New Cash-Secured Puts Position Established in Cigna Corp.

A new position was established in Cigna Corp. (ticker CI) by selling two July 17th, 2020 100% Cash-Secured Put options at the $165.00 strike price.  A limit order was executed during the last half hour of today's trading session when the price of Cigna stock was $173.29 (5.0% above the $165.00 strike price).   

The Implied Volatility of the Put options was very appealing to the Covered Calls Advisor for these Cigna Calls at 47.6 [almost double the S&P 500 Volatility Index (VIX) of 24.3] when this new Cigna position was established.  So the $414.66 ($2.08 per share x 200 shares - $1.34 commission) is a nice premium to receive for these out-of-the-money (i.e. strike price below the current stock price) Put options.  Importantly, there is no earnings report prior to the July 17th options expiration date; Cigna's next quarterly earnings report is scheduled for July 30th.

Cigna is highly rated by analysts.  Reuters Research indicates that currently 9 analysts have a Buy rating, 12 an Outperform rating, 5 a Hold, and no Underperform or Strong Sell.  Their average one-year target price is $241 which is 39% above the current price.  With the acquisition of Express Scripts [one of the Top 3 Pharmacy Benefits Managers (PBMs)] in late 2018, their business mix is much improved with 71% of revenue obtained from their PBM business and 26% from their Health Insurance business.  Despite Covid-19, this year's earnings are expected to increase by 8.5% which would be only a 9.4 P/E ratio based on its current stock price.  This compares favorably with Cigna's prior 5-year average P/E of 13.   

As detailed below, for this new Cigna Cash-Secured Puts position there is potential for a +1.3% absolute return in 9 days (equivalent to a +51.6% annualized return-on-investment).  
Note: Although there are nine calendar days until next Saturday (the day after the options expiration date), it should be noted that since this position was established near the end of trading today, there are actually only 6 trading days remaining through next Friday's options expiration date


Cigna Corp.(CI) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
07/09/2020  Sold 2 Cigna July 17th, 2020 $165.00 100% Cash-Secured Put options @ $2.08 per share.
Note: the Open Interest of these Put options was 241 contracts.
The Covered Calls Advisor does not use margin, so the detailed information on this position and the potential result detailed below reflect that this position was established using 100% cash securitization for the two Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $32,585.34
= ($165.00 - $2.08) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$414.66
= ($2.08 *200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Cigna is above $165.00 strike price at the July 17th expiration): +$0.00
= ($165.00 - $165.00) *200 shares

Total Net Profit (If Cigna stock price is above $165.00 strike price at options expiration): +$414.66
= (+$414.66 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Cigna stock price is above $165.00 strike price at July 17th options expiration) : +1.3%
= +$414.66/$32,585.34
Annualized Return: +51.6%
= (+$414.66/$32,585.34)*(365/9 days)

The downside 'breakeven price' at expiration is at $162.92 ($165.00 - $2.08), which is 6.0% below the current market price of $173.29.

The probability of making a profit (if held until the July 17th, 2020 options expiration) for this Cigna Corp. short Puts position was 76.2% when this position was established.  The potential annualized return on investment of +51.6% is a very attractive risk/reward profile for this conservative Cash-Secured Puts investment.