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The Covered Calls Advisor Portfolio established new positions in JPMorgan Chase and Co. (ticker symbol JPM) and MetLife Inc. (ticker MET) by selling 100% cash-secured Put options. In both cases, the Sept2015 options expiration was chosen and conservative out-of-the-money Puts were sold with downside protection to the strike prices.
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 these positions were established using 100% cash securitization for the Put options sold.
As detailed below, the JPMorgan investment will yield a +1.7% absolute return in 18 days (which is equivalent to a +35.3% annualized return-on-investment) if the stock closes above the $60.50 strike price on the Sep2015 options expiration date.
The MetLife investment will yield a +1.9% absolute return in 19 days (which is equivalent to a +37.2% annualized return-on-investment) if the stock closes above the $48.00 strike price on the Sep2015 options expiration date.
The transaction was as follows:
09/01//2015 Sold 3 JPM 100% cash-secured $60.50 Put options @ $1.09
Note: The price of JPM was $62.54 when this transaction was executed.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $18,158.95
= $60.50*300 + $8.95
Net Profit:
(a) Options Income: +$315.80
= ($1.09*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If JPM is above $60.50 strike price at Sep2015 expiration): +$0.00
= ($60.50-$60.50)*300 shares
Total Net Profit (If JPM is above $60.50 strike price at Sep2015 options expiration): +$315.80
= (+$315.80 +$0.00 +$0.00)
Absolute Return (If JPM is above $60.50 strike price at Sep2015 options expiration): +1.7%
= +$315.80/$18,158.95
Annualized Return (If JPM is above $60.50 at expiration): +35.3%
= (+$315.80/$18,158.95)*(365/18 days)
The downside 'breakeven price' at expiration is at $59.41 ($60.50 - $1.09), which is 5.0% below the current market price of $62.54.
The 'crossover price' at expiration is $63.63 ($62.54 + $1.09). This is the price above which it would have been more profitable to simply buy-and-hold JPMorgan stock until Sept 18th (the Sep2015 options expiration date) rather than selling these Put options.
2. MetLife Inc. (MET) -- New Position
The transaction was as follows: 08/31/2015 Sold 4 MetLife Inc. Sep2015 $48.00 Puts @ $.96
Note: The price of MET was $49.55 when this transaction was executed.
A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $19,200.00
= $48.00*400
Note: the price of MET was $49.55 when these Put options were sold.
Net Profit:
(a) Options Income: +$372.05
= ($.96*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MET is above $48.00 strike price at Sep2015 expiration): +$0.00
= ($48.00-$48.00)*400 shares
Total Net Profit (If MET is above $48.00 strike price upon the Sep2015 options expiration): +$372.05
= (+$372.05 +$0.00 +$0.00)
Absolute Return (If MET is above $48.00 strike price at Sep2015 options expiration): +1.9%
= +$372.05/$19,200.00
Annualized Return: +37.2%
= (+$372.05/$19,200.00)*(365/19 days)
The downside 'breakeven price' at expiration is at $47.04 ($48.00 - $.96), which is 5.1% below the market price when the Put options were sold.
The 'crossover price' at expiration is $50.51 ($49.55 + $.96). This is the price above which it would have been more profitable to simply buy-and-hold MET shares until September 18th (the Sep2015 options expiration date) rather than selling these Put options.
