Established Covered Calls Position in JPMorgan Chase & Co.

Today, a covered calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) with a July 2017 expiration and at the $82.50 strike price.  This position has an upcoming quarterly ex-dividend on July 3rd of $.50 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the July 21st options expiration date.  Given the Covered Calls Advisor's current overall market outlook, an in-the-money covered calls position was established. 

As detailed below, a potential return-on-investment result is +1.4% absolute return (equivalent to +16.1% annualized return for the next 32 days) if the stock is assigned early (business day prior to July 3rd ex-date); OR +2.0% absolute return (equivalent to +13.8% annualized return over the next 53 days) if the stock is assigned on the July 21, 2017 options expiration date.


JPMorgan Chase & Co. (JPM) -- New Covered Calls Position

An ex-dividend occurs on July 3rd for $.50.  If the current time value (i.e. extrinsic value) of $1.23 [$3.46 option premium - ($84.73 stock price - $82.50 strike price)] remaining in the short call options decays substantially (down to about $.15 or less) by June 30th (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 400 JPM shares away to capture the dividend payment.

The transactions were:
05/30/2017 Bought 400 JPM shares @ $84.73
05/20/2017 Sold 4 JPM Jul2017 $82.50 Call options @ $3.46
Note: a simultaneous buy/write transaction was executed.
07/03/2017 Upcoming quarterly ex-dividend of $.50 per share

Two possible overall performance results (including commissions) for this JPM covered calls position are as follows:
Stock Purchase Cost: $33,896.95
= ($84.73*400+$4.95 commission)

Net Profit:
(a) Options Income: +$1,376.45
= ($3.46*400 shares) - $7.55 commissions
(b) Dividend Income (If option exercised early on June 30th, the business day prior to July 3rd ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at Jul2017 expiration): +$200.00
= ($.50 dividend per share x 400 shares)

(c) Capital Appreciation (If JPM assigned early on June 30th): -$896.95
+($82.50-$84.73)*400 - $4.95 commissions; or
(c) Capital Appreciation (If JPM assigned at $82.50 strike price at Jul2017 expiration): -$896.95
+($82.50-$84.73)*400 - $4.95 commissions

1. Total Net Profit [If option exercised on June 30th (business day prior to July 3rd ex-dividend date)]: +$479.50

= (+$1,376.45 +$0.00 -$896.95); or

2. Total Net Profit (If JPM assigned at $82.50 at Jul2017 expiration): +$679.50

= (+$1,376.45 +$200.00 -$896.95)

1. Absolute Return [If option exercised on Jun 30th (business day prior to ex-dividend date)]: +1.4%

= +$479.50/$33,896.95

Annualized Return (If option exercised early): +16.1%

= (+$479.50/$33,896.95)*(365/32 days); or

2. Absolute Return (If JPM assigned at $82.50 at Jul2017 expiration): +2.0%

= +$679.50/$33,896.95

Annualized Return (If JPM assigned at $82.50 at Jul2017 expiration): +13.8%

= (+$679.50/$33,896.95)*(365/53 days)

Either outcome provides a satisfactory return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $82.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $80.77 ($84.73 -$3.46 -$.50) provides 4.7% downside protection below today's purchase price.

The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls using a dividend capture strategy.  The minimum threshold desired to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, eight of the eleven criteria are achieved for this JPMorgan position.

Overall Market Meter is 'Neutral'

Today, the Covered Calls Advisor recalculated the current values for each of the seven factors used to determine the "Overall Market Meter" rating.  The result is that the Covered Calls Advisor's current market viewpoint changed from Slightly Bearish to a current rating of Neutral.  A graphical representation of the "Overall Market Meter" is shown in the right sidebar on this page.    

The seven factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next two indicators), and
- growth (the last indicator).
Note: The rating for each of these factors is not subjective.  Each factor is calculated using objective, quantifiable measures.

The current Market Meter average of 3.14 (see blue line at the bottom of the chart above) is in the Neutral range (Note: the Neutral range is from 3.10 to 3.59).  As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Neutral sentiment is to "on-average sell 1% out-of-the-money covered calls for the next options expiration month".

The Macroeconomic and Momentum factors are Bullish, the Value factors are Bearish, and the Growth factor is Neutral.  The current P/E ratio for the S&P 500 (based on the average of the Operating and As Reported earnings for the past year) is high at 22.8.  This is higher than the expected current P/E ratio of 18.6 (based on the current 2.2% CPI-U inflation rate for the past year).  The market would have to decline by 18.4% from its current level to reach a P/E ratio of 18.6.  This relatively high current market valuation coupled with expected modest sales and earnings growth over the next year explains why the Covered Calls Advisor Portfolio is now establishing only conservative positions and because of the scarcity of good new investment opportunities as well as the low current implied volatility in options, the portfolio is now only 20% invested and holds 80% in cash.


Your comments or questions regarding this post (or the details related to any of the seven factors used in this model) are welcomed. Please email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Early Assignment of Goldman Sachs Group Inc. Covered Calls

Goldman Sachs Group Inc. (ticker symbol GS) goes ex-dividend at $.75 per share on Tuesday morning (the next trading day since Monday is Memorial Day and the U.S. stock markets are closed then).  The Covered Calls Advisor owned a GS June 2017 covered calls position at the $205.00 strike price.  Early this morning (Saturday morning), I received email and text notifications from my broker (Schwab) that the 2 GS Call options were exercised early, so the 200 shares of GS stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $205.00 strike price. 

Details of the transactions and the result for this Goldman Sachs position are provided below.  The shares had risen from $216.70 when the position was originally established (on May 19th) to $223.53 at yesterday's market close.  There was no time value remaining in the Call options (based on the $18.53 midpoint of the $18.20/$18.85 bid/ask spread at the market close yesterday), so I was not surprised that the Call owners exercised their option to buy the shares in order to capture the dividend.  But I am not disappointed (instead I am very pleased) since this was the optimal result for this position because early assignment resulted in a higher annualized return-on-investment (see original post link for details) than if the position had instead been assigned on June 16, 2017 (the June 2017 options expiration date).

As detailed below, the actual return-on-investment result achieved for this Goldman Sachs position was a +0.6% absolute return (equivalent to +19.8% annualized return) for the 11 days this position was held.  The Covered Calls Advisor will retain the cash received in the Covered Calls Advisor Portfolio until a new covered calls position is established, the details of which will be posted on this blog site the same day that it occurs. 


Goldman Sachs Group Inc. (GS) -- Position Closed
The transactions were:
05/19/2017 Bought 200 GS shares @ $216.70
05/19/2017 Sold 2 GS Jun2017 $205.00 Call options @ $13.05
Note: a simultaneous buy/write transaction was executed.
05/26/2017 Owner of Call options exercised their option and 200 shares were assigned at $205.00 strike price
Note: the price of GS was $223.53 at yesterday's (Friday's) market close

The performance result (including commissions) for this GS covered calls position was as follows:
Stock Purchase Cost: $43,344.95
= ($216.70*200+$4.95 commission)

Net Profit:
(a) Options Income: +$2,603.75
= ($13.05*200 shares) - $6.25 commissions
(b) Dividend Income (Options exercised early on May 26th which was the business day prior to the May 30th ex-div date): +$0.00

(c) Capital Appreciation: -$2,344.95
+($205.00-$216.70)*200 - $4.95 commissions

Total Net Profit: +$258.80

= (+$2,603.75 options income +$0.00 dividend income -$2,344.95 capital appreciation)

Absolute Return: +0.6%

= +$258.80/$43,344.95

Annualized Return: +19.8%

= (+$258.80/$43,344.95)*(365/11 days)

Established Covered Calls Position in General Motors Co.

Yesterday, a new covered calls position was established in General Motors Co. (ticker symbol GM) with a Jun2017 options expiration.  This position has an upcoming quarterly ex-dividends on June 7th, so the potential return for this position includes the possibility of early exercise since the ex-dividend date is prior to the June 16th options expiration date.  Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, in-the-money covered calls were established. 

As detailed below, potential return-on-investment results for this GM position are: 

• If Early Assignment: +1.2% absolute return (equivalent to +36.0% annualized return for the next 12 days) if the stock is assigned early (business day prior to June 7th ex-date); OR

• If Dividend Capture: +2.4% absolute return (equivalent to +37.5% annualized return over the next 23 days) if the stock is assigned at the Jun2017 expiration on June 16th.

General Motors Co. (GM) -- New Covered Calls Position

The $.38 dividend of June 7th is included in the potential results detailed below.  Although unlikely, if the current time value (i.e. extrinsic value) of $.40 [$1.10 option premium - ($32.20 stock price - $31.50 strike price)] remaining in the short call option decays to about $.10 or less by June 6th (the business day prior to the ex-div date), then it is possible that the call options owner would exercise early and call the General Motors shares away to capture the dividend.

The transactions were:
05/25/2017 Bought 400 GM shares @ $32.20
05/25/2017 Sold 4 GM Jun2017 $31.50 Call options @ $1.10
Note: a simultaneous buy/write transaction was executed.
06/07/2017 Upcoming ex-dividend of $.38 per share

Two possible overall performance results (including commissions) for this General Motors covered calls position are as follows:
Stock Purchase Cost: $12,884.95
= ($32.20*400+$4.95 commission)

Net Profit:
(a) Options Income: +$437.40
= ($1.10*400 shares) - $2.60 commissions
(b) Dividend Income (If option exercised early on business day prior to June 7th ex-div date): +$0.00; or
(b) Dividend Income (If GM assigned at Jun2017 expiration): +$152.00
= ($.38 dividend per share x 400 shares)

(c) Capital Appreciation (If GM assigned early on June 6th): -$284.95
+($31.50-$32.20)*400 - $4.95 commissions; or
(c) Capital Appreciation (If GM assigned at $31.50 at Jun2017 expiration): -$284.95
+($31.50-$32.20)*400 - $4.95 commissions

1. Total Net Profit (If option exercised on day prior to June 7th ex-dividend date): +$152.45

= (+$437.40 options income +$0.00 dividend income -$284.95 capital appreciation); or

2. Total Net Profit (If GM assigned at $31.50 at Jun2017 expiration): +$304.45

= (+$437.40 options income +$152.00 dividend income -$284.95 capital appreciation)

1. Absolute Return [If option exercised on June 6th (business day prior to ex-dividend date)]: +1.2%

= +$152.45/$12,884.95

Annualized Return (If option exercised early): +36.0%

= (+$152.45/$12,884.95)*(365/12 days); or

2. Absolute Return (If GM assigned at $31.50 at Jun2017 expiration): +2.4%
= +$304.45/$12,884.95

Annualized Return: +37.5%

= (+$304.45/$12,884.95)*(365/23 days)

In this instance, assignment at Jun2017 options expiration provides a slightly higher annualized return, so that outcome is preferable -- but either outcome would provide a very attractive return-on-investment result.  These returns will be achieved as long as the stock is above the $31.50 strike price at assignment.  If the stock declines below the strike price at expiration, the breakeven price of $30.72 ($32.20 -$.38 -$1.10) provides 4.6% downside protection below today's purchase 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 June 16th, 2017 options expiration) for this GM position is 66.8%. This compares with a probability of profit of 50.2% for a buy-and-hold of this GM stock over the same time period. Using this probability of profit of 66.8%, the expected value annualized return-on-investment (if held until expiration) is +25.1% (+37.5% maximum potential annualized return on investment * 66.8%), a very attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $32.92 ($32.20 - $.38 + $1.10).  This is the price above which it would have been more profitable to simply buy-and-hold GM stock until the Jun2017 options expiration date rather than selling these Put options.

The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls investments using a potential for dividend capture strategy.  The minimum threshold to establish a position is that at least nine of these eleven criteria must be achieved.  As detailed below for this General Motors position, ten of eleven criteria were achieved.

Established Covered Calls Position in Devon Energy Corp.

Yesterday, a covered calls position was established in Devon Energy Corp. (ticker symbol DVN) with a Jun2017 expiration.  This covered calls position includes consideration of the upcoming $.06 quarterly dividend on June 13th. Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, an in-the-money covered calls position was established with the strike price of $36.00 (below the stock purchase price of $37.45).

As detailed below, a potential return is +1.8% absolute return in 24 days (equivalent to a +27.8% annualized return-on-investment) which is above the Covered Calls Advisor's minimum desired return-on-investment of 20.0%.

Devon Energy Corp. (DVN) -- New Covered Calls Position

The transactions were as follows:
05/25/2017  Bought 500 Devon Energy Corp. shares @ $37.45
05/25/2017 Sold 5 DVN Jun2017 $36.00 Call options @ $2.10
Note: this was a simultaneous buy/write transaction.
06/13/2017 Ex-dividend of $30.00 ($.06 x 500 shares)

A possible overall performance result (including commissions) would be as follows:
Bought 500 shares DVN: $18,729.95
= $37.45*500 + $4.95 commission

Net Profit:
(a) Options Income: +$1,041.80
= ($2.10*500 shares) - $8.20 commissions
(b) Dividend Income: +$30.00
= $.06 * 500 shares
(c) Capital Appreciation (If DVN is above $36.00 strike price at Jun2017 expiration): -$729.95
= ($36.00-$37.45)*500 shares - $4.95 commissions

Total Net Profit (If DVN stock is above $36.00 strike price at Jun2017 options expiration): +$341.85
= (+$1,041.80 options income +$30.00 dividends -$729.95 capital appreciation)

Absolute Return: +1.8%
= +$341.85/$18,729.95
Annualized Return: +27.8%
= (+$341.85/$18,729.95)*(365/24 days)

The downside 'breakeven price' at expiration is at $35.29 ($37.45 - $.06 -$2.10), which is 5.8% below the current market price of $37.45.

Established New Position in Voya Financial Inc.

Today, a new position was established in Voya Financial Inc.(ticker VOYA) by selling five Jun 2017 100% cash-secured Put options at the $34.00 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 +1.6% absolute return in 24 days (equivalent to a +23.9% annualized return-on-investment).

Voya Financial Inc. (VOYA) -- New 100% Cash-Secured Puts Position

This position was established when the price of Voya Financial Inc. was $34.75 (2.2% downside protection to the strike price) and 24 days remaining until the options expiration date.

The implied volatility of the Put options was 23.6 when this position was established; so the $.55 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:
05/24/2017  Sold 5 VOYA Jun2017 $34.00 100% cash-secured Put options @ $.55
Note: the price of VOYA was $34.75 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: $17,000.00
= $34.00*500

Net Profit:
(a) Options Income: +$266.80
= ($.55*500 shares) - $8.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If VOYA is above $34.00 strike price at Jun2017 expiration): +$0.00
= ($34.00-$34.00)*500 shares

Total Net Profit (If Voya Financial Inc. stock price is above $34.00 strike price at Jun2017 options expiration): +$266.80
= (+$266.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If VOYA is above $34.00 strike price at Jun2017 options expiration): +1.6%
= +$266.80/$17,000.00
Annualized Return: +23.9%
= (+$266.80/$17,000.00)*(365/24 days)

The downside 'breakeven price' at expiration is at $33.45 ($34.00 - $.55), which is 3.7% below the current market price of $34.75.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the June 16th, 2017 options expiration) for this Voya Financial Inc. short Puts position is 64.5%. This compares with a probability of profit of 50.3% for a buy-and-hold of VOYA shares over the same time period. Using this probability of profit of 64.5%, the expected value annualized return-on-investment (if held until expiration) is +15.4% (+23.9% * 64.5%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $35.30 ($34.75 + $.55).  This is the price above which it would have been more profitable to simply buy-and-hold Voya stock until the June 16th, 2017 options expiration date rather than selling these Put options.

JPMorgan Chase and Co. Position Closed

The May2017 covered calls position in JPMorgan Chase and Co. (ticker JPM) expired upon last Friday's options expiration. Today, the Covered Calls Advisor decided to sell the 400 long shares of JPM.   As detailed below, the result of this JPMorgan Chase position was a +4.4% absolute return in 61 days (equivalent to a +26.1% annualized return-on-investment).  


JPMorgan Chase and Co. (JPM) - Position Closed

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
05/19/2017 4 May2017 Call options expired
05/23/2017 Sold 400 JPM shares at $84.90

The overall performance result (including commissions) for this JPM covered calls position was 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 (JPM sold at $84.90): -$928.95
+($84.90-$87.21)*400 - $4.95 commissions

Total Net Profit: +$1,519.95

= (+$2,248.90 +$200.00 -$928.95)

Absolute Return: +4.4%

= +$1,519.95/$34,888.95

Annualized Return: +26.1%

= (+$1,519.95/$34,888.95)*(365/61 days)

May 2017 Option Expiration Results

The Covered Calls Advisor Portfolio had two positions (Devon Energy Corp and JPMorgan Chase & Co.) with May 2017 options expirations.   

For the JPMorgan Chase & Co. covered calls, the price of the stock closed yesterday at $84.78 which was below the $85.00 strike price, 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 is established by selling four June2017 Call options against the 400 JPMorgan shares now owned.

The Devon Energy short Put options position closed in-the-money, so the maximum possible return-on-investment result was achieved.  The return-on-investment result was +1.5% absolute return (+33.5% annualized return) in 16 days.  Details of this position are provided below.  The cash now available in the Covered Calls Advisor Portfolio from the closing of this Devon Energy position will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new position(s) established with this available cash will be posted on this site on the same day the transactions occur.

Devon Energy Corp. -- 100% Cash-Secured Put Options Position Closed at Expiration
This position was established when the price of Devon Energy Corp. (ticker DVN) was $37.21 (3.3% downside protection to the $36.00 strike price) and 16 days remaining until the options expiration date.

The implied volatility of the Put options was 33.3 when this position was established; so the $.54 price received per share received when the Puts were sold was a good premium to receive for these 3.3% out-of-the-money Put options.    

The transactions were as follows:
05/04/2017  Sold 10 DVN May2017 $36.00 100% cash-secured Put options @ $.54
Note: the price of DVN was $37.21 when this transaction was executed.
05/19/2017 10 May2017 DVN Put options expired
Note: the price of DVN was $38.39 at options expiration

The Covered Calls Advisor does not use margin, so the results shown below reflect the fact that this position was established using 100% cash securitization for the ten Put options sold.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $36,000.00
= $36.00*1,000

Net Profit:
(a) Options Income: +$528.55
= ($.54*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (DVN stock closed above $36.00 strike price at May2017 expiration): +$0.00
= ($36.00-$36.00)*1,000 shares

Total Net Profit: +$528.55
= (+$528.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.5%
= +$528.55/$36,000.00
Annualized Return: +33.5%
= (+$528.55/$36,000.00)*(365/16 days)

Established Covered Calls Position in Goldman Sachs Group Inc.

Today, a covered calls position was established in Goldman Sachs Group Inc. (ticker symbol GS) with a Jun2017 expiration and at the $205.00 strike price.  This position has an upcoming quarterly ex-dividend on May 30th of $.75 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the June 16th options expiration date.  Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, an in-the-money covered calls position was established. 

As detailed below, a potential return-on-investment result is +0.6% absolute return (equivalent to +19.8% annualized return for the next 11 days) if the stock is assigned early (business day prior to May 30th ex-date); OR +0.9% absolute return (equivalent to +11.9% annualized return over the next 29 days) if the stock is assigned on the June 16, 2017 options expiration date.


Goldman Sachs Group Inc. (GS) -- New Covered Calls Position

An ex-dividend occurs on May 30th for $.75.  Although somewhat unlikely, if the current time value (i.e. extrinsic value) of $1.35 [$13.05 option premium - ($216.70 stock price - $205.00 strike price)] remaining in the short call options decays substantially (down to about $.15 or less) by May 26th (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 JPM shares away to capture the dividend payment.


The transactions were:
05/19/2017 Bought 200 GS shares @ $216.70
05/19/2017 Sold 2 GS Jun2017 $205.00 Call options @ $13.05
Note: a simultaneous buy/write transaction was executed.
05/30/2017 Upcoming quarterly ex-dividend of $.75 per share

Two possible overall performance results (including commissions) for this GS covered calls position are as follows:
Stock Purchase Cost: $43,344.95
= ($216.70*200+$4.95 commission)

Net Profit:
(a) Options Income: +$2,603.75
= ($13.05*200 shares) - $6.25 commissions
(b) Dividend Income (If option exercised early on May 26th which is the business day prior to the May 30th ex-div date): +$0.00; or
(b) Dividend Income (If GS assigned at Jun2017 expiration): +$150.00
= ($.75 dividend per share x 200 shares)

(c) Capital Appreciation (If GS assigned early on May 26th): -$2,344.95
+($205.00-$216.70)*200 - $4.95 commissions; or
(c) Capital Appreciation (If GS assigned at $205.00 at Jun2017 expiration): -$2,344.95
+($205.00-$216.70)*200 - $4.95 commissions

1. Total Net Profit (If option exercised on day prior to May 30th ex-dividend date): +$258.80

= (+$2,603.75 +$0.00 -$2,344.95); or

2. Total Net Profit (If GS assigned at $205.00 at Jun2017 expiration): +$408.80

= (+$2,603.75 +$150.00 -$2,344.95)

1. Absolute Return [If option exercised on May 26th (business day prior to ex-dividend date)]: +0.6%

= +$258.80/$43,344.95

Annualized Return (If option exercised early): +19.8%

= (+$258.80/$43,344.95)*(365/11 days); or

2. Absolute Return (If GS assigned at $205.00 at Jun2017 expiration): +0.9%

= +$408.80/$43,344.95

Annualized Return: +11.9%

= (+$408.80/$43,344.95)*(365/29 days)

Either outcome provides a nice attractive return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $205.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $202.90 ($216.70 -$13.05 -$.75) provides 6.4% downside protection below today's purchase price.

The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls using a dividend capture strategy.  The minimum threshold to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, only eight of the eleven criteria are achieved for this Goldman Sachs position.

Established Positions in PulteGroup Inc. and Antero Resources Corp.

Two positions have been established in PulteGroup Inc.(ticker symbol PHM) and Antero Resources Corp.(ticker AR).  PulteGroup Inc. is a covered calls position with a Jun2017 expiration at the $22.00 strike price that includes the expected upcoming quarterly ex-dividend of $.09 on June 6th.  For Antero Resources Corp., ten June 2017 100% cash-secured Put options were sold at the $20 strike price.  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.

As detailed below, some potential returns are:
1. PulteGroup Inc.: +1.5% absolute return in 36 days (equivalent to a +14.8% annualized return-on-investment) if the price of Pulte remains above the strike price at expiration.
2. Antero Resources Corp.: +2.2% absolute return in 36 days (equivalent to a +22.2% annualized return-on-investment)

The details for each position are provided below.

1. PulteGroup Inc. (PHM) -- New Covered Calls Position

The transactions were as follows:
05/12/2017 Bought 1,000 Pulte shares @ $22.80
05/12/2017 Sold 10 Pulte Jun2017 $22.00 Call options @ $1.06
Note: a simultaneous buy/write transaction was executed.
06/06/2017 Upcoming ex-dividend of $.09 per share

Two possible overall performance results (including commissions) for this Pulte covered calls position are as follows:
Stock Purchase Cost: $22,804.95
= ($22.80*1,000+$4.95 commission)

Net Profit:
(a) Options Income: +$1,048.55
= ($1.06*1,000 shares) - $11.45 commissions
(b) Dividend Income (if stock assigned on day prior to June 6th ex-div date): +$0.00; or

(b) Dividend Income (if dividend captured on 6/6/2017): +$90.00
= ($.09 dividend per share x 1,000 shares)
(c) Capital Appreciation (if stock assigned on day prior to June 6th ex-div date): -$804.95
=+($22.00-$22.80)*1,000 - $4.95 commissions; or
(c) Capital Appreciation (If stock assigned at Jun2017 options expiration): -$804.95
=+($22.00-$22.80)*1,000 - $4.95 commissions

1. Total Net Profit (If Pulte stock assigned on June 5th): +$243.60

= (+$1,048.55 options income +$0.00 dividend income -$804.95 capital appreciation); or

2. Total Net Profit (If Pulte stock assigned at $22.00 at Jun2017 expiration): +$333.60

= (+$1,048.55 +$90.00 +$804.95)

1. Absolute Return (If Pulte stock assigned on June 5th -- day prior to ex-div date): +1.1%

= +$243.60/$22,804.95

Annualized Return: +15.6%

= (+$243.60/$22,804.95)*(365/25 days); OR

2. Absolute Return (If Pulte assigned at $22.00 on June 16th options expiration date): +1.5%

= +$333.60/$22,804.95

Annualized Return: +14.8%

= (+$333.60/$22,804.95)*(365/36 days)

2. Antero Resources Corp. (AR) -- New 100% Cash-Secured Puts Position

Today, the Covered Calls Advisor established a new position in Antero Resources Corp. (ticker symbol AR) by selling ten Jun2017 Put options at the $20.00 strike price. This position is a conservative one since it was established when the price of Antero Resources was $20.86 (4.1% downside protection to the strike price) and 36 days remaining until the options expiration date.

The implied volatility of the Put options was 30.6 when this position was established; so the $.45 price per share received when the Puts were sold is a nice premium to receive for these 4.1% out-of-the-money Put options.    

The transaction was as follows:
05/12/2017  Sold 10 AR Jun2017 $20.00 100% cash-secured Put options @ $.45
Note: the price of Antero was $20.86 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 ten Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $20,000.00
= $20.00*1,000
Note: the price of AR was $20.86 when these options were sold

Net Profit:
(a) Options Income: +$438.55
= ($.45*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Antero stock is above $20.00 strike price at Jun2017 expiration): +$0.00
= ($20.00-$20.00)*1,000 shares

Total Net Profit (If Antero Resources stock price is above $20.00 strike price at Jun2017 options expiration): +$438.55
= (+$438.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If AR is above $20.00 strike price at Jun2017 options expiration): +2.2%
= +$438.55/$20,000.00
Annualized Return: +22.2%
= (+$438.55/$20,000.00)*(365/36 days)

The downside 'breakeven price' at expiration is at $19.55 ($20.00 - $.45), which is 6.3% below the current market price of $20.86.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the June 16th, 2017 options expiration) for this Antero Resources Corp. short Puts position is 68.5%. This compares with a probability of profit of 50.3% for a buy-and-hold of Antero shares over the same time period. Using this probability of profit of 68.5%, the expected value annualized return-on-investment (if held until expiration) is +15.2% (+22.2% * 68.5%), an attractive risk/reward profile for this conservative investment.  

The 'crossover price' at expiration is $21.31 ($20.86 + $.45).  This is the price above which it would have been more profitable to simply buy-and-hold AR stock until the June 2017 options expiration date of June 16th rather than selling these Put options.

Established Two New Short Put Positions

Today, two new 100% cash-secured Put option positions were established in Quanta Services Inc. (ticker PWR) and Twenty-First Century Fox Inc.(ticker FOXA) by selling June 2017 Put options. The price received was $.65 for both positions. Put options were chosen instead of the comparable covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.  The Covered Calls Advisor does not use margin, so the detailed information on these positions and the potential results shown below reflect the fact that these positions were established using 100% cash securitization for the Jun2017 Put options sold.

 The potential returns for each investment are:

• Quanta Services:  A +1.9% absolute return in 40 days (equivalent to a +17.6% annualized return-on-investment); and
• Twenty-First Century Fox Inc.:  A +2.3% absolute return in 40 days (equivalent to a +20.8% annualized return-on-investment)

1. Quanta Services Inc. (PWR) -- New 100% Cash-Secured Puts Position

This position was established when the price of Quanta Services was $34.27 (3.7% downside protection to the strike price).

The implied volatility of the Put options was 25.6 when this position was established; so the $.65 price received per share received when the Puts were sold is a nice premium to receive for these 3.7% out-of-the-money Put options.    

The transaction was as follows:
05/08/2017  Sold 6 PWR Jun2017 $33.00 100% cash-secured Put options @ $.65
Note: the price of PWR was $34.27 today when this transaction was executed.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $19,800.00
= $33.00*600
Note: the price of PWR was $34.27 when these options were sold

Net Profit:
(a) Options Income: +$381.15
= ($.65*600 shares) - $8.85 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PWR is above $33.00 strike price at Jun2017 expiration): +$0.00
= ($33.00-$33.00)*600 shares

Total Net Profit (If Quanta Services stock price is above $33.00 strike price at Jun2017 options expiration): +$381.15
= (+$381.15 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If PWR is above $33.00 strike price at Jun2017 options expiration): +1.9%
= +$381.15/$19,800.00
Annualized Return: +17.6%
= (+$381.15/$19,800.00)*(365/40 days)

The downside 'breakeven price' at expiration is at $32.35 ($33.00 - $.65), which is 5.6% below the current market price of $34.27.


2. Twenty-First Century Fox Inc. (FOXA) -- New 100% Cash-Secured Puts Position

This position was established when the price of Fox stock was $28.88 (3.0% downside protection to the $28.00 strike price) and 40 days remaining until the options expiration date.

The implied volatility of the Put options was 26.2 when this position was established; so the $.65 price received per share received when the Puts were sold is a nice premium to receive for these 3.0% out-of-the-money Put options.    

The transaction was as follows:
05/08/2017  Sold 10 FOXA Jun2017 $28.00 100% cash-secured Put options @ $.65
Note: the price of FOXA stock was $28.88 today when this transaction was executed.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $28,000.00
= $28.00*1,000


Net Profit:
(a) Options Income: +$638.55
= ($.65*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FOXA is above $28.00 strike price at Jun2017 expiration): +$0.00
= ($28.00-$28.00)*1,000 shares

Total Net Profit: +$638.55
= (+$638.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +2.3%
= +$638.55/$28,000.00
Annualized Return: +20.8%
= (+$638.55/$28,000.00)*(365/40 days)

The downside 'breakeven price' at expiration is at $27.35 ($28.00 - $.65), which is 5.3% below the current market price of $28.88.

Established New Position in Devon Energy Corp

Today, a new position was established in Devon Energy Corp.(ticker DVN) by selling ten May 2017 100% cash-secured Put options at the $36.00 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 +1.5% absolute return in 16 days (equivalent to a +33.5% annualized return-on-investment).

Devon Energy Corp. (DVN) -- New 100% Cash-Secured Puts Position
This position was established when the price of Devon Energy Corp was $37.21 (3.3% downside protection to the strike price) and 16 days remaining until the options expiration date.

The implied volatility of the Put options was 33.3 when this position was established; so the $.54 price received per share received when the Puts were sold is a nice premium to receive for these 3.3% out-of-the-money Put options.    

The transaction was as follows:
05/04/2017  Sold 10 DVN May2017 $36.00 100% cash-secured Put options @ $.54
Note: the price of DVN was $37.21 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 ten Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $36,000.00
= $36.00*1,000
Note: the price of DVN was $37.21 when these options were sold

Net Profit:
(a) Options Income: +$528.55
= ($.54*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If DVN is above $36.00 strike price at May2017 expiration): +$0.00
= ($36.00-$36.00)*1,000 shares

Total Net Profit (If Devon Energy stock price is above $36.00 strike price at May2017 options expiration): +$528.55
= (+$528.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If DVN is above $36.00 strike price at May2017 options expiration): +1.5%
= +$528.55/$36,000.00
Annualized Return: +33.5%
= (+$528.55/$36,000.00)*(365/16 days)

The downside 'breakeven price' at expiration is at $35.46 ($36.00 - $.54), which is 4.7% below the current market price of $37.21.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the May 19th, 2017 options expiration) for this Devon Energy Corp short Puts position is 69.8%. This compares with a probability of profit of 50.3% for a buy-and-hold of DVN shares over the same time period. Using this probability of profit of 69.8%, the expected value annualized return-on-investment (if held until expiration) is +23.4% (+33.5% * 69.8%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $37.75 ($37.21 + $.54).  This is the price above which it would have been more profitable to simply buy-and-hold Devon stock until the May 19th, 2017 options expiration date rather than selling these Put options.