May 15th, 2020 Options Expiration Results

The Covered Calls Advisor Portfolio had eight positions with May 15th, 2020 options expirations. Six of the positions closed in-the-money and two closed out-of-the-money.  For the six closed positions the maximum potential return-on-investment results were achieved as follows:   

• Alibaba Group Holdings (BABA) -- +1.7% absolute return (equivalent to +40.7% annualized return on investment) for the 15 days of this investment
• Alphabet Inc. (GOOGL) -- +2.3% absolute return (equivalent to +33.0% annualized) for the 25 days of this investment  
• Baidu Inc. (BIDU) -- +2.8% absolute return (equivalent to +41.4% annualized) for the 25 days of this investment
• Constellation Brands Inc. (STZ) -- +2.7% absolute return (equivalent to +42.2% annualized) for the 23 days of this investment  
• Intel Corporation (INTC) -- +1.7% absolute return (equivalent to +33.6% annualized) for the 19 days of this investment
• New Oriental Education and Technology Inc. (EDU) -- +3.7% absolute return (equivalent to +51.9% annualized) for the 26 days of this investment

Since the prior monthly options expiration date of April 17th, the S&P 500 has declined by 0.1% (from 286.64 on 4/17 to 286.26 at the market close on 5/15), so achieving the results shown above for six closed positions is a very good result for these May 15th options expiration positions.

The other two positions (Morgan Stanley and ProShares Short S&P 500 ETF) closed with the equity price below the strike price at the May 15th, 2020 options expiration.  The Morgan Stanley $37.50 strike options closed at $37.29 per share and the ProShares Short S&P 500 ETF $25.00 strike options closed at $24.48.  So, the options expired and the shares are now owned in the Covered Calls Advisor Portfolio.  A decision will be made very soon (probably this Monday) to either sell the shares or to continue with Covered Calls positions by selling Call options against the shares currently held.  As always, the detailed results from these positions will be posted on this blog on the same day that the positions are closed out. 

There are currently only four positions in the Covered Calls Advisor Portfolio (see right sidebar).  The cash now available will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  New positions will likely be for next month's options expiration date of June 19th, 2020.  Since the overwhelming majority of 1st quarter corporate earnings have now been reported, it is likely that most new positions will be established this week.  Given the Covered Calls Advisor's Overall Market Meter outlook of  'Bearish', new positions will be hedged by establishing Covered Calls at moderately in-the-money strike prices that provide substantial downside protection.     

As always, please email me at partlow@cox.net with any questions or comments related specifically to this blog or to Covered Calls investing in general.

Best Wishes and Stay Safe,
Jeff Partlow


For educational purposes, I thought you might want to review details of the transactions as well as the return-on-investment calculations. From the six closed positions above, I've included one example of a Covered Calls position (Constellation Brands Inc.) and one of a 100% Cash-Secured Puts position (Baidu Inc.) below:

1. Constellation Brands Inc. (STZ) -- Covered Calls Position Closed on Options Expiration Date
The transactions were:
04/23/2020 Bought 200 Constellation Brands shares @ $153.48
04/23/2020 Sold 2 Constellation Brands 5/15/2020 $140.00 Call options @ $16.38
Note: the Implied Volatility of these Calls was very high at 52.6 when this transaction was executed.
05/04/2020 Quarterly ex-dividend of $.75 per share
05/15/2020  2 STZ May 15th $140.00 Call options were assigned (i.e. sold) at options expiration at the $140.00 strike price.

The overall performance results (including commissions) for this Constellation Brands Covered Calls position were as follows:
Covered Calls Cost Basis: $27,421.34
= ($153.48 - $16.38) *200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$3,276.00
= ($16.38 * 200 shares)
(b) Dividend Income: +$150.00
= ($.75 dividend per share x 200 shares)

(c) Capital Appreciation: -$2,696.00
+($140.00 assignment price - $153.48 stock purchase price) * 200 shares

Total Net Profit: +$730.00

= (+$3,276.00 options income +$150.00 dividend income -$2,696.00 capital appreciation)

Absolute Return: +2.7%

= +$730.00/$27,421.34

Annualized Return (If STZ shares assigned at $140.00 at May 15th, 2020 expiration): +42.2%

= (+$730.00/$27,421.34)*(365/23 days)

2. Baidu Inc. (BIDU) -- 100% Cash-Secured Puts Position Closed on Options Expiration Date

The transactions were:
04/21/2020 Sold 3 BIDU May 15th, 2020 $90.00 100% Cash-Secured Put options @ $2.55 per share 
Note: The Puts were sold when the stock was trading at $99.47 per share.
05/15/2020 3 BIDU May 15th $90.00 Sold Puts were out-of-the-money (stock price above the strike price) at options expiration so the Put options expired and the position was therefore closed out.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $27,002.01
= $90.00 per share * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$765.00
= ($2.55 * 300 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($90.00 -$90.00) * 300 shares

Total Net Profit: +$765.00
= (+$765.00 options income +$0.00 dividend income + $0.00 capital appreciation)

Absolute Return: +2.8%
= +$765.00/$27,002.01
Equivalent Annualized Return: +41.4%
= (+$765.00/$27,002.01)*(365/25 days)