Established a New Position in Micron Technology Inc.

Today, a new position was established in Micron Technology Inc. (ticker MU) by selling three June 19, 2020 100% Cash-Secured Put options at the $40.00 strike price.  The Implied Volatility of the Put options was very high at 57.3 when this position was established; so the $1.38 per share price received when the Puts were sold is a very nice premium to receive for these out-of-the-money Put options (i.e. strike price below the current stock price).  Importantly, the next quarterly earnings report is on June 25th which is after the June 19th options expiration date.  Reuters Research indicates that 27 analysts have a Buy or Outperform rating, 6 have a Hold, and 1 has a Strong Sell and their average target price is $60.

As detailed below, for this position there is potential for a +3.4% absolute return in 38 days (equivalent to a +33.1% annualized return-on-investment).


Micron Technology Inc. (MU) -- New 100% Cash-Secured Puts Position

This position was established when the price of Micron Technology Inc. was $44.42 (10.0% downside protection to the strike price) and 38 days remaining until the options expiration date.

The transaction today was as follows:
05/13/2020  Sold 3 MU June 19th, 2020 $40.00 100% Cash-Secured Put options @ $1.38

The Covered Calls Advisor does not use margin, so the detailed information on this position and a potential result shown below reflect the fact that this position was established using 100% cash securitization for the three Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $12,002.01
= $40.00 *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$414.00
= ($1.38 *300 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Micron Technology Inc. is above $40.00 strike price at the June 19th expiration): +$0.00
= ($40.00-$40.00) *300 shares

Total Net Profit (If Micron stock price is above $40.00 strike price at options expiration): +$414.00
= (+$414.00 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Micron stock price is above $40.00 strike price at June 19th options expiration) : +3.4%
= +$414.00/$12,002.01
Annualized Return: +33.1%
= (+$414.00/$12,002.01)*(365/38 days)

The downside 'breakeven price' at expiration is at $38.62 ($40.00 - $1.38), which is 13.1% below the current market price of $44.42.

The probability of making a profit (if held until the June 19th, 2020 options expiration) for this Micron Technology Inc. short Puts position is 74.6%.  Using this probability of profit, the expected value annualized return-on-investment (if held until expiration) is +24.7% (+33.1% * 74.6%), a satisfactory risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $45.80 ($44.42 + $1.38).  This is the price above which it would have been more profitable to simply buy-and-hold Micron Technology stock until the June 19th, 2020 options expiration date rather than selling these Put options.