As detailed below, a potential return-on-investment result for this Alibaba position is: -0.3% absolute return in 33 days (equivalent to a -3.4% annualized return-on-investment) if the stock closes above the $240.00 strike price at the January 15th, 2021 options expiration date.
Alibaba Group Holdings Ltd. (BABA) -- Continuation of Covered Call Position
12/14/2020 Bought 100 shares of Alibaba stock @ $257.80 per share
12/14/2020 Sold 1 Alibaba Dec 31st, 2020 $250.00 Call option @ $11.60 per share
Note: this was a simultaneous Buy/Write transaction. The Implied Volatility of the Call options was 30.5 when this transaction was executed.
12/31/2020 BABA Call option expired since stock closed below the strike price
01/05/2021 Sold 1 BABA Jan. 15th, 2021 $240.00 Call option at $5.50 against the 100 shares of Alibaba stock to continue the Alibaba Covered Call position.
Note: the price of BABA was $237.02 today when this Call option was sold.
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $24,620.67
= ($257.80 - $11.60) * 100 shares
Net Profit Components:
(a) Option Income: +$1,704.38
= ($11.60 + $5.50) * 100 shares - $5.62 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BABA stock is above $240.00 strike price at Jan 15th, 2021 expiration): -$1,780.00
= ($240.00 -$257.80) * 100 shares
Total Net Profit: -$75.62
= (+$1,704.38 Call option income +$0.00 dividend income -$1,780.00 capital appreciation)
Absolute Return: -0.3%
= -$75.62/$24,620.67
Equivalent Annualized Return: -3.4%
= (-$75.62/$24,620.67)*(365/33 days)
