Today, the Covered Calls Advisor established a 100% cash-secured Puts position in iShares China Large-Cap ETF (Symbol FXI) by selling 3 Sep2015 Put options at the $38.50 strike price. This position indicates that the Covered Calls Advisor is willing to purchase FXI shares at $38.50 (for future covered calls investments) upon the market close on September 18th if the stock declines to below $38.50 at that time. This is a somewhat conservative investment since FXI was at $39.75 (3.1% above the strike price) when this position was established.
As detailed below, this investment will achieve a +1.9% absolute return in 33 days (which is equivalent to a +21.0% annualized return) if FXI remains above $38.50 at the September 18th options expiration date.
This transaction and the associated potential return-on-investment result is detailed below.
1. iShares China Large-Cap ETF (FXI) -- New Position
The transaction was as follows:
08/17/2015 Sold 3 iShares China Large-Cap ETF Sep2015 $38.50 Puts @ $.77
Note: The price of FXI was $39.75 when this transaction was executed.
Note: The Covered Calls Advisor does not use margin, so the detailed information on this position and a potential result 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: $11,550.00
= $38.50*300
Note: the price of FXI was $39.75 when the Put options were sold.
Net Profit:
(a) Options Income: +$219.80
= ($.77*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI is above $38.50 strike price at Sep2015 expiration): +$0.00
= ($38.50-$38.50)*300 shares
Total Net Profit (If FXI is above $38.50 strike price upon the Sep2015 options expiration): +$219.80
= (+$219.80 +$0.00 +$0.00)
Absolute Return (If FXI is above $38.50 strike price at Sep2015 options expiration): +1.9%
= +$219.80/$11,550.00
Annualized Return: +21.0%
= (+$219.80/$11,550.00)*(365/33 days)
The downside 'breakeven price' at expiration is at $37.73 ($38.50 - $.77), which is 5.1% below the current market price.
The 'crossover price' at expiration is $40.52 ($39.75 + $.77). This is the price above which it would have been more profitable to simply buy-and-hold FXI shares until September 18th (the Sep2015 options expiration date) rather than selling these Put options.
Monday, August 17, 2015
Saturday, August 15, 2015
Early Exercise of Chevron Corporation Covered Calls Position
The transactions associated with this Chevron Corporation position were as follows:
08/12/2015 Bought 200 CVX shares @ $85.24
08/12/2015 Sold 2 CVX Aug2015 $84.00 Call options @ $1.75
08/15/2015 Sold 200 CVX shares assigned @ $84.00
The performance result (including commissions) for this Chevron (CVX) covered calls position was as follows:
Stock Purchase Cost: $17,056.95
= ($85.24*200+$8.95 commission)
Net Profit:
(a) Options Income: +$339.55
= ($1.75*200 shares) - $10.45 commissions
(b) Dividend Income (Option exercised early on business day prior to Aug 17th ex-div date): +$0.00;
(c) Capital Appreciation [Stock assigned early on Aug 14th (business day prior to Aug 17th ex-div date)]: -$256.95
+($84.00-$85.24)*200 - $8.95 commissions
+($84.00-$85.24)*200 - $8.95 commissions
Total Net Profit: +$82.60
= (+$339.55 +$0.00 -$256.95)
Absolute Return: +0.5%
= +$82.60/$17,056.95
Annualized Return on Investment: +44.2%
= (+$82.60/$17,056.95)*(365/4 days)
Friday, August 14, 2015
Established New Short Put Options Position in Dow Chemical Company
Yesterday, the Covered Calls Advisor established a new position in Dow Chemical Company (ticker symbol DOW) by selling three Sep2015 Put options at the $43.00 strike price. This position is a conservative one since it was established with 5.0% downside protection to the strike price.
As detailed below, the Dow Chemical investment will yield a +1.9% absolute return in 37 days (which is equivalent to a +19.1% annualized return-on-investment) if Dow Chemical closes above the $43.00 strike price on the Sep2015 options expiration date.
This potential return is very good given the substantial 5.0% downside protection (from the current $45.25 stock price to the $43.00 strike price) when the position was established. The implied volatility in the options was relatively high at 32 when this position was established; so the $.87 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 Sep2015 options expiration is relatively low, given that DOW has already announced their 2nd quarter earnings results.
1. Dow Chemical Company (DOW) -- New Position
The transaction was as follows:
08/13//2015 Sold 3 DOW Sep2015 $43.00 100% cash-secured Put options @ $.87
Note: The price of DOW was $45.25 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) would be as follows:
100% Cash-Secured Cost Basis: $12,908.95
= $43.00*300 + $8.95
Net Profit:
(a) Options Income: +$249.80
= ($.87*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If DOW is above $43.00 strike price at Sep2015 expiration): +$0.00
= ($43.00-$43.00)*300 shares
Total Net Profit (If DOW is above $43.00 strike price at Sep2015 options expiration): +$249.80
= (+$249.80 +$0.00 +$0.00)
Absolute Return (If DOW is above $43.00 strike price at Sep2015 options expiration): +1.9%
= +$249.80/$12,908.95
Annualized Return (If DOW is above $43.00 at expiration): +19.1%
= (+$249.80/$12,908.95)*(365/37 days)
The downside 'breakeven price' at expiration is at $42.13 ($43.00 - $.87), which is 6.9% below the current market price of $45.25.
The 'crossover price' at expiration is $46.12 ($45.25 + $.87). This is the price above which it would have been more profitable to simply buy-and-hold Dow Chemical stock until Sept 18th (the Sep2015 options expiration date) rather than selling these Put options.
As detailed below, the Dow Chemical investment will yield a +1.9% absolute return in 37 days (which is equivalent to a +19.1% annualized return-on-investment) if Dow Chemical closes above the $43.00 strike price on the Sep2015 options expiration date.
This potential return is very good given the substantial 5.0% downside protection (from the current $45.25 stock price to the $43.00 strike price) when the position was established. The implied volatility in the options was relatively high at 32 when this position was established; so the $.87 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 Sep2015 options expiration is relatively low, given that DOW has already announced their 2nd quarter earnings results.
The transaction was as follows:
08/13//2015 Sold 3 DOW Sep2015 $43.00 100% cash-secured Put options @ $.87
Note: The price of DOW was $45.25 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) would be as follows:
100% Cash-Secured Cost Basis: $12,908.95
= $43.00*300 + $8.95
Net Profit:
(a) Options Income: +$249.80
= ($.87*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If DOW is above $43.00 strike price at Sep2015 expiration): +$0.00
= ($43.00-$43.00)*300 shares
Total Net Profit (If DOW is above $43.00 strike price at Sep2015 options expiration): +$249.80
= (+$249.80 +$0.00 +$0.00)
Absolute Return (If DOW is above $43.00 strike price at Sep2015 options expiration): +1.9%
= +$249.80/$12,908.95
Annualized Return (If DOW is above $43.00 at expiration): +19.1%
= (+$249.80/$12,908.95)*(365/37 days)
The downside 'breakeven price' at expiration is at $42.13 ($43.00 - $.87), which is 6.9% below the current market price of $45.25.
The 'crossover price' at expiration is $46.12 ($45.25 + $.87). This is the price above which it would have been more profitable to simply buy-and-hold Dow Chemical stock until Sept 18th (the Sep2015 options expiration date) rather than selling these Put options.
Wednesday, August 12, 2015
Covered Calls Position Established in Chevron Corporation
Today, a new covered calls position was established in Chevron (ticker symbol CVX) with an Aug2015 expiration. The Chevron stock was purchased at $85.24 and the Aug2015 Call options were simultaneously (i.e. a single buy-write transaction was made) sold at the $84.00 strike price for $1.75 each.
This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (Aug 17th) prior to the August 21st options expiration date. Details of this position is provided below.
1. Chevron Corp. (CVX)
A $1.07 quarterly dividend goes ex-dividend on August 17th. If the current time value (i.e. extrinsic value) of $.51 [$1.75 option premium - ($85.24 stock price - $84.00 strike price)] remaining in the short call options decays further by this Friday (the day prior to next Monday's ex-div date), then there is a good possibility that the call option owner will exercise his/her option on Friday and will call the stock away to capture the dividend.
As shown below, either early assignment this Friday or assignment at the Aug2015 options expiration date (a week from this Friday) will provide excellent return-on-investment results.
These two potential return-on-investment results for this Chevron covered calls position are:
08/12/2015 Bought 200 CVX shares @ $85.24
08/12/2015 Sold 2 CVX Aug2015 $84.00 Call options @ $1.75
08/17/2015 Upcoming ex-dividend of $1.07 per share
Two possible overall performance results (including commissions) for this Chevron (CVX) covered calls position are as follows:
Stock Purchase Cost: $17,056.95
= ($85.24*200+$8.95 commission)
Net Profit:
(a) Options Income: +$339.55
= ($1.75*200 shares) - $10.45 commissions
(b) Dividend Income (If option exercised early on business day prior to Aug 17th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Aug2015 expiration): +$214.00
= ($1.07 dividend per share x 200 shares)
Either outcome would provide a very good return. These returns will be achieved as long as the stock is above the $84.00 strike price at assignment.
This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (Aug 17th) prior to the August 21st options expiration date. Details of this position is provided below.
1. Chevron Corp. (CVX)
As shown below, either early assignment this Friday or assignment at the Aug2015 options expiration date (a week from this Friday) will provide excellent return-on-investment results.
These two potential return-on-investment results for this Chevron covered calls position are:
If Early Assignment: +0.5% absolute return (equivalent to +35.4% annualized return for the next 5 days) if the stock is assigned early (the business day prior to the Aug 17th ex-div date); OR
If Dividend Capture: +1.7% absolute return (equivalent to +63.5% annualized return over the next 10 days) if the stock is assigned at Aug2015 expiration on August 21st. 08/12/2015 Bought 200 CVX shares @ $85.24
08/12/2015 Sold 2 CVX Aug2015 $84.00 Call options @ $1.75
08/17/2015 Upcoming ex-dividend of $1.07 per share
Two possible overall performance results (including commissions) for this Chevron (CVX) covered calls position are as follows:
Stock Purchase Cost: $17,056.95
= ($85.24*200+$8.95 commission)
Net Profit:
(a) Options Income: +$339.55
= ($1.75*200 shares) - $10.45 commissions
(b) Dividend Income (If option exercised early on business day prior to Aug 17th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Aug2015 expiration): +$214.00
= ($1.07 dividend per share x 200 shares)
(c) Capital Appreciation [If stock assigned early on Aug 14th (business day prior to Aug 17th ex-div date)]: -$256.95
+($84.00-$85.24)*200 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $84.00 at Aug2015 expiration): -$256.95
+($84.00-$85.24)*200 - $8.95 commissions
+($84.00-$85.24)*200 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $84.00 at Aug2015 expiration): -$256.95
+($84.00-$85.24)*200 - $8.95 commissions
Total Net Profit (If option exercised on business day prior to Aug 17th ex-div date): +$82.60
= (+$339.55 +$0.00 -$256.95); or
Total Net Profit (If stock assigned at $84.00 at Aug2015 expiration): +$296.60
= (+$339.55 +$214.00 -$256.95)
1. Absolute Return (If option exercised on day prior to ex-div date): +0.5%
= +$82.60/$17,056.95
Annualized Return (If option exercised early): +35.4%
= (+$82.60/$17,056.95)*(365/5 days); OR
2. Absolute Return (If stock assigned at $84.00 at Aug2015 expiration): +1.7%
= +$296.60/$17,056.95
Annualized Return (If stock assigned): +63.5%
= (+$296.60/$17,056.95)*(365/10 days)
Either outcome would provide a very good return. These returns will be achieved as long as the stock is above the $84.00 strike price at assignment.
Established New Short Put Options Position in Micron Technology Inc.
Today, the Covered Calls Advisor established a new position in Micron Technology Inc. (ticker symbol MU) by selling seven Sep2015 Put options at the $17.00 strike price. This position is a conservative one since it was established with 3.7% downside protection to the strike price.
As detailed below, the Micron Technology investment will yield a +4.5% absolute return in 38 days (which is equivalent to a +42.9% annualized return-on-investment) if Micron closes above the $17.00 strike price on the Sep2015 options expiration date.
This potential return is excellent given the 3.7% downside protection (from the current $17.66 stock price to the $17.00 strike price) when the position was established. The implied volatility in the options was high at 49 when this position was established; so the $.78 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 Sep2015 options expiration is relatively low, given that MU has already announced their 2nd quarter earnings results.
1. Micron Technology Inc. (MU) -- New Position
The transaction was as follows:
08/12//2015 Sold 7 MU 100% cash-secured $17.00 Put options @ $.78
Note: The price of MU was $17.66 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) would be as follows:
100% Cash-Secured Cost Basis: $11,908.95
= $17.00*700 + $8.95
Net Profit:
(a) Options Income: +$531.80
= ($.78*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MU is above $17.00 strike price at Sep2015 expiration): +$0.00
= ($17.00-$17.00)*700 shares
Total Net Profit (If MU is above $17.00 strike price at Sep2015 options expiration): +$531.80
= (+$531.80 +$0.00 +$0.00)
Absolute Return (If MU is above $17.00 strike price at Sep2015 options expiration): +4.5%
= +$531.80/$11,908.95
Annualized Return (If MU is above $17.00 at expiration): +42.9%
= (+$531.80/$11,908.95)*(365/38 days)
The downside 'breakeven price' at expiration is at $16.22 ($17.00 - $.78), which is 8.2% below the current market price of $17.66.
The 'crossover price' at expiration is $18.44 ($17.66 + $.78). This is the price above which it would have been more profitable to simply buy-and-hold Micron stock until Sept 18th (the Sep2015 options expiration date) rather than selling these Put options.
As detailed below, the Micron Technology investment will yield a +4.5% absolute return in 38 days (which is equivalent to a +42.9% annualized return-on-investment) if Micron closes above the $17.00 strike price on the Sep2015 options expiration date.
This potential return is excellent given the 3.7% downside protection (from the current $17.66 stock price to the $17.00 strike price) when the position was established. The implied volatility in the options was high at 49 when this position was established; so the $.78 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 Sep2015 options expiration is relatively low, given that MU has already announced their 2nd quarter earnings results.
The transaction was as follows:
08/12//2015 Sold 7 MU 100% cash-secured $17.00 Put options @ $.78
Note: The price of MU was $17.66 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) would be as follows:
100% Cash-Secured Cost Basis: $11,908.95
= $17.00*700 + $8.95
Net Profit:
(a) Options Income: +$531.80
= ($.78*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MU is above $17.00 strike price at Sep2015 expiration): +$0.00
= ($17.00-$17.00)*700 shares
Total Net Profit (If MU is above $17.00 strike price at Sep2015 options expiration): +$531.80
= (+$531.80 +$0.00 +$0.00)
Absolute Return (If MU is above $17.00 strike price at Sep2015 options expiration): +4.5%
= +$531.80/$11,908.95
Annualized Return (If MU is above $17.00 at expiration): +42.9%
= (+$531.80/$11,908.95)*(365/38 days)
The downside 'breakeven price' at expiration is at $16.22 ($17.00 - $.78), which is 8.2% below the current market price of $17.66.
The 'crossover price' at expiration is $18.44 ($17.66 + $.78). This is the price above which it would have been more profitable to simply buy-and-hold Micron stock until Sept 18th (the Sep2015 options expiration date) rather than selling these Put options.
Sold Long Position in ProShares Short S&P500 Index
Today, the Covered Calls Advisor sold the remaining half of the the short position in the S&P 500 (ticker symbol SH) that was established in December 2014.
As shown below, 500 of the 1,000 shares in ProShares Short S&P500 Index were sold on January 15, 2015 and the remaining 500 shares were sold today. The overall result was a +1.2% absolute return (equivalent to a +1.9% annualized return-on-investment) for the 236 day period. The overall results for this position are detailed below.
This position was established based on the Covered Calls Advisor's perspective that the U.S. stock market is overvalued and that a profit could be made by going long on the inverse ETF for the S&P 500 index. The resulting profit from this position was only minimally profitable, which simply confirms my long held belief that trying to predict the short-term market trend is not something that can be done accurately on a consistent basis. The lesson learned is to follow my own advice as highlighted in my investing motto which is "Stick with Covered Calls".
Sold ProShares Short S&P500 Index (SH)
The transactions were as follows:
12/19/2014 Bought 1,000 ProShares Short S&P 500 Index (SH) Shares @ $21.68
01/15/2015 Sold 500 SH @ $22.35
08/12/2015 Sold 500 SH @ $21.28
The performance result (including commissions) for this Short S&P500 position was:
Stock Purchase Cost: $10,848.95
= ($21.68*500+$8.95 commission)
Net Profit: $135.00
= ($22.35+$21.28)/2 - $21.68)*1,000 shares
Absolute Return: +1.2%
= +$135.00/$10,848.95
Annualized Return: +1.9%
= (+$135.00/$10,848.95)*(365/236 days)
As shown below, 500 of the 1,000 shares in ProShares Short S&P500 Index were sold on January 15, 2015 and the remaining 500 shares were sold today. The overall result was a +1.2% absolute return (equivalent to a +1.9% annualized return-on-investment) for the 236 day period. The overall results for this position are detailed below.
This position was established based on the Covered Calls Advisor's perspective that the U.S. stock market is overvalued and that a profit could be made by going long on the inverse ETF for the S&P 500 index. The resulting profit from this position was only minimally profitable, which simply confirms my long held belief that trying to predict the short-term market trend is not something that can be done accurately on a consistent basis. The lesson learned is to follow my own advice as highlighted in my investing motto which is "Stick with Covered Calls".
Sold ProShares Short S&P500 Index (SH)
The transactions were as follows:
12/19/2014 Bought 1,000 ProShares Short S&P 500 Index (SH) Shares @ $21.68
01/15/2015 Sold 500 SH @ $22.35
08/12/2015 Sold 500 SH @ $21.28
The performance result (including commissions) for this Short S&P500 position was:
Stock Purchase Cost: $10,848.95
= ($21.68*500+$8.95 commission)
Net Profit: $135.00
= ($22.35+$21.28)/2 - $21.68)*1,000 shares
Absolute Return: +1.2%
= +$135.00/$10,848.95
Annualized Return: +1.9%
= (+$135.00/$10,848.95)*(365/236 days)
Tuesday, August 11, 2015
Covered Calls Position Established in General Motors Co.
Today, a new covered calls position was established in General Motors Co. (ticker symbol GM) with a Sept2015 expiration. The General Motors stock was purchased at $30.93 and the Sep2015 Call options were simultaneously (i.e. a single buy-write transaction was made) sold at the $30.00 strike price for $1.45 each.
This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (likely on Sept 7th) prior to the September 18th options expiration date. Details of this position is provided below.
1. General Motors Co (GM)
A $.36 quarterly dividend goes ex-dividend around September 7th (note: on Sept 2nd, GM declared a $.36 quarterly dividend with an ex-div date of Sept 10th). Although unlikely, if the current time value (i.e. extrinsic value) of $.52 [$1.45 option premium - ($30.93 stock price - $30.00 strike price)] remaining in the short call options decay substantially below the $.36 dividend amount by September 6th (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:
08/11/2015 Bought 300 GM shares @ $30.93
08/11/2015 Sold 3 GM Sep2015 $30.00 Call options @ $1.45
09/10/2015 Upcoming ex-dividend of $.36 per share
Two possible overall performance results (including commissions) for this General Motors (GM) covered calls position are as follows:
Stock Purchase Cost: $9,287.95
= ($30.93*300+$8.95 commission)
Net Profit:
(a) Options Income: +$423.80
= ($1.45*300 shares) - $11.20 commissions
(b) Dividend Income (If option exercised early on day prior to Sept 7th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Sep2015 expiration): +$108.00
= ($.36 dividend per share x 300 shares)
Either outcome would provide a good return on investment. These returns will be achieved as long as the stock is above the $30.00 strike price at expiration.
This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (likely on Sept 7th) prior to the September 18th options expiration date. Details of this position is provided below.
1. General Motors Co (GM)
As shown below, two potential return-on-investment results for this position are:
If Early Assignment: +1.5% absolute return (equivalent to +19.1% annualized return for the next 28 days) if the stock is assigned early (the day prior to Sept 7th ex-div date); OR
If Dividend Capture: +2.6% absolute return (equivalent to +24.6% annualized return over the next 39 days) if the stock is assigned at Sep2015 expiration on Sept 18th. 08/11/2015 Bought 300 GM shares @ $30.93
08/11/2015 Sold 3 GM Sep2015 $30.00 Call options @ $1.45
09/10/2015 Upcoming ex-dividend of $.36 per share
Two possible overall performance results (including commissions) for this General Motors (GM) covered calls position are as follows:
Stock Purchase Cost: $9,287.95
= ($30.93*300+$8.95 commission)
Net Profit:
(a) Options Income: +$423.80
= ($1.45*300 shares) - $11.20 commissions
(b) Dividend Income (If option exercised early on day prior to Sept 7th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Sep2015 expiration): +$108.00
= ($.36 dividend per share x 300 shares)
(c) Capital Appreciation (If stock assigned early on Sept 6th): -$287.95
+($30.00-$30.930)*300 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $30.00 at Sep2015 expiration): -$287.95
+($30.00-$30.93)*300 - $8.95 commissions
+($30.00-$30.930)*300 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $30.00 at Sep2015 expiration): -$287.95
+($30.00-$30.93)*300 - $8.95 commissions
Total Net Profit (If option exercised on day prior to Sept 7th ex-div date): +$135.85
= (+$423.80 +$0.00 -$287.95); or
Total Net Profit (If stock assigned at $30.00 at Sep2015 expiration): +$243.85
= (+$423.80 +$108.00 -$287.95)
1. Absolute Return (If option exercised on day prior to ex-div date): +1.5%
= +$135.85/$9,287.95
Annualized Return (If option exercised early): +19.1%
= (+$135.85/$9,287.95)*(365/28 days); OR
2. Absolute Return (If stock assigned at $30.00 at Sep2015 expiration): +2.6%
= +$243.85/$9,287.95
Annualized Return (If stock assigned): +24.6%
= (+$243.85/$9,287.95)*(365/39 days)
Either outcome would provide a good return on investment. These returns will be achieved as long as the stock is above the $30.00 strike price at expiration.
Friday, August 7, 2015
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 Sep2015 Put options at the $55.00 strike price. This position is a somewhat conservative one since it was established with 3.2% downside protection to the strike price.
As detailed below, the United Continental investment will yield a +3.6% absolute return in 43 days (which is equivalent to a +30.6% annualized return-on-investment) if UAL closes above the $55.00 strike price on the Sep2015 options expiration date.
This potential return is excellent given the 3.2% downside protection (from the current $56.84 stock price to the $55.00 strike price) when the position was established. The implied volatility in the options was high at 37 when this position was established; so the $2.02 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 Sep2015 options expiration is relatively low, given that UAL has already announced their 2nd 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) from oil prices that are substantially below their prior year pricing. Their bookings are relatively 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:
08/07/2015 Sold 3 UAL 100% cash-secured $55.00 Put options @ $2.02
Note: The price of UAL was $56.84 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: $16,500.00
= $55.00*300
Net Profit:
(a) Options Income: +$594.80
= ($2.02*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UAL is above $55.00 strike price at Sep2015 expiration): +$0.00
= ($55.00-$55.00)*300 shares
Total Net Profit (If UAL is above $55.00 strike price at Sep2015 options expiration): +$594.80
= (+$594.80 +$0.00 +$0.00)
Absolute Return (If UAL is above $55.00 strike price at Sep2015 options expiration): +3.6%
= +$594.80/$16,500.00
Annualized Return (If UAL is above $55.00 at expiration): +30.6%
= (+$594.80/$16,500.00)*(365/43 days)
The downside 'breakeven price' at expiration is at $52.98 ($55.00 - $2.02), which is 6.8% below the current market price of $56.84.
The 'crossover price' at expiration is $58.86 ($56.84 + $2.02). This is the price above which it would have been more profitable to simply buy-and-hold UAL until Sept 18th (the Sep2015 options expiration date) rather than selling these Put options.
As detailed below, the United Continental investment will yield a +3.6% absolute return in 43 days (which is equivalent to a +30.6% annualized return-on-investment) if UAL closes above the $55.00 strike price on the Sep2015 options expiration date.
This potential return is excellent given the 3.2% downside protection (from the current $56.84 stock price to the $55.00 strike price) when the position was established. The implied volatility in the options was high at 37 when this position was established; so the $2.02 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 Sep2015 options expiration is relatively low, given that UAL has already announced their 2nd 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) from oil prices that are substantially below their prior year pricing. Their bookings are relatively stable and their pricing remains strong. This situation does not appear to be fully appreciated in the price of airlines stocks, including United Continental.
The transaction was as follows:
08/07/2015 Sold 3 UAL 100% cash-secured $55.00 Put options @ $2.02
Note: The price of UAL was $56.84 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: $16,500.00
= $55.00*300
Net Profit:
(a) Options Income: +$594.80
= ($2.02*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UAL is above $55.00 strike price at Sep2015 expiration): +$0.00
= ($55.00-$55.00)*300 shares
Total Net Profit (If UAL is above $55.00 strike price at Sep2015 options expiration): +$594.80
= (+$594.80 +$0.00 +$0.00)
Absolute Return (If UAL is above $55.00 strike price at Sep2015 options expiration): +3.6%
= +$594.80/$16,500.00
Annualized Return (If UAL is above $55.00 at expiration): +30.6%
= (+$594.80/$16,500.00)*(365/43 days)
The downside 'breakeven price' at expiration is at $52.98 ($55.00 - $2.02), which is 6.8% below the current market price of $56.84.
The 'crossover price' at expiration is $58.86 ($56.84 + $2.02). This is the price above which it would have been more profitable to simply buy-and-hold UAL until Sept 18th (the Sep2015 options expiration date) rather than selling these Put options.
Monday, August 3, 2015
Covered Calls Position Established in International Paper
Today, a new covered calls position was established in International Paper (ticker symbol IP) with an Aug2015 expiration. The International Paper stock was purchased at $47.30 and the Aug2015 Call options were simultaneously (i.e. a single buy-write transaction was made) sold at the $46.00 strike price for $1.59 each.
This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (Aug 12th) prior to the August 21st options expiration date. Details of this position is provided below.
1. International Paper (IP)
A $.40 quarterly dividend goes ex-dividend on August 12th. Although unlikely, if the current time value (i.e. extrinsic value) of $.29 [$1.59 option premium - ($47.30 stock price - $46.00 strike price)] remaining in the short call options decay substantially below the $.40 dividend amount by August 11th (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:
08/03/2015 Bought 200 IP shares @ $47.30
08/03/2015 Sold 2 IP Aug2015 $46.00 Call options @ $1.59
08/12/2015 Upcoming ex-dividend of $.40 per share
Two possible overall performance results (including commissions) for this International Paper (IP) covered calls position are as follows:
Stock Purchase Cost: $9,468.95
= ($47.30*200+$8.95 commission)
Net Profit:
(a) Options Income: +$307.55
= ($1.59*200 shares) - $10.45 commissions
(b) Dividend Income (If option exercised early on day prior to Aug 11th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Aug2015 expiration): +$80.00
= ($.40 dividend per share x 200 shares)
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.
This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (Aug 12th) prior to the August 21st options expiration date. Details of this position is provided below.
1. International Paper (IP)
As shown below, two potential return-on-investment results for this position are:
If Early Assignment: +0.4% absolute return (equivalent to +18.6% annualized return for the next 8 days) if the stock is assigned early (the day prior to Aug 12th ex-div date); OR
If Dividend Capture: +1.3 absolute return (equivalent to +24.1% annualized return over the next 19 days) if the stock is assigned at Aug2015 expiration on August 21st. 08/03/2015 Bought 200 IP shares @ $47.30
08/03/2015 Sold 2 IP Aug2015 $46.00 Call options @ $1.59
08/12/2015 Upcoming ex-dividend of $.40 per share
Two possible overall performance results (including commissions) for this International Paper (IP) covered calls position are as follows:
Stock Purchase Cost: $9,468.95
= ($47.30*200+$8.95 commission)
Net Profit:
(a) Options Income: +$307.55
= ($1.59*200 shares) - $10.45 commissions
(b) Dividend Income (If option exercised early on day prior to Aug 11th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Aug2015 expiration): +$80.00
= ($.40 dividend per share x 200 shares)
(c) Capital Appreciation (If stock assigned early on Aug 11th): -$268.95
+($46.00-$47.30)*200 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $46.00 at Aug2015 expiration): -$268.95
+($46.00-$47.30)*200 - $8.95 commissions
+($46.00-$47.30)*200 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $46.00 at Aug2015 expiration): -$268.95
+($46.00-$47.30)*200 - $8.95 commissions
Total Net Profit (If option exercised on day prior to Aug 12th ex-div date): +$38.60
= (+$307.55 +$0.00 -$268.95); or
Total Net Profit (If stock assigned at $46.00 at Aug2015 expiration): +$118.60
= (+$307.55 +$80.00 -$268.95)
1. Absolute Return (If option exercised on day prior to ex-div date): +0.4%
= +$38.60/$9,468.95
Annualized Return (If option exercised early): +16.5%
= (+$38.60/$9,468.95)*(365/9 days); OR
2. Absolute Return (If stock assigned at $46.00 at Aug2015 expiration): +1.3%
= +$118.60/$9,468.95
Annualized Return (If stock assigned): +24.1%
= (+$118.60/$9,468.95)*(365/19 days)
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.
Established Short 100% Cash-Secured Puts Position in iShares China Large-Cap ETF
Today, the Covered Calls Advisor established a 100% cash-secured Puts position in iShares China Large-Cap ETF (Symbol FXI) by selling 7 Aug2015 Put options at the $39.00 strike price. This position indicates that the Covered Calls Advisor is willing to purchase FXI shares at $39.00 (for future covered calls investments) upon the market close on August 21st if the stock declines to below $39.00 at that time. This is a somewhat conservative investment since FXI was at $39.90 (2.2% above the strike price) when this position was established.
As detailed below, this investment will achieve a +1.7% absolute return in 19 days (which is equivalent to a +33.5% annualized return) if FXI remains above $39.00 at the August 21st options expiration date.
This transaction and the associated potential return-on-investment result is detailed below.
1. iShares China Large-Cap ETF (FXI) -- New Position
The transaction was as follows:
08/03/2015 Sold 7 iShares China Large-Cap ETF Aug2015 $39.00 Puts @ $.70
Note: The price of FXI was $39.90 when this transaction was executed.
Note: The Covered Calls Advisor does not use margin, so the detailed information on this position and a potential result 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 transaction would be as follows:
100% Cash-Secured Cost Basis: $27,300.00
= $39.00*700
Note: the price of FXI was $39.90 when the Put options were sold.
Net Profit:
(a) Options Income: +$475.80
= ($.70*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI is above $39.00 strike price at Aug2015 expiration): +$0.00
= ($39.00-$39.00)*700 shares
Total Net Profit (If FXI is above $39.00 strike price upon the Aug2015 options expiration): +$475.80
= (+$475.80 +$0.00 +$0.00)
Absolute Return (If FXI is above $39.00 strike price at Aug2015 options expiration): +1.7%
= +$475.80/$27,300.00
Annualized Return: +33.5%
= (+$475.80/$27,300.00)*(365/19 days)
The downside 'breakeven price' at expiration is at $38.30 ($39.00 - $.70), which is 4.1% below the current market price.
The 'crossover price' at expiration is $40.60 ($39.90 + $.70). This is the price above which it would have been more profitable to simply buy-and-hold FXI shares until August 21st (the Aug2015 options expiration date) rather than holding these short Put options.
As detailed below, this investment will achieve a +1.7% absolute return in 19 days (which is equivalent to a +33.5% annualized return) if FXI remains above $39.00 at the August 21st options expiration date.
This transaction and the associated potential return-on-investment result is detailed below.
1. iShares China Large-Cap ETF (FXI) -- New Position
The transaction was as follows:
08/03/2015 Sold 7 iShares China Large-Cap ETF Aug2015 $39.00 Puts @ $.70
Note: The price of FXI was $39.90 when this transaction was executed.
Note: The Covered Calls Advisor does not use margin, so the detailed information on this position and a potential result 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 transaction would be as follows:
100% Cash-Secured Cost Basis: $27,300.00
= $39.00*700
Note: the price of FXI was $39.90 when the Put options were sold.
Net Profit:
(a) Options Income: +$475.80
= ($.70*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI is above $39.00 strike price at Aug2015 expiration): +$0.00
= ($39.00-$39.00)*700 shares
Total Net Profit (If FXI is above $39.00 strike price upon the Aug2015 options expiration): +$475.80
= (+$475.80 +$0.00 +$0.00)
Absolute Return (If FXI is above $39.00 strike price at Aug2015 options expiration): +1.7%
= +$475.80/$27,300.00
Annualized Return: +33.5%
= (+$475.80/$27,300.00)*(365/19 days)
The downside 'breakeven price' at expiration is at $38.30 ($39.00 - $.70), which is 4.1% below the current market price.
The 'crossover price' at expiration is $40.60 ($39.90 + $.70). This is the price above which it would have been more profitable to simply buy-and-hold FXI shares until August 21st (the Aug2015 options expiration date) rather than holding these short Put options.
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