase Co. (JPM) covered calls position are as follows:
Stock Purchase Cost: $12,260.95
= ($61.26*200+$8.95 commission)

Net Profit:
(a) Options Income: +$391.55
= ($2.01*200 shares) - $10.45 commissions
(b) Dividend Income (If option exercised early on day prior to Apr 1st ex-div date): +$0.00
(b) Dividend Income (If stock assigned at Apr2015 expiration): +$80.00
= ($.40 dividend per share x 200 shares); or

(c) Capital Appreciation (If stock assigned early on Mar 31st): -$260.95
+($60.00-$61.26)*200 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $46.00 at Apr2015 expiration): -$260.95
+($60.00-$61.26)*200 - $8.95 commissions

Total Net Profit (If option exercised on day prior to Apr 1st ex-div date): +$130.60

= (+$391.55 +$0.00 -$260.95); or

Total Net Profit (If stock assigned at $60.00 at Apr2015 expiration): +$210.60

= (+$391.55 +$80.00 -$260.95)

1. Absolute Return (If option exercised on day prior to ex-div date): +1.1%

= +$130.60/$12,260.95

Annualized Return (If option exercised early): +29.9%

= (+$130.60/$12,260.95)*(365/13days); OR

2. Absolute Return (If stock assigned at $60.00 at Apr2015 expiration): +1.7%

= +$210.60/$12,260.95

Annualized Return (If stock assigned): +20.9%

= (+$210.60/$12,260.95)*(365/30 days)

As was true with the DOW position, early assignment in this JPM position would also provide a higher annualized return if the Call options are exercised early.  So, this would be the Covered Calls Advisor's preferred outcome; but either outcome provides an attractive return result.  These returns will be achieved as long as the stock is above the $60.00 strike price at assignment, with 2.1% of downside protection.  Alternatively, if the stock declines below the strike price, the breakeven price of $58.85 ($61.26 -$.40 -$2.01) provides 3.9% of downside protection. 

------
In summary, these are both relatively conservative covered calls investments that provide nice annualized ROI potential regardless of whether they are called away early or upon the options expiration date.

Early Exercise of Las Vegas Sands Covered Calls Position

Early this morning (prior to the stock market open), I received both an email and a phone call notification from my broker that the covered calls position in Las Vegas Sands Corp. (Ticker Symbol LVS) with an Apr2015 expiration and at the $50.00 strike price was exercised early. The LVS shares had risen to $54.80 as of yesterday's close and the time value remaining in the call option had declined to only about $.05, so the owner of the option decided to exercise his/her option to buy the shares at $50.00 in order to capture today's quarterly ex-dividend payment of $.65 per share.

The actual return-on-investment result for this closed position was 1.8% absolute return (equivalent to +213.0% annualized return for the 3 day holding period).
As is often the case, early assignment in this case provided a higher annualized return than the 32.3% annualized return if the position had been assigned at the Apr2015 expiration.

The transactions associated with this Las Vegas Sands position were as follows:
03/16/2015 Bought 200 LVS shares @ $51.53
03/16/2015 Sold 2 LVS Apr2015 $50.00 Call Options @ $2.53
Note: the price of LVS was $51.53 today when these options were sold.
03/19/2015 Short Call options exercised; so 200 LVS shares sold at $50.00 strike price
Note: the LVS stock was $54.80 upon market close yesterday

The details of the overall performance result (including commissions) for these Las Vegas Sands Corp. covered calls was as follows:
Stock Purchase Cost: $10,314.95
= ($51.53*200+$8.95 commission)

Net Profit:
(a) Options Income: +$495.55
= 200*$2.53 - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (LVS assigned at $50.00) = -$314.95
= ($50.00-$51.53)*200 - $8.95 commissions

Total Net Profit: +$180.60
= (+$495.55 +$0.00 -$314.95)

Absolute Return: +1.8%
= +$180.60/$10,314.95
Annualized Return: +213.0%
= (+$180.60/$10,314.95)*(365/3 days)

Established April 2015 Short 100% Cash-Secured Puts Position in Virgin America Inc.

Today, the Covered Calls Advisor established a new position in Virgin America Inc. (Symbol VA) by selling 3 April 2015 $30.00 Put options.

This position indicates that the Covered Calls Advisor would be very willing to purchase Virgin America shares at $30.00 (for future covered calls investments) upon the close of business on the April 17th options expiration date if the stock continues to decline to below the $30.00 strike price.  If the stock remains above $30.00 by the market close on April 17th, then the $258.80 profit detailed below (a +2.9% absolute return-on-investment result in 32 days) will have been achieved.

A conservative (6.3% out-of-the-money) short Puts position  was established.  The investment thesis is that airlines earnings will benefit greatly from the huge decline in oil prices compared with the prior year.  Gasoline is a major operational expense for the industry, so Virgin America's earnings could achieve at least $4.00 per share this year which would give it a P/E multiple below 10 (at the $30 strike price).  A benefit compared with most other domestic airlines is the relatively low debt levels of VA.  With the stock price down today about 7% primarily as a result of a Credit Suisse downgrade of the stock to underperform, this advisor sold these Put options' elevated volatility (Implied Volatility of 48) and will therefore profit nicely if the stock price remains above the $30.00 strike price.   
 
This transaction and a potential return-on-investment result is:

1.  Virgin America Inc. (VA) -- New Position
The transaction was as follows:
03/18/2015 Sold 3 Virgin America Inc. Apr2015 $30.00 Puts @ $.90
Note: The price of VA was $32.03 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 transaction would be as follows:
100% Cash-Secured Cost Basis: $9,000.00
= $30.00*300
Note:  the price of VA was $32.03 when these Put options were sold.

Net Profit:
(a) Options Income: +$258.80
= ($.90*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If VA is above $30.00 strike price at Apr 17th, 2015 expiration): +$0.00
= ($30.00-$30.00)*300 shares

Total Net Profit (If VA is above $30.00 strike price upon Apr2015 options expiration): +$258.80
= (+$258.80 +$0.00 +$0.00)

Absolute Return (If VA is above $30.00 strike price at Apr2015 options expiration): +2.9%
= +$258.80/$9,000.00

Annualized Return (If VA is above $30.00 at expiration): +32.8%
= (+$258.80/$9,000.00)*(365/32 days)

The downside 'breakeven price' at expiration is at $29.10 ($30.00 - $.90), which is 9.1% below the current market price of $32.03.
The 'crossover price' at expiration is $32.93 ($32.03 + $.90).  This is the price above which it would have been more profitable to simply buy-and-hold Virgin America stock until April 17th (the Apr2015 options expiration date) rather than selling these Put options.

Established Covered Calls Position -- Las Vegas Sands Corp.

Today, a new covered calls position was established in Las Vegas Sands Corp. (ticker symbol LVS).  Two hundred shares of Las Vegas Sands Corp. stock were purchased at $51.53 and two in-the-money Apr2015 Call options were sold at the $50.00 strike price for $2.53 each.

As shown below, this investment will provide a +3.0% absolute return in 34 days (which is equivalent to a +32.3% annualized return) if LVS stock closes above the $50.00 strike price on the April 17th options expiration date.

This potential return-on-investment result is attractive to us option sellers for a relatively conservative investment -- there is 3.0% downside protection (from the current $51.53 stock price to the $50.00 strike price).  The implied volatility in the options was 27.8 when this position was established and there is no quarterly earnings report prior to April 17th.

LVS currently has casino locations in the U.S. in Las Vegas and Pennsylvania, and in Asia in China and Singapore.  Despite the ongoing single-digit decline in overall revenues during the past 3 quarters (accompanied by a decline in the stock price), the future growth outlook is very positive given that many individuals have gambling addictions and many countries (and States in the U.S.) desperate to grow tax revenues are considering legalizing gambling.  In addition, the quarterly dividend (LVS goes ex-div this week on Thursday) of $.65 provides downside protection to the stock price since the dividend yield would equal 5.2% if the stock declines to the $50.00 strike price.      

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

1. Las Vegas Sands Corp. (LVS)
The transactions were as follows:
03/16/2015 Bought 200 LVS shares @ $51.53
03/16/2015 Sold 2 LVS Apr2015 $50.00 Call Options @ $2.53
Note: the price of LVS was $51.53 today when these options were sold.

A possible overall performance result (including commissions) for these Las Vegas Sands Corp. covered calls is as follows:
Stock Purchase Cost: $10,314.95
= ($51.53*200+$8.95 commission)

Net Profit:
(a) Options Income: +$495.55
= 200*$2.53 - $10.45 commissions
(b) Dividend Income: +$130.00 = $.65 x 200 shares (Note: ex-div date is 3/19/2015)
(c) Capital Appreciation (If LVS assigned at $50.00) = -$314.95
= ($50.00-$51.53)*200 - $8.95 commissions

Total Net Profit (If LVS assigned at $50.00): +$310.60
= (+$495.55 +$130.00 -$314.945)

Absolute Return if Assigned (at $50.00 strike price): +3.0%
= +$310.60/$10,314.95
Annualized Return If Assigned (ARIA): +32.3%
= (+$310.60/$10,314.95)*(365/34 days)

The downside 'breakeven price' at expiration is at $49.00 ($51.53 - $2.53), which is 4.9% below the current market price of $51.53.
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Apr2015 options expiration) for this Las Vegas Sands covered calls position is 64.8%. This compares with a probability of profit of 50.3% for a buy-and-hold of LVS over the same time period. Using this probability of profit of 64.8%, the Expected Value annualized ROI of this investment (if held until expiration) is +20.9% (+32.3% * 64.8%).

The 'crossover price' at expiration is $54.06 ($51.53 + $2.53). This is the price above which it would have been more profitable to simply buy-and-hold LVS stock until April 17th (the Apr2015 options expiration date) rather than establish this covered calls position.

Established Covered Calls Position -- BP Plc ADR

Today, a new covered calls position was established in BP Plc ADR (ticker symbol BP).  Two hundred shares of BP were purchased at $37.22 and two in-the-money Apr2015 Call options were sold at the $36.00 strike price for $1.92 each.

As shown below, this investment will provide a +1.6% absolute return in 37 days (which is equivalent to a +16.0% annualized return) if BP stock closes above the $36.00 strike price on the April 17th options expiration date.

This potential return-on-investment result is attractive to us option sellers for a relatively conservative investment -- there is 3.3% downside protection (from the current $37.22 stock price to the $36.00 strike price).  The implied volatility in the options was 29.5 when this position was established and there is no quarterly earnings report prior to April 17th. 

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

1. BP Plc ADR (BP)
The transactions were as follows:
03/13/2015 Bought 200 BP shares @ $37.22
03/13/2015 Sold 2 BP Apr2015 $36.00 Call Options @ $1.92
Note: the price of BP was $37.22 today when these options were sold.

A possible overall performance result (including commissions) for these BP Plc ADR covered calls is as follows:
Stock Purchase Cost: $7,452.95
= ($37.22*200+$8.95 commission)

Net Profit:
(a) Options Income: +$373.55
= 200*$1.92 - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BP assigned at $36.00) = -$252.95
= ($36.00-$37.22)*200 - $8.95 commissions

Total Net Profit (If BP assigned at $36.00): +$120.60
= (+$373.55 +$0.00 -$252.95)

Absolute Return if Assigned (at $36.00 strike price): +1.6%
= +$120.60/$7,452.95
Annualized Return If Assigned (ARIA): +16.0%
= (+$120.60/$7,452.95)*(365/37 days)

The downside 'breakeven price' at expiration is at $35.30 ($37.22 - $1.92), which is 5.2% below the current market price of $37.22.
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Apr2015 options expiration) for this BP covered calls position is 63.0%. This compares with a probability of profit of 50.2% for a buy-and-hold of BP over the same time period. Using this probability of profit of 63.0%, the Expected Value annualized ROI of this investment (if held until expiration) is +10.0% (+16.0% * 63.0%).

The 'crossover price' at expiration is $39.14 ($37.22 + $1.92). This is the price above which it would have been more profitable to simply buy-and-hold BP stock until April 17th (the Apr2015 options expiration date) rather than establish this covered calls position.

Established New Positions in iShares China Large-Cap ETF, VeriFone Systems Inc., and VMware Inc.

The Covered Calls Advisor established three short 100% cash-secured Puts positions in iShares China Large-Cap ETF (ticker symbol FXI), VeriFone Systems Inc. (ticker symbol PAY), and VMware Inc. (ticker symbol VMW).  All three positions were established with a March 2015 options expiration date.  The Covered Calls Advisor does not use margin, so the detailed information on these positions and some potential return-on-investment results shown below reflect the fact that these positions were established using 100% cash securitization for the Put options sold.

• The iShares China Large-Cap ETF investment will yield a +1.5% absolute return in 10 days (which is equivalent to a +55.4% annualized return-on-investment) if FXI closes above the $41.00 strike price on the Mar2015 options expiration date. 
• The VeriFone Systems Inc. investment will yield a +1.4% absolute return in 11 days (which is equivalent to a +48.0% annualized return-on-investment) if PAY closes above the $32.00 strike price on the Mar2015 options expiration date. 
• The VMware Inc. investment will yield a +1.2% absolute return in 10 days (which is equivalent to a +45.5% annualized return-on-investment) if VMW closes above the $80.00 strike price on the Mar2015 options expiration date. 

 The details for each of these positions is as follows:

1.  iShares China Large-Cap ETF (FXI) -- New Position
The transaction was as follows:
03/11/2015  Sold 3 FXI Mar2015 $41.00 100% cash-secured Put options @ $.66
Note: The price of FXI was $40.85 when this transaction was executed.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $12,300.00
= $41.00*300

Net Profit:
(a) Options Income: +$186.80
= ($.66*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI is above $41.00 strike price at Mar2015 expiration): +$0.00
= ($41.00-$41.00)*300 shares

Total Net Profit (If FXI is above $41.00 strike price at Mar2015 options expiration): +$186.80
= (+$186.80 +$0.00 +$0.00)

Absolute Return (If FXI is above $41.00 strike price at Mar2015 options expiration): +1.5%
= +$186.80/$12,300.00
Annualized Return: +55.4%
= (+$186.80/$12,300.00)*(365/10 days)

The downside 'breakeven price' at expiration is at $40.34 ($41.00 - $.66), which is 1.5% below the current market price of $40.85.
The 'crossover price' at expiration is $41.51 ($40.85 + $.66).  This is the price above which it would have been more profitable to simply buy-and-hold FXI until March 20th (the Mar2015 options expiration date) rather than selling these Put options.

2.  VeriFone Systems Inc. (PAY) -- New Position
The transaction was as follows:
03/10/2015  Sold 3 PAY Mar2015 $32.00 100% cash-secured Put options @ $.50
Note: The price of PAY was $33.72 when this transaction was executed.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $9,600.00
= $32.00*300

Net Profit:
(a) Options Income: +$138.80
= ($.50*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PAY is above $32.00 strike price at Mar2015 expiration): +$0.00
= ($32.00-$32.00)*300 shares

Total Net Profit (If PAY is above $32.00 strike price at Mar2015 options expiration): +$138.80
= (+$138.80 +$0.00 +$0.00)

Absolute Return (If PAY is above $32.00 strike price at Mar2015 options expiration): +1.4%
= +$138.80/$9,600.00
Annualized Return (If PAY is above $32.00 at expiration): +48.0%
= (+$138.80/$9,600.00)*(365/11 days)

The downside 'breakeven price' at expiration is at $31.50 ($32.00 - $.50), which is 6.6% below the current market price of $33.72.
The 'crossover price' at expiration is $34.22 ($33.72 + $.50).  This is the price above which it would have been more profitable to simply buy-and-hold PAY until March 20th (the Mar2015 options expiration date) rather than selling these Put options.

3.  VMware Inc. (VMW) -- New Position
The transaction was as follows:
03/11/2015  Sold 2 VMW Mar2015 $80.00 100% cash-secured Put options @ $1.05
Note: The price of VMW was $80.82 when this transaction was executed.

A possible overall performance result (including commissions) would be as follows: 100% Cash-Secured Cost Basis: $16,000.00
= $80.00*200

Net Profit:
(a) Options Income: +$199.55
= ($1.05*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If VMW is above $80.00 strike price at Mar2015 expiration): +$0.00
= ($80.00-$80.00)*200 shares

Total Net Profit (If VMW is above $80.00 strike price at Mar2015 options expiration): +$199.55
= (+$199.55 +$0.00 +$0.00)

Absolute Return (If VMW is above $80.00 strike price at Mar2015 options expiration): +1.2%
= +$199.55/$16,000.00
Annualized Return: +45.5%
= (+$199.55/$16,000.00)*(365/10 days)

The downside 'breakeven price' at expiration is at $78.95 ($80.00 - $1.05), which is 2.3% below the current market price of $80.82.
The 'crossover price' at expiration is $81.87 ($80.82 + $1.05).  This is the price above which it would have been more profitable to simply buy-and-hold VMW until March 20th (the Mar2015 options expiration date) rather than selling these Put options.


4. Alibaba Group Holding Limited (BABA)  -- Closed

The transactions were 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.
02/20/2015 BABA closed below strike price and 100 shares BABA purchased at $95.00 strike price 
02/26/2015 Sold 100 Alibaba shares @ $86.83

The overall performance result (including commissions) for this transaction was as follows:
100% Cash-Secured Cost Basis: $9,500.00
= $95.00*100
Note:  the price of  BABA was $98.55 when this 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: -$817.00
= ($86.83-$95.00)*100 shares

Total Net Profit: -$524.70
= (+$292.30 +$0.00 -$817.00)

Absolute Return: -5.5%
= -$524.70/$9,500.00
Annualized Return: -46.9%
= (-$524.70/$9,500.00)*(365/43 days)

Delta Air Lines Inc. Position Closed

The March 6, 2015 weekly covered calls position in Delta Air Lines Inc. expired last Friday with the stock below the $44.00 strike price.  Today, the position was closed out by selling the 300 shares in the Covered Calls Advisor portfolio.  The position was closed out since there is already an existing short Puts position with Delta in the portfolio with a Mar2015 expiration and at the $44.00 strike price.

As detailed below, this closed investment yielded a +1.3% absolute return in 10 days (which is equivalent to a +46.7% annualized return-on-investment).  The associated transactions and financial results are:

Delta Air Lines Inc. (DAL) -- Closed
The transactions were as follows:
02/27/2015 Sold 3 Delta Air Lines Inc. Mar 6, 2015 $44.00 Puts @ $.69
Note: The price of DAL was $45.35 when this transaction was executed.
03/06/2015 3 DAL Puts assigned, so 300 shares of DAL purchased at $44.00 strike price
Note: the price of Delta was $43.78 upon Friday's option expiration
03/09/2015 Sold 300 Delta Air Lines Inc. stock at $43.94

The Covered Calls Advisor does not use margin, so the detailed information on this position and the results 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 transaction was as follows:
100% Cash-Secured Cost Basis: $13,200.00
= $44.00*300
Note:  the price of DAL was $43.78 when these Put options were assigned.

Net Profit:
(a) Options Income: +$195.80
= ($.69*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$26.95
= ($43.94-$44.00)*300 shares - $8.95 commission

Total Net Profit: +$168.85
= (+$195.80 +$0.00 -$26.95)

Absolute Return: +1.3%
= +$168.85/$13,200.00
Annualized Return: +46.7%
= (+$177.80/$13,200.00 )*(365/10 days)

Short Weekly Puts Position in Delta Air Lines, Inc. is Assigned

The Covered Calls Advisor's 100% cash-secured Puts position in Delta Air Lines Inc. (ticker symbol DAL) ended at the market close yesterday with the price of Delta stock at $43.78, which was below the $44.00 strike price.  Therefore, the three short Puts were assigned and 300 shares of DAL have now been purchased at the $44.00 strike price.  A decision will be made early next week to either sell these shares or to establish a Mar2015 covered calls position by selling three Call options against the 300 shares now owned. When a trade is made, it will be posted on this blog site on the same day that it occurs along with the details of this DAL position to-date.

Established New Position in United Continental Holdings Inc.

Today, the Covered Calls Advisor established a new position in United Continental Holdings Inc.(ticker symbol UAL) by selling three Mar2015 Put options at the $63.00 strike price. This is the second short Puts position established with UAL (the prior position is at the $60.00 strike price and also for the Mar2015 options expiration).  Both positions are conservative ones in that they were established with substantial downside protection.

As detailed below, the United Continental investment will yield a +1.4% absolute return in 15 days (which is equivalent to a +34.1% annualized return-on-investment) if UAL closes above the $63.00 strike price on the Mar2015 options expiration date. 

This potential return is excellent given the 6.1% downside protection (from the current $67.11 stock price to the $63.00 strike price) when the position was established.  The implied volatility in the options was high at 45 when this position was established; so the $.92 price per share received when the Puts were sold is very attractive to us option sellers, especially since the level of unknowns between now and the Mar2015 options expiration is relatively low, given that UAL has already announced their 4th quarter earnings results.  With about 30% of airline companies' operating earnings coming from fuel expense, they will likely continue to achieve substantial earnings benefits (compared with last year) for at least the next two quarters from oil prices that are substantially below where they were in the prior year.  Their bookings are stable and their pricing remains strong.  This situation does not appear to be fully appreciated in the price of airlines stocks, including United Continental.    

1.  United Continental Holdings Inc. (UAL) -- New Position
The transaction was as follows:
03/06/2015  Sold 3 UAL 100% cash-secured $63.00 Put options @ $.92
Note: The price of UAL was $67.11 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 both of these positions were established using 100% cash securitization for the three Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $18,900.00
= $63.00*300

Net Profit:
(a) Options Income: +$264.80
= ($.92*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UAL is above $63.00 strike price at Mar2015 expiration): +$0.00
= ($63.00-$63.00)*300 shares

Total Net Profit (If UAL is above $63.00 strike price at Mar2015 options expiration): +$264.80
= (+$264.80 +$0.00 +$0.00)

Absolute Return (If UAL is above $63.00 strike price at Mar2015 options expiration): +1.4%
= +$264.80/$18,900.00
Annualized Return (If UAL is above $60.00 at expiration): +34.1%
= (+$264.80/$18,900.00)*(365/15 days)

The downside 'breakeven price' at expiration is at $62.08 ($63.00 - $.92), which is 7.5% below the current market price of $67.11.
The 'crossover price' at expiration is $68.03 ($67.11 + $.92).  This is the price above which it would have been more profitable to simply buy-and-hold UAL until March 20th (the Mar2015 options expiration date) rather than selling these Put options.

Established March2015 Short 100% Cash-Secured Puts Position in Pilgrims Pride Corp

Today, the Covered Calls Advisor established a new position in Pilgrims Pride Corp. (Symbol PPC) by selling 3 March 2015 $26.00 Put options.

This position indicates that the Covered Calls Advisor would be very willing to purchase Pilgrims Pride shares at $26.00 (for future covered calls investments) upon the close of business on the March 20th options expiration date if the stock continues to decline to below the $26.00 strike price.  A conservative (4.5% out-of-the-money) short Puts position  was established.  If the stock remains above $26.00 by the market close on March 20th, then the $114.80 profit detailed below (a +1.5% absolute return-on-investment result in only 17 days) will have been achieved.

This transaction and a potential return-on-investment result is:

1.  Pilgrims Pride Corp. (PPC) -- New Position
The transaction was as follows:
03/05/2015 Sold 3  Pilgrims Pride Corp. Mar2015 $26.00 Puts @ $.42
Note: The price of PPC was $27.23 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 transaction would be as follows:
100% Cash-Secured Cost Basis: $7,800.00
= $26.00*300
Note:  the price of  Pilgrims Pride was $27.23 when these Put options were sold.

Net Profit:
(a) Options Income: +$114.80
= ($.42*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PPC is above $26.00 strike price at Mar 20th, 2015 expiration): +$0.00
= ($26.00-$26.00)*300 shares
Total Net Profit (If PPC is above $26.00 strike price upon Mar2015 options expiration): +$114.80
= (+$114.80 +$0.00 +$0.00)

Absolute Return (If PPC is above $26.00 strike price at Mar2015 options expiration): +1.5%
= +$114.80/$7,800.00

Annualized Return (If PPC is above $26.00 at expiration): +31.6%
= (+$114.80/$7,800.00)*(365/17 days)

The downside 'breakeven price' at expiration is at $25.58 ($26.00 - $.42), which is 6.1% below the current market price of $27.23.
The 'crossover price' at expiration is $27.65 ($27.23 + $.42).  This is the price above which it would have been more profitable to simply buy-and-hold  Pilgrims Pride stock until March 20th (the Mar2015 options expiration date) rather than selling these Put options.

Established March2015 Short 100% Cash-Secured Puts Position in United States Steel Corp.

Today, the Covered Calls Advisor established a new position in United States Steel Corp. (Symbol X) by selling 3 March 2015 $21.00 Put options.

This position indicates that the Covered Calls Advisor would be very willing to purchase U.S. Steel shares at $21.00 (for future covered calls investments) upon the close of business on the March 20th options expiration date if the stock continues to decline to below the $21.00 strike price.  A conservative (5.4% out-of-the-money) short Puts position  was established.  If the stock remains above $21.00 by the market close on March 20th, then the $114.80 profit detailed below (a +1.8% absolute return-on-investment result in only 18 days) will have been achieved.

This transaction and a potential return-on-investment result is:

1.  United States Steel Corp. (X) -- New Position
The transaction was as follows:
03/04/2015 Sold 3 United States Steel Corp. Mar2015 $21.00 Puts @ $.42
Note: The price of X was $22.20 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 transaction would be as follows:
100% Cash-Secured Cost Basis: $6,300.00
= $21.00*300
Note:  the price of U.S. Steel was $22.20 when these Put options were sold.

Net Profit:
(a) Options Income: +$114.80
= ($.42*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If X is above $21.00 strike price at Mar 20th, 2015 expiration): +$0.00
= ($21.00-$21.00)*300 shares

Total Net Profit (If X is above $21.00 strike price upon Mar2015 options expiration): +$114.80
= (+$114.80 +$0.00 +$0.00)

Absolute Return (If X is above $21.00 strike price at Mar2015 options expiration): +1.8%
= +$114.80/$6,300.00

Annualized Return (If X is above $21.00 at expiration): +37.0%
= (+$114.80/$6,300.00)*(365/18 days)

The downside 'breakeven price' at expiration is at $20.58 ($21.00 - $.42), which is 7.3% below the current market price of $22.20.
The 'crossover price' at expiration is $22.62 ($22.20 + $.42).  This is the price above which it would have been more profitable to simply buy-and-hold United States Steel stock until March 20th (the Mar2015 options expiration date) rather than selling these Put options.

Established March2015 Short 100% Cash-Secured Puts Position in Delta Air Lines Inc.

Today, the Covered Calls Advisor established a new position in Delta Air Lines Inc. (Symbol DAL) by selling 3 March 2015 $44.00 Put options.

This position indicates that the Covered Calls Advisor would be very willing to purchase Delta shares at $44.00 (for future covered calls investments) upon the close of business on the March 20th options expiration date if the stock continues to decline to below the $44.00 strike price.  If the stock remains above $44.00 by the market close on March 20th, then the $276.80 profit detailed below (a +2.1% absolute return-on-investment result in only 18 days) will have been achieved.

A conservative (2.0% out-of-the-money) short Puts position  was established.  The investment thesis is that for at least the next six months, the cost of oil will continue to be substantially below the prior year levels. 
 
This transaction and a potential return-on-investment result is:

1.  Delta Air Lines Inc. (DAL) -- New Position
The transaction was as follows:
03/04/2015 Sold 3 Delta Air Lines Inc. Mar2015 $44.00 Puts @ $.96
Note: The price of DAL was $44.93 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 three Put options sold.

A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $13,200.00
= $44.00*300
Note:  the price of DAL was $44.93 when these Put options were sold.

Net Profit:
(a) Options Income: +$276.80
= ($.96*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If DAL is above $44.00 strike price at Mar 20th, 2015 expiration): +$0.00
= ($44.00-$44.00)*300 shares

Total Net Profit (If DAL is above $44.00 strike price upon Mar2015 options expiration): +$276.80
= (+$276.80 +$0.00 +$0.00)

Absolute Return (If DAL is above $44.00 strike price at Mar2015 options expiration): +2.1%
= +$276.80/$13,200.00

Annualized Return (If DAL is above $44.00 at expiration): +42.5%
= (+$276.80/$13,200.00)*(365/18 days)

The downside 'breakeven price' at expiration is at $43.04 ($44.00 - $.96), which is 4.2% below the current market price of $44.93.
The 'crossover price' at expiration is $45.89 ($44.93 + $.96).  This is the price above which it would have been more profitable to simply buy-and-hold Delta Air Lines stock until March 20th (the Mar2015 options expiration date) rather than selling these Put options.