The Covered Calls Advisor does not use margin, so the detailed information on these positions and some potential results shown below reflect the fact that both positions were established using 100% cash securitization for the Put options sold.
As detailed below, the potential returns are:
1. Apple Inc.: +1.0% absolute return in 19 days (equivalent to a +18.4% annualized return-on-investment)
2. iShares China Large-Cap ETF: +1.6% absolute return in 19 days (equivalent to a +30.0% annualized return-on-investment)
Note: the Implied Volatility (IV) of the options at the time they were sold was 25 for Apple Inc. and 37 for iShares China Large-Cap ETF, so both options exceeded the Covered Calls Advisor's minimum threshold of IV>20 and thus provides a sufficiently attractive potential return-on-investment relative to the conservative risk profile of each position.
1. Apple Inc. (AAPL) -- New PositionThe transaction was as follows:
02/29//2016 Sold 2 AAPL 100% cash-secured $94.00 Put options @ $.95
Note: The price of AAPL was $97.47 when this transaction was executed.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $18,807.95
= $94.00*200 + $7.95
Net Profit:
(a) Options Income: +$180.55
= ($.95*200 shares) - $9.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AAPL is above $94.00 strike price at Mar2016 expiration): +$0.00
= ($94.00-$94.00)*200 shares
Total Net Profit (If Apple is above $94.00 strike price at Mar2016 options expiration): +$180.55
= (+$180.55 +$0.00 +$0.00)
Absolute Return (If AAPL is above $94.00 strike price at Mar2016 options expiration): +1.0%
= +$180.55/$18,807.95
Annualized Return (If EPD is above $20.00 at expiration): +18.4%
= (+$180.55/$18,807.95)*(365/19 days)
The downside 'breakeven price' at expiration is at $93.05 ($94.00 - $.95), which is 4.5% below the current market price of $97.47.
The 'crossover price' at expiration is $98.42 ($97.47 + $.95). This is the price above which it would have been more profitable to simply buy-and-hold Apple stock until March 18th (the Mar2016 options expiration date) rather than selling these Put options.
2. iShares China Large-Cap ETF (FXI) -- New Position
02/29/2016 Sold 4 FXI 100% cash-secured $29.00 Put options @ $.48
Note: The price of FXI was $30.37 when this transaction was executed.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $11,607.95
= $29.00*400 + $7.95
Net Profit:
(a) Options Income: +$181.05
= ($.48*400 shares) - $10.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI is above $29.00 strike price at Mar2016 expiration): +$0.00
= ($29.00 -$29.00)*400 shares
Total Net Profit (If FXI is above $29.00 strike price at Mar2016 options expiration): +$181.05
= (+$181.05 +$0.00 +$0.00)
Absolute Return (If FXI is above $29.00 strike price at Mar2016 options expiration): +1.6%
= +$181.05/$11,607.95
Annualized Return (If EEM is above $62.50 at expiration): +30.0%
= (+$181.05/$11,607.95)*(365/19 days)
The downside 'breakeven price' at expiration is at $28.52 ($29.00 - $.48), which is 6.1% below the current market price of $30.37.
The 'crossover price' at expiration is $30.85 ($30.37 + $.48). This is the price above which it would have been more profitable to simply buy-and-hold FXI shares until March 18th (the Mar2016 options expiration date) rather than selling these Put options.
