Established Covered Calls in AerCap Holdings and Alibaba

Two new Covered Calls positions have been established in AerCap Holdings NV (ticker AER) and Alibaba Group Holding Ltd.(BABA) with July 19th, 2019 options expiration dates. Two AerCap Holdings Call options were sold at $1.30 for the $50.00 strike price when the stock price was $50.56 and 200 shares of BABA were purchased at $173.38 while two Calls were sold at $7.43 at the $167.50 strike price.

As detailed below, the potential return-on-investment results are: 

• AerCap Holdings: +1.5% absolute return in 17 days (equivalent to a +31.2% annualized return-on-investment); and

• Alibaba Group Holdings Ltd.: +0.9% absolute return in 15 days (equivalent to a +22.4% annualized return-on-investment) 

1. AerCap Holdings NV (AER) -- New Covered Calls Position
Here is a thoughtful analysis of airplane leasing companies (including AerCap):  link

The transactions were:
7/03/2019 Bought 200 shares of AerCap Holdings @ $50.56 per share 
7/03/2019 Sold 2 AER July 19th, 2019 $50.00 Call options @ $1.30 per share
Note: This was a simultaneous buy/write transaction.  Also, there is no earnings report prior to the options expiration date.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $9,858.29
= ($50.56 - $1.30)* 200 shares + $6.29 commissions

Net Profit Components:
(a) Options Income: +$260.00
= ($1.30 * 200 shares)
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If AerCap Holdings shares are above $50.00 strike price at July 19th expiration): -$116.95
= ($50.00 -$50.56) * 200 shares - $4.95 commission

Potential Total Net Profit (If AerCap Holdings stock assigned at expiration): +$143.05
= (+$260.00 options income +$0.00 dividend income -$116.95 capital appreciation)

Absolute Return: +1.5%
= +$143.05/$9,858.29
Equivalent Annualized Return: +31.2%
= (+$143.05/$9,858.29)*(365/17 days)


2. Alibaba Group Holding Ltd. (BABA) -- New Covered Calls Position

The Covered Calls Advisor considers Alibaba to be a core portfolio holding, so the current intention is to continue the pattern of prior months by establishing ongoing monthly Covered Calls positions in Alibaba.   

The transactions were as follows:
07/05/2019 Bought 200 shares of Alibaba stock @ $173.38 per share 
07/05/2019 Sold 2 Alibaba July 19th, 2019 $167.50 Call options @ $7.43 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: $33,196.29
= ($173.38 - $7.43) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$1,486.00
= ($7.43 * 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is above $167.50 strike price at July 19th expiration): -$1,180.95
= ($167.50 -$173.38) * 200 shares - $4.95 commission

Total Net Profit: +$305.05
= (+$1,486.00 options income +$0.00 dividend income -$1,180.95 capital appreciation)

Absolute Return: +0.9%
= +$305.05/$33,196.29
Equivalent Annualized Return: +22.4%
= (+$305.05/$33,196.29)*(365/15 days)

The downside 'breakeven price' at expiration is at $165.95 ($173.38 - $7.43), which is 4.3% below the current market price of $173.38.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the July 19th, 2019 options expiration) for this Alibaba Covered Calls position is 75.4%, so the expected value annualized ROI of this investment (if held until expiration) is +16.9% (+22.4% * 75.4%), a satisfactory result for this moderately in-the-money Covered Calls position, especially since there is no earnings report prior to the options expiration date.