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.