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.
