As detailed below, the Capital One Financial investment will yield a +0.8% absolute return in 8 days (which is equivalent to a +36.8% annualized return-on-investment) if COF closes above the $76.00 strike price on the Nov2015 options expiration date.
This potential return is very nice given the downside protection (from the $77.12 stock price to the $76.00 strike price) when the position was established. The implied volatility in the options was 25 when this position was established; so the $.65 price per share received when the Puts were sold is a nice premium to receive for us option sellers.
1. Capital One Financial Corporation (COF) -- New Position
The transaction was as follows: 11/13/2015 Sold 3 COF 100% cash-secured $76.00 Put options @ $.65
Note: The price of COF was $77.12 today when this transaction was executed.
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) would be as follows:
100% Cash-Secured Cost Basis: $22,800.00
= $76.00*300
Net Profit:
(a) Options Income: +$183.80
= ($.65*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If COF is above $76.00 strike price at Nov2015 expiration): +$0.00
= ($76.00-$76.00)*300 shares
Total Net Profit (If COF is above $76.00 strike price at Nov2015 options expiration): +$183.80
= (+$183.80 options income +$0.00 dividend income +$0.00 capital appreciation)
Absolute Return (If COF is above $76.00 strike price at Nov2015 options expiration): +0.8%
= +$183.80/$22,800.00
Annualized Return: +36.8%
= (+$183.80/$22,800.00)*(365/8 days)
The downside 'breakeven price' at expiration is at $75.35 ($76.00 - $.65), which is 2.3% below the current market price of $77.12.
The 'crossover price' at expiration is $77.77 ($77.12 + $.65). This is the price above which it would have been more profitable to simply buy-and-hold COF until Nov 20th (the Nov2015 options expiration date) rather than selling these Put options.
