As detailed below, the potential returns are:
1. Celgene Corporation: +2.1% absolute return in 26 days (equivalent to a +30.1% annualized return-on-investment)
2. JetBlue Airways Corp.: +1.9% absolute return in 26 days (equivalent to a +27.0% annualized return-on-investment)
3. Las Vegas Sands Corp.: +1.4% absolute return in 26 days (equivalent to a +20.2% annualized return-on-investment)
The potential results for each of these three positions exceeds the Covered Calls Advisor's desired threshold of >20% potential annualized return-on-investment. The elevated levels of implied volatility in each of these options is attributed to the increased volatility always associated with quarterly earnings reports which for all three companies will be issued prior to the Feb2017 options expiration date.
The Covered Calls Advisor does not use margin, so the detailed information on these positions shown below reflect the fact that these positions were established using 100% cash securitization for the Put options sold.
This transactions and the associated potential return-on-investment results are detailed below.
1. Celgene Corporation (CELG) -- New Position
01/23/2017 Sold 3 CELG Feb2017 $110.00 Puts @ $2.39
Note: The price of CELG was $112.24 when this transaction was executed.
A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $33,000.00
= $110.00*300
Net Profit:
(a) Options Income: +$706.80
= ($2.39*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If CELG is above $110.00 strike price at Feb2017 expiration): +$0.00
= ($110.00-$110.00)*300 shares
Total Net Profit (If CELG is above $110.00 strike price upon the Feb2017 options expiration): +$706.80
= (+$706.80 +$0.00 +$0.00)
Absolute Return (If CELG is above $110.00 strike price at Feb2017 options expiration): +2.1%
= +$706.80/$33,000.00
Annualized Return: +30.1%
= (+$706.80/$33,000.00)*(365/26 days)
The downside 'breakeven price' at expiration is at $107.61 ($110.00 - $2.39), which is 4.1% below the current market price.
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 short Puts position is 62.5%. This compares with a probability of profit of 50.2% for a buy-and-hold of Celgene stock over the same time period. Using this probability of profit of 62.5%, the Expected Value annualized ROI of this investment (if held until expiration) is +18.80% (+30.1% * 62.5%).
The 'crossover price' at expiration is $115.03 ($112.64 + $2.39). This is the price above which it would have been more profitable to simply buy-and-hold Celgene stock until February 17th (the Feb2017 options expiration date) rather than holding this short Put options position.
2. JetBlue Airways Corp. (JBLU) -- New Position
The transaction was as follows:
01/23/2017 Sold 10 JBLU Feb2017 $20.00 Puts @ $.40
Note: The price of JBLU was $21.17 when this transaction was executed.
A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $20,000.00
= $20.00*1,000
Net Profit:
(a) Options Income: +$384.55
= ($.40*1,000 shares) - $15.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If JBLU is above $20.00 strike price at Feb2017 expiration): +$0.00
= ($20.00-$20.00)*1,000 shares
Total Net Profit (If JBLU is above $20.00 strike price upon the Feb2017 options expiration): +$384.55
= (+$384.55 +$0.00 +$0.00)
Absolute Return (If JBLU is above $20.00 strike price at Feb2017 options expiration): +1.9%
= +$384.55/$20,000.00
Annualized Return: +33.9%
= (+$384.55/$20,000.00)*(365/26 days)
The downside 'breakeven price' at expiration is at $19.60 ($20.00 - $.40), which is 7.4% below the current market price.
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 JetBlue short Puts position is 73%. This compares with a probability of profit of 50.4% for a buy-and-hold of JetBlue stock over the same time period. Using this probability of profit of 73%, the Expected Value annualized ROI of this investment (if held until expiration) is +19.7% (+27.0% * 73%).
The 'crossover price' at expiration is $21.57 ($21.17 + $.40). This is the price above which it would have been more profitable to simply buy-and-hold JetBlue stock until February 17th (the Feb2017 options expiration date) rather than holding this short Put options position.
3. Las Vegas Sands Corp. (LVS) -- New Position
01/23/2017 Sold 5 LVS Feb2017 $52.50 Puts @ $.78
Note: The price of LVS was $55.35 when this transaction was executed.
A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $26,250.00
= $52.50*500
Net Profit:
(a) Options Income: +$378.30
= ($.78*500 shares) - $11.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If LVS is above $52.50 strike price at Feb2017 expiration): +$0.00
= ($52.50-$52.50)*500 shares
Total Net Profit (If LVS is above $52.50 strike price upon the Feb2017 options expiration): +$378.30
= (+$378.30 +$0.00 +$0.00)
Absolute Return (If LVS is above $52.50 strike price at Feb2017 options expiration): +1.44%
= +$378.30/$26,250.00
Annualized Return: +20.2%
= (+$378.30/$26,250.00)*(365/26 days)
The downside 'breakeven price' at expiration is at $51.72 ($52.50 - $.78), which is 6.6% below the current market price of $55.35.
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Jan 20th, 2017 options expiration) for this short Puts position is 73.5%. This compares with a probability of profit of 50.3% for a buy-and-hold of Las Vegas Sands stock over the same time period. Using this probability of profit of 73.5%, the Expected Value annualized ROI of this investment (if held until expiration) is +14.8% (+20.2% * 73.5%).
The 'crossover price' at expiration is $56.13 ($55.35 + $.78). This is the price above which it would have been more profitable to simply buy-and-hold Las Vegas Sands stock until Feb17th (the Feb2017 options expiration date) rather than holding this short Put options position.
