As detailed below, two potential return-on-investment results are:
- +2.1% absolute return (equivalent to +10.4% annualized return for 75 days) if the stock price is unchanged from today's price of $217.04 on the July 16th, 2021 options expiration date; OR
- +5.7% absolute return (equivalent to +27.9% annualized return for 75 days) if the stock is assigned at the $225.00 strike price on the July 16th, 2021 options expiration date.
Alibaba Group Holdings Ltd. (BABA) -- Continuation of Covered Call Position
The original buy/write transaction was as follows:
05/03/2021 Bought 100 shares of Alibaba stock @ $232.14 per share
05/03/2021 Sold 1 Alibaba May 14th, 2021 $225.00 Call option @ $10.24 per share
Note: The Implied Volatility of the Call option was 32.3 when this transaction was executed.
05/14/2021 Bought-to-Close 1 BABA May 14th, 2021 $225.00 Call Option @ $.01 per share and simultaneously Sold-to-Open 1 BABA May 28th, 2021 $215.00 Call @ $2.92 per share.
Note: the stock price was $209.08 when this $2.91 net credit spread transaction was executed.
05/28/2021 The BABA $215.00 Call option expired out-of-the-money and the 100 shares of BABA stock were retained in the Covered Calls Advisor Portfolio
06/01/2021 Continued BABA Covered Calls position by selling one June 18th, 2021 $225.00 Call option @ $3.95 per share
06/18/2021 One BABA Call option expired out-of-the-money and 100 shares remain in the Covered Calls Advisor Portfolio.
06/24/2021 Sold 1 Alibaba July 16th, 2021 $225.00 Call option @ $2.77 per share
Note: the price of BABA shares was $217.04 when this Call option was sold.
Two possible overall performance results (including commissions) would be as follows:
Covered Call Cost Basis: $22,191.34
= ($232.14 - $10.24) * 100 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$1,984.32
= ($10.24 - $.01 + $2.92 + $3.95 + $2.77) * 100 shares - $2.68 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Alibaba stock price is unchanged at $217.04 on the July 16th, 2021 options expiration date): -$1,510.00
= ($217.04 -$232.14) * 100 shares; OR
(c) Capital Appreciation (If Alibaba stock price closes above the $225.00 strike price and is assigned at the July 16th, 2021 options expiration date): -$714.00
= ($225.00 -$232.14) * 100 shares
(a) Total Net Profit (If Alibaba stock price is unchanged at $217.04 at the July 16th, 2021 options expiration date): +$474.32
= (+$1,984.32 Call option income +$0.00 dividend income -$1,510.00 capital appreciation); OR
(b) Total Net Profit (If Alibaba stock price closes above the $225.00 strike price and is assigned at the July 16th, 2021 options expiration date): +$1,270.32
= (+$1,984.32 Call option income +$0.00 dividend income - $714.00 capital appreciation)
1. Absolute Return-on-Investment (If Alibaba stock price is unchanged at $217.04 at the July 16th, 2021 options expiration date): +2.1%
= +$474.32/$22,191.34
Equivalent Annualized Return-on-Investment: +10.4%
= (+$645.99/$22,191.34)* (365/75 days); OR
2. Absolute Return-on-Investment (If Alibaba stock price closes above the $225.00 strike price and is assigned at the June 18th, 2021 options expiration date): +5.7%
= +$1,270.32/$22,191.34
Equivalent Annualized Return-on-Investment: +27.9%
= (+$1,270.32/$22,191.34)*(365/75 days)
