Roll Out of Alibaba and Alphabet Covered Call Positions

Yesterday (February 15th) was the monthly options expiration for February 2019 and the Covered Calls Advisor made four transactions.  As detailed on this blog yesterday, two new Covered Call positions were established in Applied Materials Inc. and Fedex Corp., both with March 15th, 2019 expirations.

The other two positions were roll out transactions in the core holdings of Alibaba Group Holding and Alphabet Inc. from the Feb 15th expiration to the March 15th expiration date.  Both positions were originally established in 2018, but the details of these positions are shown from the beginning of 2019 to enable calculation of calendar year 2019 return-on-investment results of the Covered Calls Advisor Portfolio to be determined.  The roll out transactions for both positions were done during the final hour of trading yesterday to try to squeeze the time value remaining in the February 15th Calls down as close to $0.00 as possible.  

As detailed below, potential investment results are:

• Alibaba Group -- A +13.9% absolute return in 74 days (which is equivalent to a +68.6% annualized return-on-investment) if Alibaba stock closes above the $160.00 strike price on the March 15th options expiration date.  
• Alphabet Inc. -- A +10.5% absolute return in 74 days (which is equivalent to a +51.6% annualized return-on-investment) if Alphabet stock closes above the $1,090.00 strike price on the March 15th options expiration date. 

Please notice that all the March 15th positions in the Covered Calls Advisor's Portfolio are somewhat deeper in-the-money than has been the case in recent months.  I am in full agreement with the perspective in this Schwab Market Commentary (Link) including their well-stated summation comments that "Markets got a healthy reprieve from last year’s fourth quarter carnage as a few headwinds became tailwinds; including a more dovish Fed, some hopes on trade, strong fourth quarter earnings growth, and an end to the government shutdown. But there are lurking risks, including equities having become technically overbought, and investor sentiment having moved back into the high optimism zone."  So, I am positioning the March 15th portfolio positions more conservatively during this next month.

Note: The return-on-investment results for two other Covered Calls positions with February 15th expirations (CVS Health Corp. and Lowes Companies Inc.) will be included in another post tomorrow (Sunday) on this blog.
 
1.  Alibaba Position #1 (BABA) -- Continuing Covered Calls Position

The transactions were as follows:
01/01/2019 200 BABA shares owned at $137.07 per share
01/07/2019 2 Jan 18, 2019 $145.00 short Call options sold at $2.09 per share
01/18/2019 Bought-to-Close 2 Jan 18th $145.00 Calls @ $11.22
01/18/2019 Sold-to-Open 2 Feb 15th, 2019 $155.00 Calls @ $7.47
Note: the price of BABA stock was $156.24 when this roll out and up transaction occurred.
02/15/2019 Bought-to-Close 2 Feb 15th $155.00 Calls @ $11.15
02/15/2019 Sold-to-Open 2 Mar 15th, 2019 $160.00 Calls @ $9.05
Note: the price of BABA stock was $166.10 when this roll out and up transaction occurred.

A possible overall performance result (including commissions) if this in-the-money position is assigned at the March 15th expiration is as follows:
Cost Basis: $27,414.00
= $137.07 per share value at end of December, 2018 * 200 shares

Net Profit Components:
(a) Options Income: -$770.87
= ($2.09 - $11.22 + $7.47 - $11.15 + $9.05) * 200 shares - $18.87 commissions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is above $160.00 strike price at March 15th expiration): +$4,581.05
= ($160.00 -$137.07) * 200 shares - $4.95 commission

Total Net Profit: +$3,810.18
= (-$770.87 options income +$0.00 dividend income +$4,581.05 capital appreciation)

Absolute Return: +13.9%
= +$3,810.18/$27,414.00
Equivalent Annualized Return: +68.6%
= (+$3,810.18/$27,414.00)*(365/74 days)

2.  Alphabet Inc. (GOOGL) -- Continuing Covered Call Position

The transactions were as follows:
01/01/2019 100 GOOGL shares owned at $1,044.96 per share
01/01/2019 1 Jan 18th, 2019 $1,085.00 short Call option valued at $19.80 per share
01/18/2019  Bought-to-Close 1 Jan 18th $1,085.00 Call option @ $19.25
01/18/2019 Sold-to-Open 1 Feb 15th, 2019 $1,095.00 Call @ $41.70
Note: the price of GOOGL stock was $1,104.73 when this roll out and up transaction occurred.
02/15/2019 Bought-to-Close 1 Feb 15th $1,095.00 Calls @ $22.40
02/15/2019 Sold-to-Open 1 Mar 15th, 2019 $1,090.00 Calls @ $44.50
Note: the price of GOOGL stock was $1,117.25 when this roll out and down transaction occurred.

A possible overall performance result (including commissions) if this in-the-money position is assigned at the March 15th expiration is as follows:
Cost Basis: $104,496.00
= $1,044.96 per share value at end of December, 2018 * 100 shares

Net Profit Components:
(a) Options Income: +$6,422.42
= (+$19.80 - $19.25 + $41.70 - $22.40 + $44.50) * 100 shares - $12.58 commissions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If GOOGL stock is above $1,090.00 strike price at March 15th expiration): +$4,499.05
= ($1,090.00 -$1,044.96) * 100 shares - $4.95 commission

Total Net Profit: +$10,921.47
= (+$6,422.42 options income +$0.00 dividend income +$4,499.05 capital appreciation)

Absolute Return: +10.5%
= $+$10,921.47/$104,496.00
Equivalent Annualized Return: +51.6%
= ($+$10,921.47/$104,496.00)*(365/74 days)