New Cash-Secured Puts Position Established in Cigna Corp.

A new position was established in Cigna Corp. (ticker CI) by selling two August 21st, 2020 100% Cash-Secured Put options at the $162.50 strike price at $2.54 when the price of Cigna stock was at $171.77 per share (5.7% above the strike price).  This is a moderately conservative position since the probability of assignment on the options expiration date was 74.4% when this position was established. 

The 36.6 Implied Volatility for these Cigna Put options was attractive to the Covered Calls Advisor since it is well above the current S&P 500 Volatility Index (VIX) of 26.1.   So the $506.66 ($2.54 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, Cigna reported their 2nd quarter earnings yesterday, so there is no earnings report prior to the August 21st options expiration date.  Their quarterly earnings were 12.8% above analysts' estimates and they issued guidance for 2020 of $18.00 to $18.60 per share -- a P/E ratio of only about 9.4 based on the current $171.77 stock price.  This compares favorably to their prior 5-year average P/E of 13, and Cigna's business mix is much improved since its acquisition of Express Scripts [one of the Top 3 Pharmacy Benefits Managers (PBMs)] in late 2018.  Now, 71% of revenue is obtained from their PBM business and 26% from their Health Insurance business. 

As detailed below, for this new Cigna Cash-Secured Puts position there is potential for a +1.6% absolute return in 22 days (equivalent to a +26.3% annualized return-on-investment).  



Cigna Corp. (CI) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
07/31/2020  Sold 2 Cigna August 21st, 2020 $162.50 100% Cash-Secured Put options @ $2.54 per share.

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: $31,993.34
= ($162.50 - $2.54) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$506.66
= ($2.54 *200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Cigna is above $162.50 strike price at the August 21st expiration): +$0.00
= ($162.50 - $162.50) *200 shares

Total Net Profit (If Cigna stock price is above $162.50 strike price at options expiration): +$506.66
= (+$506.66 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Cigna stock price is above $162.50 strike price at the Aug 21st options expiration) : +1.6%
= +$506.66/$31,993.34
Annualized Return: +26.3%
= (+$506.66/$31,993.34)*(365/22 days)

The downside 'breakeven price' at expiration is at $159.96 ($162.50 - $2.54), which is 6.9% below the current market price of $171.77.