Alphabet is a core position for the Covered Calls Advisor, so normally a GOOGL position is established each month. The Implied Volatility (IV) of 39.2 for these GOOGL Put options was appealing to the Covered Calls Advisor. This is substantially higher than the current S&P 500 Volatility Index (VIX) of 27.1. The current higher than normal IV for GOOGL is in part attributable to the uncertainty related to its upcoming earnings report on July 30th. So, the $20.40 ($20.40 per share x 100 shares - $.67 commission) is a nice premium to receive for selling this out-of-the-money (i.e. strike price below the current stock price) Put option.
As detailed below for this new Alphabet Cash-Secured Put position, there is potential for a +1.5% absolute return in 29 days (equivalent to a +18.7% annualized return-on-investment).
Alphabet Inc. (GOOGL) -- New 100% Cash-Secured Put Position
07/24/2020 Sold 1 GOOGL Aug 21st, 2020 $1,370.00 100% Cash-Secured Put option @ $20.40 per share
Note: The Put was sold when the stock was trading at $1,489.08 per share.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $137,000.67
= $1,370.00 per share * 100 shares + $.67 commission
Net Profit Components:
(a) Options Income: +$2,040.00
= ($20.40 * 100 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Alphabet stock is above $1,370.00 strike price at Aug 21st expiration): +$0.00
= ($1,370.00 -$1,370.00) * 100 shares
Potential Total Net Profit (If Alphabet stock price is above $1,370.00 strike price at Aug 21st options expiration): +$2,040.00
= (+$2,040.00 options income +$0.00 dividend income + $0.00 capital appreciation)
Absolute Return: +1.5%
= +$2,040.00/$137,000.67
Equivalent Annualized Return: +18.7%
= (+$2,040.00/$137,000.67)*(365/29 days)
