Continuation of JPMorgan Chase & Co. Position

Upon the April options expiration last Friday, four of the five positions were in-the-money and the positions were closed.  The one position that was out-of-the-money (strike price of $85.00 and stock closed Friday at $84.52) was JPMorgan Chase & Co.  So, the four Apr2017 Call options in JPMorgan Chase & Co.(ticker symbol JPM) expired assigned and 400 shares remained in the Covered Calls Advisor portfolio.  Today, the JPMorgan Chase continued this investment by establishing another covered calls position by selling four May2017 Call options against the 400 JPM shares held. The company also went ex-dividend on April 4th with a quarterly dividend of $.50 which is included in the transactions details below.

A potential return-on-investment is +4.5% absolute return (equivalent to +28.6% annualized) for the 57 days of this JPMorgan Chase & Co. investment. Details of the transactions to-date including the potential return-on-investment result are provided below:


JPMorgan Chase & Co. (JPM) -- Covered Calls Continuation

The transactions are as follows:
03/23/2017 Bought 400 JPM shares @ $87.21
03/23/2017 Sold 4 JPM Apr2017 $85.00 Call options @ $3.16
Note: a simultaneous buy/write transaction was executed.
04/04/2017 Quarterly ex-dividend of $.50 per share
04/21/2017 4 JPM Call options expired
04/24/2017 Sold 4 JPM May2017 $85.00 Call options @ $2.50
Note: the price of JPM was $86.53 when these Calls were sold

A possible overall performance result (including commissions) for this JPM covered calls position is as follows:
Stock Purchase Cost: $34,888.95
= ($87.21*400+$4.95 commission)

Net Profit:
(a) Options Income: +$2,248.90
= ($3.16 + $2.50)*400 shares - 2*$7.55 commissions

(b) Dividend Income: +$200.00
= ($.50 dividend per share x 400 shares)

(c) Capital Appreciation (If JPM assigned at $85.00 at May2017 expiration): -$888.95
+($85.00-$87.21)*400 - $4.95 commissions

Total Net Profit (If JPM assigned at $85.00 at May2017 expiration): +$1,559.95

= (+$2,248.90 +$200.00 -$888.95)

Absolute Return: (If option exercised at May2017 options expiration): +4.5%

= +$1,559.95/$34,888.95

Annualized Return: +28.6%

= (+$1,559.95/$34,888.95)*(365/57 days)

April 2017 Option Expiration Results

Four of the five April 2017 positions in the Covered Calls Advisor Portfolio closed in-the-money at expiration, so the maximum possible return-on-investment result was achieved for these four positions: Carmax Inc., Energy Transfer Equity LP, Hawaiian Holdings Inc., and Transdigm Group Inc. 

For the other position (JPMorgan Chase & Co.), the price of the stock was $84.52 which was below the $85.00 strike price at Apr2017 expiration, so the Covered Calls options expired.  The 400 shares will remain in the Covered Calls Advisor Portfolio until they are either sold or a continuation covered calls position established by selling four May2017 Call options against the 400 JPM shares now owned.

I.  For the four closed positions:
The return-on-investment results for each position was:

• Carmax Inc. = +0.8% absolute return (+26.2% annualized return) in 11 days
• Energy Transfer Equity LP = +2.8% absolute return (+21.9% annualized return) in 47 days
• Hawaiian Holdings Inc. = +2.3% absolute return (+27.9% annualized return) in 30 days
• Transdigm Group Inc. = +1.7% absolute return (+33.6% annualized return) in 19 days

The cash now available in the Covered Calls Advisor Portfolio from the closing of these positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new positions established with this available cash will be posted on this site on the same day the transactions occur.  The return-on-investment results for these four closed positions are detailed below.  


1. Carmax Inc. -- 100% Cash-Secured Put Options Position Closed at Expiration
The transactions were as follows:

This position was established when the price of Carmax Inc. was $56.80 (3.2% downside protection to the strike price) and 11 days remaining until the options expiration date.

The implied volatility of the Put options was 29.0 when this position was established; so the $.45 price received per share received when the Puts were sold is a nice premium to receive for these 3.2% out-of-the-money Put options.    

The transaction was as follows:
04/11/2017  Sold 5 KMX Apr2017 $55.00 100% cash-secured Put options @ $.45
Note: the price of KMX was $56.80 today when this transaction was executed.
04/21/2017 5 KMX Apr2017 Put options expired
Note: the price of KMX was $58.31 at Apr2017 options expiration

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 five Put options sold.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $27,500.00
= $55.00*500

Net Profit:
(a) Options Income: +$216.80
= ($.45*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (KMX was above $55.00 strike price at Apr2017 expiration): +$0.00
= ($55.00-$55.00)*500 shares

Total Net Profit:  +$216.80
= (+$216.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +0.8%
= +$216.80/$27,500.00
Annualized Return: +26.2%
= (+$216.80/$27,500.00)*(365/11 days)

2. Energy Transfer Equity LP (ETE) -- 100% Cash-Secured Put Options Position Closed at Expiration

The transactions were as follows:
03/06/2017 Sold 10 ETE Apr2017 $18.00 100% cash-secured Put options @ $.52
Note: the price of ETE was $18.99 when these Puts were sold
04/21/2017 10 ETE Apr2017 Put options expired
Note: the price of ETE was $18.26 at Apr2017 options expiration

The overall performance result (including commissions) for this Energy Transfer position was as follows:
Stock Cost Basis: $18,000.00
= $18.00*1,000 shares

Net Profit:
(a) Options Income: +$508.55
= ($.52*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00

(c) Capital Appreciation (ETE stock was above $18.00 strike price at Apr2017 options expiration date): +$0.00
=+($18.00-$18.00)*1,000 shares

Total Net Profit: +$508.55

= (+$508.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +2.8%

= +$508.55/$18,000.00

Annualized Return: +21.9%

= (+$508.55/$18,000.00)*(365/47 days)

3.  Hawaiian Holdings Inc. (HA) -- 100% Cash-Secured Put Options Position Closed at Expiration

This position was established when the price of Hawaiian Holdings was $46.88 (4.0% downside protection to the strike price) and 30 days remaining until the options expiration date.

The implied volatility of the Put options was 30.2 when this position was established; so the $1.05 price received per share received when the Puts were sold is a nice premium to receive for these 4.0% out-of-the-money Put options.    

The transaction was as follows:
03/23/2017  Sold 5 HA Apr2017 $45.00 100% cash-secured Put options @ $1.05
Note: the price of HA was $46.88 today when this transaction was executed.
04/21/2017 5 HA Apr2017 Put options expired
Note: the price of HA was $53.25 at Apr2017 options expiration

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 five Put options sold.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $22,500.00
= $45.00*500

Net Profit:
(a) Options Income: +$516.80
= ($1.05*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($45.00-$45.00)*500 shares

Total Net Profit: +$516.80
= (+$516.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +2.3%
= +$516.80/$22,500.00
Annualized Return: +27.9%
= (+$516.80/$22,500.00)*(365/30 days)


4.  Transdigm Group Inc. (TDG) -- 100% Cash-Secured Put Options Position Closed at Expiration
This position was established when the price of Transdigm Group was $218.30 (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 35.8 when this position was established; so the $3.70 price received per share received when the Puts were sold is a nice premium to receive for these 3.8% out-of-the-money Put options.    

The transaction was as follows:
04/03/2017  Sold 2 TDG Apr2017 $201.00 100% cash-secured Put options @ $3.70
Note: the price of TDG was $218.30 today when this transaction was executed.
04/21/2017 2 TDG Apr2017 Put options expired
Note: the price of TDG was $240.21 at Apr2017 options expiration

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 two Put options sold.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $42,000.00
= $210.00*200
Note: the price of TDG was $218.30 when these options were sold

Net Profit:
(a) Options Income: +$733.75
= ($3.70*200 shares) - $6.25 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (TDG was above $210.00 strike price at Apr2017 expiration): +$0.00
= ($210.00-$210.00)*200 shares

Total Net Profit: +$733.75
= (+$733.75 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.7%
= +$733.75/$42,000.00
Annualized Return: +33.6%
= (+$733.75/$42,000.00)*(365/19 days)

Established New Position in Carmax Inc.

Today, a new position was established in Carmax Inc.(ticker KMX) by selling five April 2017 100% cash-secured Put options at the $55.00 strike price.  The short Puts were chosen instead of the comparable covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.

As detailed below, there is potential for a +0.8% absolute return in 11 days (equivalent to a +26.2% annualized return-on-investment).

Carmax Inc. (KMX) -- New 100% Cash-Secured Puts Position

This position was established when the price of Carmax Inc. was $56.80 (3.2% downside protection to the strike price) and 11 days remaining until the options expiration date.

The implied volatility of the Put options was 29.0 when this position was established; so the $.45 price received per share received when the Puts were sold is a nice premium to receive for these 3.2% out-of-the-money Put options.    

The transaction was as follows:
04/11/2017  Sold 5 KMX Apr2017 $55.00 100% cash-secured Put options @ $.45
Note: the price of KMX was $56.80 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 five Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $27,500.00
= $55.00*500
Note: the price of KMX was $56.80 when these options were sold

Net Profit:
(a) Options Income: +$216.80
= ($.45*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If KMX is above $55.00 strike price at Apr2017 expiration): +$0.00
= ($55.00-$55.00)*500 shares

Total Net Profit (If Carmax Inc. stock price is above $55.00 strike price at Apr2017 options expiration): +$216.80
= (+$216.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If KMX is above $55.00 strike price at Apr2017 options expiration): +0.8%
= +$216.80/$27,500.00
Annualized Return: +26.2%
= (+$216.80/$27,500.00)*(365/11 days)

The downside 'breakeven price' at expiration is at $54.55 ($55.00 - $.45), which is 4.0% below the current market price of $56.80.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Apr 21st, 2017 options expiration) for this Carmax Inc. short Puts position is 73%. This compares with a probability of profit of 50.2% for a buy-and-hold of KMX shares over the same time period. Using this probability of profit of 73%, the expected value annualized return-on-investment (if held until expiration) is +19.1% (+26.2% * 73%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $57.25 ($56.80 + $.45).  This is the price above which it would have been more profitable to simply buy-and-hold Carmax stock until the April 21, 2017 options expiration date rather than selling these Put options.

Established New Position in Transdigm Group Inc.

Today, a new position was established in Transdigm Group Inc. (ticker TDG) by selling two April 2017 100% cash-secured Put options at the $210.00 strike price.  The short Puts were chosen instead of the comparable covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.

As detailed below, there is potential for a +1.7% absolute return in 19 days (equivalent to a +33.6% annualized return-on-investment).

Transdigm Group Inc. (TDG) -- New 100% Cash-Secured Puts Position
This position was established when the price of Transdigm Group was $218.30 (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 35.8 when this position was established; so the $3.70 price received per share received when the Puts were sold is a nice premium to receive for these 3.8% out-of-the-money Put options.    

The transaction was as follows:
04/03/2017  Sold 2 TDG Apr2017 $201.00 100% cash-secured Put options @ $3.70
Note: the price of TDG was $218.30 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 two Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $42,000.00
= $210.00*200
Note: the price of TDG was $218.30 when these options were sold

Net Profit:
(a) Options Income: +$733.75
= ($3.70*200 shares) - $6.25 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TDG is above $210.00 strike price at Apr2017 expiration): +$0.00
= ($210.00-$210.00)*200 shares

Total Net Profit (If Transdigm Group Inc. stock price is above $210.00 strike price at Apr2017 options expiration): +$733.75
= (+$733.75 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If TDG is above $210.00 strike price at Apr2017 options expiration): +1.7%
= +$733.75/$42,000.00
Annualized Return: +33.6%
= (+$733.75/$42,000.00)*(365/19 days)

The downside 'breakeven price' at expiration is at $206.30 ($210.00 - $3.70), which is 5.5% below the current market price of $218.30.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Apr 21st, 2017 options expiration) for this Transdigm short Puts position is 69.5%. This compares with a probability of profit of 50.3% for a buy-and-hold of TDG shares over the same time period. Using this probability of profit of 69.5%, the expected value annualized return-on-investment (if held until expiration) is +23.4% (+33.6% * 69.5%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $222.00 ($218.30 + $3.70).  This is the price above which it would have been more profitable to simply buy-and-hold TDG stock until the April 21, 2017 options expiration date rather than selling these Put options.