December 21, 2018 Options Expiration Results

The Covered Calls Advisor Portfolio had twelve positions [Alibaba Group Holding Ltd.(2 positions), Alphabet Inc., Anadarko Petroleum Corp, Bank of America, Blackstone Group, Citigroup Inc., Fluor Corp, JPMorgan Chase & Co., Lam Research, Las Vegas Sands, and Occidental Petroleum] with December 21st, 2018 options expirations:  

• Ten of the twelve Covered Calls positions closed with their stock prices below the strike prices, so their respective Call options expired and their underlying shares remain in the Covered Calls Advisor Portfolio.  Decisions will be made for each position to either: (1) Sell Call options against the long stock position to re-establish another Covered Calls position at the January 18, 2019 options expiration date; or (2) Sell the stock to close out the position.  As always, all transactions will be posted on this blog on the same day they occur.  
• The remaining two December 21, 2018 positions were closed out early (prior to their Dec. 21st expiration date) and these results were detailed on this blog on the same day they were closed.  In summary, their return-on-investment results were: (1) Citigroup Inc: +4.3% absolute return in 20 days (+78.2% annualized roi); and (2) Las Vegas Sands Corp: +3.0% absolute return in 31 days (+35.8% annualized roi)

So far in 2018, forty of fifty-two (76.9%) positions have been closed at a profit.  This exceeds the Covered Calls Advisor's overall long-term goal of having at least two-thirds (67%) of positions closed out at a profit.  For the forty positions closed out so far in 2018, the average annualized return-on-investment is +30.2%. 

None of the remaining twelve positions [Alibaba Group Holding Ltd. (two positions), Alphabet Inc., Anadarko Petroleum, Bank of America Corp, Blackstone Group, Fluor Corp, JPMorgan Chase & Co. (two positions), Lam Research Inc., Occidental Petroleum, and U.S. Steel Corp.] have yet to be closed out, but instead are currently held as open long stock positions in the Covered Calls Advisor Portfolio.  As a result of the precipitous market decline during the past two months, each of these positions are now held at a net loss.  The current market value of these 12 positions (as of December 31st, 2018) will be included along with the 40 other previously closed positions held in 2018 in the Covered Calls Advisor's end-of-year summary post which I intend will be posted on this blog during the first week of January, 2019).   
   

Established Covered Calls in AT&T Inc. and Caterpillar Inc.

Yesterday, the following Covered Calls positions were established:
1. Bought 500 AT&T shares @ $28.63
    Sold 5 January 18, 2019 $28.00 Call options @ $1.18
    Notes: Ex-dividend of $.51 on 1/9/2019; No earnings report prior to options expiration
2. Bought 100 Caterpillar Inc. shares @ $121.68
    Sold 1 February 15, 2019 $115.00 Call option @ $11.82
    Notes: Ex-dividend of $.86 on 1/18/2019; No earnings report prior to option expiration

Given the many Christmas preparation activities on my "Honey-Do" list today, I will forego taking the time to write the details related to these transactions. 

I do plan to post Dec 21st, 2018 options expiration results on this blog tomorrow.  Should be another easy post given the precipitous market decline of the past month; so, none of the Covered Calls Advisor's stocks were assigned (since all stocks closed below their strike prices).

Best Wishes to All and Merry Christmas!

Jeff

Established Covered Calls Position in JPMorgan Chase & Co.

Yesterday, a Covered Calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) with a January 18th, 2019 expiration and at the $100.00 strike price.  This is the second Covered Calls position established in JPM.  This position uses the Covered Calls Advisor's Dividend Capture Strategy since there is an upcoming ex-dividend of $.80 on January 3rd which is prior to the options expiration date.  The next quarterly earnings report is scheduled for January 18th, so it will be possible to capture the dividend and then decide whether to liquidate the shares prior to the earnings report or to hold the position through earnings.

As detailed below, a potential return-on-investment result is +3.0% absolute return (equivalent to +36.9% annualized return for the next 30 days) if the stock is unchanged at the $96.83 purchase price on the January 18th options expiration date.


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

Because of the recent plunge in the stock market as well as JPM stock, the Implied Volatility of 34.4 was at a very attractive level when these Call options were sold.

The transactions were:
12/20/2018 Bought 300 JPM shares @ $96.83
12/20/2018 Sold 3 JPM 1/18/2019 $100.00 Call options @ $2.08
Note: a simultaneous buy/write transaction was executed.
01/03/2019 Upcoming quarterly ex-dividend of $.80 per share

Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost: $28,429.95
= ($96.83 - $2.08) *300 shares + $4.95 commission

Net Profit:
(a) Options Income: +$621.99
= ($2.08*300 shares) - $2.01 commissions
(b) Dividend Income: +$240.00
= ($.80 dividend per share x 300 shares)

(c) Capital Appreciation (If JPM unchanged at $96.83 at 1/18/2019 options expiration): +$0.00
+($96.83-$96.83)*300; OR
(c) Capital Appreciation (If JPM in-the-money and thus assigned at $100.00 strike price at expiration): +$946.05
+($100.00-$96.83)*300 - $4.95 commissions

1. Total Net Profit (If JPM unchanged at $96.83 at 1/18/2019 options expiration): +$861.99

= (+$621.99 +$240.00 +$0.00); or

2. Total Net Profit (If JPM in-the-money and thus assigned at $100.00 strike price at expiration): +$1,808.04

= (+$621.99 +$240.00 +$946.05)

1. Absolute Return (If JPM unchanged at $96.83 at 1/18/2019 options expiration): +3.0%

= +$861.99/$28,429.95

Annualized Return: +36.9%

= (+$861.99/$28,429.95)*(365/30 days); or

2. Absolute Return (If JPM in-the-money and thus assigned at $100.00 strike price at expiration): +6.4%

= +$1,808.04/$28,429.95

Annualized Return: +77.4%

= (+$1,808.04/$28,429.95)*(365/30 days)

Either outcome would provide an excellent return-on-investment result for this investment.  The breakeven price of $93.95 ($96.83 -$2.08 -$.80) provides 3.0% downside protection below today's purchase price.

Early Assignment of Las Vegas Sands Corp.

This morning, the Covered Calls Advisor received notification from my broker (Schwab) that the 3 Las Vegas Sands Corp. (ticker symbol LVS) December 21st, 2017 Call options were exercised early, so the 300 shares of Las Vegas Sands stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $50.00 strike price. 

Las Vegas Sands stock was $54.84 at yesterday's market close.  Early exercise by the owners of these Call options was not expected since there was $.19 time value [$5.03 midpoint of Call options bid/ask price - ($54.84 current stock price - $50.00 strike price)] remaining in these Call options.  But the Call owners were willing to immediately forego the remaining $0.19 per share (by exercising their option to buy the shares) in order to capture next Monday's $.75 per share ex-dividend.  The per share stock price had increased from $52.90 when this Las Vegas Sands Corp. position was originally established on November 16th to $54.84 (9.7% in-the-money) at yesterday's market close.

As detailed below, the actual return-on-investment result achieved for this Las Vegas Sands position a +3.0% absolute return (equivalent to +35.8% annualized return) for the 31 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 transactions details of which will be posted on this blog site the same day they occur.

Las Vegas Sands Corp. (LVS) -- New Covered Calls Position
The transactions were:
11/16/2018 Bought 300 Las Vegas Sands shares @ $52.90
11/16/2018 Sold 3 LVS 12/21/2018 $50.00 Call options @ $4.40
Note: a simultaneous buy/write transaction was executed, and the Open Interest in these Call options was 328 contracts.
12/14/2018 Early assignment of 3 Call options so 300 shares of LVS stock sold at $50.00 strike price

The overall performance result (including commissions) for this Las Vegas Sands Covered Calls position was as follows:
Covered Calls Cost Basis: $14,554.95
= ($52.90 - $4.40) *300 + $4.95 commission

Net Profit Components:
(a) Options Income: +$1,317.99
= ($4.40*300 shares) - $2.01 commissions
(b) Dividend Income: +$0.00

(c) Capital Appreciation (LVS assigned at $50.00 strike price at options expiration): -$874.95
+($50.00-$52.90)*300 shares - $4.95 commissions

Total Net Profit: +$443.04

= (+$1,317.99 Call options income +$0.00 dividend income -$874.95 capital appreciation)

Absolute Return: +3.0%

= +$443.04/$14,554.95

Annualized Return: +35.8%

= (+$443.04/$14,554.95)*(365/31 days)

Covered Calls Established in Fluor Corp.

Today, a Covered Calls position was established by buying 200 shares of Fluor Corp. (ticker symbol FLR) stock at $36.25 and selling 2 December 21st, 2018 $35.00 Call options at $2.05.   The Implied Volatility of these Call options spiked to 41.9 when this position was established, a very high level historically for Fluor given that the next earnings report is after the Dec 21st options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter sentiment of Slightly Bearish, a slightly in-the-money position was established.

As detailed below, a potential outcome for this investment is +2.3% absolute return-on-investment for the next 15 days (equivalent to +55.1% on an annualized return basis) if the stock closes above the $35.00 strike price on the Dec 21st options expiration date.


Fluor Corp.(FLR) -- New Covered Calls Position

The transactions were as follows:
12/07/2018 Bought 200 shares of Fluor stock @ $36.25 per share 
12/07/2018 Sold 2 Fluor Dec 21st, 2018 $35.00 Call options @ $2.05 per share
Note: this was a simultaneous Buy/Write transaction

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $6,846.29
= ($36.25 - $2.05)* 200 shares + $6.29 commission

Net Profit Components:
(a) Option Income: +$410.00
= ($2.05 * 200 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Fluor stock is above $35.00 strike price at Dec 21st expiration): -$254.95
= ($35.00 -$36.25)* 200 shares - $4.95 commission

Potential Total Net Profit (If Fluor assigned at expiration): +$155.05
= (+$410.00 option income +$0.00 dividend income -$254.95 capital appreciation)

Absolute Return: +2.3%
= +$155.05/$6,846.29
Equivalent Annualized Return: +55.1%
= (+$155.05/$6,846.29)*(365/15 days)

The downside 'breakeven price' at expiration is at $34.20 ($36.25 - $2.05), which is 5.7% below the current market price of $36.25.  This is good protection given the very high +55.1% potential annualized ROI for this investment.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the December 21st, 2018 options expiration) for this Fluor Corp. Covered Calls position is 66.3%, so the expected value annualized ROI of this investment (if held until expiration) is +36.5% (+55.1% * 66.3%), an attractive expected value profit for this in-the-money Covered Calls position.   

Covered Calls Established in JPMorgan Chase & Co.

Today, a Covered Calls position was established by buying 200 shares of JPMorgan Chase & Co. (ticker symbol JPM) stock at $104.07 and selling 2 December 21st, 2018 $100.00 Call options at $5.55.   The Implied Volatility of these Call options was 36.0 when this position was established, a relatively high level given that the next earnings report is after the Dec 21st options expiration date as well as the large market capitalization and underlying strength of JPMorgan's finances.  Given the Covered Calls Advisor's current Overall Market Meter sentiment of Slightly Bearish, a slightly in-the-money position was established.


As detailed below, a potential outcome for this investment is +1.5% absolute return-on-investment for the next 16 days (equivalent to +33.7% on an annualized return basis) if the stock closes above the $100.00 strike price on the Dec 21st options expiration date.

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

The transactions were as follows:
12/06/2018 Bought 200 shares of JPMorgan stock @ $104.07 per share 
12/06/2018 Sold 2 JPM Dec 21st, 2018 $100.00 Call options @ $5.55 per share
Note: this was a simultaneous Buy/Write transaction

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $19,710.29
= ($104.07 - $5.55)* 200 shares + $6.29 commission

Net Profit Components:
(a) Option Income: +$1,110.00
= ($5.55 * 200 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If JPMorgan is above $100.00 strike price at Dec 21st expiration): -$818.95
= ($100.00 -$104.07)* 200 shares - $4.95 commission

Potential Total Net Profit (If JPM assigned at expiration): +$291.05
= (+$1,110.00 option income +$0.00 dividend income -$818.95 capital appreciation)

Absolute Return: +1.5%
= +$291.05/$19,710.29
Equivalent Annualized Return: +33.7%
= (+$291.05/$19,710.29)*(365/16 days)

The downside 'breakeven price' at expiration is at $98.52 ($104.07 - $5.55), which is 5.3% below the current market price of $104.07.  This is good protection given the relatively high +33.7% potential annualized ROI for this investment.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the December 21st, 2018 options expiration) for this JPMorgan Chase & Co. Covered Calls position is 71.1%, so the expected value annualized ROI of this investment (if held until expiration) is +24.0% (+33.7% * 71.1%), an attractive expected value profit for this in-the-money Covered Calls position.   

Covered Calls Established in Anadarko Petroleum Corporation

Today, a Covered Calls position was established in Anadarko Petroleum Corp. (ticker APC) for the December 21st, 2018 expiration and at the $50.00 strike price when the stock was at $51.25.   Given the Covered Calls Advisor's current Overall Market Meter sentiment of Slightly Bearish, a relatively conservative slightly in-the-money position was established. There is an upcoming ex-dividend of $.30 on December 11th which is included in the analysis below. 

As detailed below, a potential outcome for this investment is +3.3% absolute return-on-investment for the next 16 days (equivalent to +75.6% on an annualized return basis) if Anadarko stock closes above the $50.00 strike price on the Dec. 21st options expiration date.



Anadarko Petroleum Corp. (APC) -- New Covered Calls Position
The transactions were:
12/06/2018 Bought 300 shares of Anadarko Petroleum Corp stock @ $51.25 per share 
12/06/2018 Sold 3 APC Dec 21st, 2018 $50.00 Call options @ $2.58 per share
Note: The Implied Volatility has risen to a very attractive 50.0 considering there is no earnings report prior to the options expiration date
12/11/2018 Upcoming ex-dividend of $.30 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $14,607.96
= ($51.25 - $2.58)* 300 shares + $6.96 commission

Net Profit Components:
(a) Options Income: +$774.00
= ($2.58* 300 shares)
(b) Dividend Income: +$90.00
= $.30 per share * 300 shares 
(c) Capital Appreciation (If Anadarko Petroleum stock is above $50.00 strike price at Dec 21st expiration): -$379.95
= ($50.00 -$51.25)* 300 shares - $4.95 commission

Potential Total Net Profit (If Anadarko Petroleum Corp stock assigned at expiration): +$484.05
= (+$774.00 options income +$90.00 dividend income -$379.95 capital appreciation)

Absolute Return: +3.3%
= +$484.05/$14,607.96
Equivalent Annualized Return: +75.6%
= (+$484.05/$14,607.96)*(365/16 days)

The downside 'breakeven price' at expiration is at $48.37 ($51.25 - $2.58 - $.30), which is 5.6% below the current market price of $51.25.  This is good downside protection given the very high potential of +75.6% annualized ROI for this investment.