New Cash-Secured Puts Position Established in VMware Inc.

A new position was established in VMware Inc. (ticker VMW) by selling two August 21st, 2020 100% Cash-Secured Put options at the $137.00 strike price at $1.70 when the price of VMware stock was at $141.88 per share (3.6% above the strike price).  This is a moderately in-the-money position since the probability of assignment on the options expiration date was 71.8% when this position was established. 

The 35.9 Implied Volatility for these VMware Put options was attractive to the Covered Calls Advisor since it is well above the current S&P 500 Volatility Index (VIX) of 21.4.   So the $338.66 ($1.70 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 August 21st expiration date.

In a prior post (here), the Covered Calls Advisor explained the Company Checklist form used to summarize the research done prior to establishing a position in any particular company.  So as an example of the type of information I consider, here is the Checklist completed two days ago for VMware:

As detailed below, for this new VMware Cash-Secured Puts position there is potential for a +1.3% absolute return in 11 days (equivalent to a +41.5% annualized return-on-investment).  



VMware Inc. (VMW) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
08/11/2020  Sold 2 VMware August 21st, 2020 $137.00 100% Cash-Secured Put options @ $1.70 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: $27,061.34
= ($137.00 - $1.70) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$338.66
= ($1.70 *200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If VMW is above $137.00 strike price at the August 21st expiration): +$0.00
= ($137.00 - $137.00) *200 shares

Total Net Profit (If VMware stock price is above $137.00 strike price at options expiration): +$338.66
= (+$338.66 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If VMW stock price is above $137.00 strike price at the Aug 21st options expiration) : +1.3%
= +$338.66/$27,061.34
Annualized Return: +41.5%
= (+$338.66/$27,061.34)*(365/11 days)

The downside 'breakeven price' at expiration is at $135.30 ($137.00 - $1.70), which is 4.6% below the current market price of $141.88.