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 these positions were established using 100% cash securitization for the Put options sold.
As detailed below, the potential returns are:
1. Enterprise Product Partners LP: +2.2% absolute return in 24 days (equivalent to a +32.8% annualized return-on-investment)
2. iShares MSCI Emerging Markets ETF: +1.1% absolute return in 24 days (equivalent to a +16.2% annualized return-on-investment)
3. iShares Nasdaq Biotechnology ETF: +2.6% absolute return in 24 days (equivalent to a +39.2% annualized return-on-investment)
Note: the Implied Volatility (IV) of the options at the time they were sold was 52 for Enterprise Products Partners, 32 for iShares MSCI Emerging Markets ETF, and 38 for iShares Nasdaq Biotechnology ETF, so each option 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. Enterprise Product Partners LP (EPD) -- New Position
The transaction was as follows: 02/24//2016 Sold 7 EPD 100% cash-secured $20.00 Put options @ $.45
Note: The price of EPD was $21.92 when this transaction was executed.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $14,007.95
= $20.00*700 + $7.95
Net Profit:
(a) Options Income: +$301.80
= ($.45*700 shares) - $13.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If EPD is above $20.00 strike price at Mar2016 expiration): +$0.00
= ($20.00-$20.00)*700 shares
Total Net Profit (If EPD is above $20.00 strike price at Mar2016 options expiration): +$301.80
= (+$301.80 +$0.00 +$0.00)
Absolute Return (If EPD is above $20.00 strike price at Mar2016 options expiration): +2.2%
= +$301.80/$14,007.95
Annualized Return (If EPD is above $20.00 at expiration): +32.8%
= (+$301.80/$14,007.95)*(365/24 days)
The downside 'breakeven price' at expiration is at $19.55 ($20.00 - $.45), which is 10.8% below the current market price of $21.92.
The 'crossover price' at expiration is $22.37 ($21.92 + $.45). This is the price above which it would have been more profitable to simply buy-and-hold EPD stock until March 18th (the Mar2016 options expiration date) rather than selling these Put options.
2. iShares MSCI Emerging Markets ETF (EEM) -- New Position
The transaction was as follows: 02/24//2016 Sold 20 EEM 100% cash-secured $28.00 Put options @ $.31
Note: The price of EEM was $29.82 when this transaction was executed.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $56,007.95
= $28.00*2,000 + $7.95
Net Profit:
(a) Options Income: +$597.05
= ($.31*2,000 shares) - $22.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If EEM is above $28.00 strike price at Mar2016 expiration): +$0.00
= ($28.00 -$28.00)*2,000 shares
Total Net Profit (If EEM is above $28.00 strike price at Mar2016 options expiration): +$597.05
= (+$597.05 +$0.00 +$0.00)
Absolute Return (If EEM is above $28.00 strike price at Mar2016 options expiration): +1.1%
= +$597.05/$56,007.95
Annualized Return (If EEM is above $62.50 at expiration): +16.2%
= (+$597.05/$56,007.95)*(365/24 days)
The downside 'breakeven price' at expiration is at $27.69 ($28.00 - $.31), which is 7.1% below the current market price of $29.82.
The 'crossover price' at expiration is $30.13 ($29.82 + $.31). This is the price above which it would have been more profitable to simply buy-and-hold EEM shares until March 18th (the Mar2016 options expiration date) rather than selling these Put options.
3. iShares Nasdaq Biotechnology ETF (IBB) -- New Position
The transaction was as follows: 02/24/2016 Sold 1 IBB 100% cash-secured $245.00 Put option @ $6.40
Note: The price of IBB was $252.58 when this transaction was executed.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $24,507.95
= $245.00*100 + $7.95
Net Profit:
(a) Options Income: +$631.30
= ($6.40*100 shares) - $8.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If IBB is above $245.00 strike price at Mar2016 expiration): +$0.00
= ($245.00-$245.00)*100 shares
Total Net Profit (If IBB is above $245.00 strike price at Mar2016 options expiration): +$631.30
= (+$631.30 +$0.00 +$0.00)
Absolute Return (If IBB is above $245.00 strike price at Mar2016 options expiration): +2.6%
= +$631.30/$24,507.95
Annualized Return (If IBB is above $245.00 at expiration): +39.2%
= (+$631.30/$24,507.95)*(365/24 days)
The downside 'breakeven price' at expiration is at $238.60 ($245.00 - $6.40), which is 5.5% below the current market price of $252.58.
The 'crossover price' at expiration is $258.98 ($252.58 + $6.40). This is the price above which it would have been more profitable to simply buy-and-hold IIB shares until March 18th (the Mar2016 options expiration date) rather than selling these Put options.
