Established Four New Positions

Four new positions were established in Energy Transfer Equity LP (ticker symbol ETE), Facebook Inc. (FB), HCA Holdings Inc. (HCA), and Metlife Inc.(MET) all with Feb2017 options expirations.  Energy Transfer Equity and Metlife are covered calls positions, each of which includes consideration of the upcoming ex-dividend dates prior to expiration. Both Facebook and HCA Holdings are short 100% cash-secured Put options positions.  The short Puts were chosen instead of covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.  Given the Covered Calls Advisor's current Slightly Bearish market outlook, for all four stocks, conservative positions with strike prices below the current stock prices were established.

As detailed below, some potential returns are:
1. Energy Transfer Equity LP: +3.7% absolute return in 19 days (equivalent to a +70.3% annualized return-on-investment)
2. Facebook Inc.: +1.6% absolute return in 19 days (equivalent to a +30.1% annualized return-on-investment)
3. HCA Holdings Inc.: +2.0% absolute return in 19 days (equivalent to a +39.1% annualized return-on-investment)
4. Metlife Inc.: +1.3% absolute return in 19 days (equivalent to a +25.0% annualized return-on-investment)
It seems counterintuitive that the position with the largest potential return-on-investment is with the only one of the four companies that does not have a quarterly earnings report before the Feb2017 options expiration date.

The details for each position are provided below.

1. Energy Transfer Equity LP (ETE) -- New Covered Calls Position

The transactions were as follows:
01/30/2017 Bought 1,000 ETE shares @ $18.07
01/30/2017 Sold 10 ETE Feb2017 $18.00 Call options @ $.47
Note: a simultaneous buy/write transaction was executed.
02/03/2017 Upcoming ex-dividend of $.285 per share

A possible overall performance result (including commissions) for this Energy Transfer covered calls position is as follows:
Stock Purchase Cost: $18,077.95
= ($18.07*1,000+$7.95 commission)

Net Profit:
(a) Options Income: +$454.55
= ($.47*1,000 shares) - $15.45 commissions
(b) Dividend Income: +$285.00
= ($.285 dividend per share x 1,000 shares)

(c) Capital Appreciation (If price of ETE stock is above $18.00 strike price at Feb2017 options expiration date): -$77.95
=+($18.00-$18.07)*1,000 - $7.95 commissions

Total Net Profit (If Energy Transfer stock is assigned at $18.00 at Feb2017 expiration): +$661.60

= (+$454.55 options income +$285.00 dividend income -$77.95 capital appreciation)

Absolute Return: +3.7%

= +$661.60/$18,077.95

Annualized Return: +70.3%

= (+$659.55/$18,077.95)*(365/19 days)

2. Facebook Inc. (FB) -- New 100% Cash-Secured Puts Position

The Covered Calls Advisor established a new position in Facebook Inc. (ticker symbol FB) by selling three Feb2017 Put options at the $125.00 strike price. This position is a conservative one since it was established when the price of Facebook was $129.88 (3.8% downside protection to the strike price) and 19 days remaining until the options expiration date.

The implied volatility of the Put options was 34 when this position was established; so the $1.99 price received per share received when the Puts were sold is a nice premium to receive for these out-of-the-money Put options.    

The transaction was as follows:
01/30/2017  Sold 3 FB Feb2017 $125.00 100% Cash-Secured Put options @ $1.99
Note: the price of FB was $129.88 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 Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $37,507.95
= $125.00*300 + $7.95 commission
Note: the price of FB was $129.88 when these options were sold

Net Profit:
(a) Options Income: +$586.80
= ($1.99*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FB is above $125.00 strike price at Feb2017 expiration): +$0.00
= ($125.00-$125.00)*300 shares

Total Net Profit (If Facebook stock price remains above $125.00 strike price at Feb2017 options expiration): +$586.80
= (+$586.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Facebook is above $125.00 strike price at Feb2017 options expiration): +1.6%
= +$586.80/$37,507.95
Annualized Return: +30.1%
= (+$586.80/$37,507.95)*(365/19 days)

The downside 'breakeven price' at expiration is at $123.01 ($125.00 - $1.99), which is 5.3% below the current market price of $129.88.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Feb 17th, 2017 options expiration) for this Facebook short Puts position is 70.3%. This compares with a probability of profit of 50.3% for a buy-and-hold of FB shares over the same time period. Using this probability of profit of 70.3%, the expected value annualized return-on-investment (if held until expiration) is +21.2% (+30.1% * 70.3%), an attractive risk/reward profile for this conservative investment.  

The 'crossover price' at expiration is $131.87 ($129.88 + $1.99).  This is the price above which it would have been more profitable to simply buy-and-hold Facebook stock until the Feb2017 options expiration date rather than selling these Put options.


3. HCA Holdings Inc. (HCA) -- New 100% Cash-Secured Puts Position

Today, the Covered Calls Advisor established a new position in HCA Holdings Inc. (HCA) by selling five Feb2017 Put options at the $77.50 strike price. This position is a slightly conservative one since it was established when the price of HCA was $78.66 (1.5% downside protection to the strike price) and 19 days remaining until the options expiration date.

The implied volatility of the Put options was 28 when this position was established; so the $1.60 price received per share received when the Puts were sold is a nice premium to receive for these out-of-the-money Put options.    

The transaction was as follows:
01/30/2017  Sold 5 HCA Feb2017 $77.50 100% cash-secured Put options @ $1.60
Note: the price of HCA was $78.66 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 Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $38,757.95
= $77.50*500 + $7.95 commission
Note: the price of HCA was $78.66 when these options were sold

Net Profit:
(a) Options Income: +$788.30
= ($1.60*500 shares) - $11.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HCA is above $77.50 strike price at Feb2017 expiration): +$0.00
= ($77.50-$77.50)*500 shares

Total Net Profit (If HCA Holdings stock price is above $77.50 strike price at Feb2017 options expiration): +$788.30
= (+$788.30 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If HCA is above $77.50 strike price at Feb2017 options expiration): +2.0%
= +$788.30/$38,757.95
Annualized Return: +39.1%
= (+$788.30/$38,757.95)*(365/19 days)

The downside 'breakeven price' at expiration is at $75.90 ($77.50 - $1.60), which is 3.5% below the current market price of $78.66.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Feb 17th, 2017 options expiration) for this HCA short Puts position is 60%. This compares with a probability of profit of 50.3% for a buy-and-hold of HCA shares over the same time period. Using this probability of profit of 60%, the expected value annualized return-on-investment (if held until expiration) is +23.5% (+39.1% * 60%), an attractive risk/reward profile for this investment.  

The 'crossover price' at expiration is $80.26 ($78.66 + $1.60).  This is the price above which it would have been more profitable to simply buy-and-hold HCA stock until the Feb2017 options expiration date rather than selling these Put options.


4. Metlife Inc. (MET) -- New Covered Calls Position

The transactions were as follows:
01/30/2017 Bought 600 MET shares @ $54.90
01/30/2017 Sold 6 MET Feb2017 $52.50 Call options @ $2.75
Note: a simultaneous buy/write transaction was executed.
02/02/2017 Upcoming ex-dividend of $240.00 = $.40 per share x 600 shares

A possible overall performance result (including commissions) for this MET covered calls position are as follows:
Stock Purchase Cost: $32,947.95
= ($54.90*600+$7.95 commission)

Net Profit:
(a) Options Income: +$1,637.55
= ($2.75*600 shares) - $12.45 commissions
(b) Dividend Income: +$240.00
= ($.40 dividend per share x 600 shares)

(c) Capital Appreciation (If price of Metlife stock is above $52.50 strike price at Feb2017 options expiration date): -$1,447.95
=+($52.50-$54.90)*600 - $7.95 commissions

Total Net Profit (If Metlife stock assigned at $52.50 at Feb2017 expiration): +$429.60

= (+$1,637.55 +$240.00 -$1,447.95)

Absolute Return (If MET assigned at $52.50 at Feb2017 expiration): +1.3%

= +$429.60/$32,947.95

Annualized Return: +25.0%

= (+$429.60/$32,947.95)*(365/19 days)