A new position was established in Cigna Corp. (ticker CI) by selling two November 19th, 2021 100% Cash-Secured Put options at the $190.00 strike price at $4.40 per share when the price of Cigna stock was at $198.06 per share. This is a moderately conservative position since the probability of assignment on the options expiration date was 66.8% when this position was established.
The 29.8 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 19.8. So the $878.66 ($4.40 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.
The average target price of the 22 analysts covering Cigna is $261.28 which is +31.9% above today's stock price when the Put options were sold. Cigna stock has an attractive valuation since its Current Fiscal Year P/E
Ratio is only 9.8 compared with its prior 5-year historical average of
12.5. An additional consideration in this position is that the next quarterly earnings report is on November 4th which is prior to the November 19th options expiration date. The Covered Calls Advisor will be monitoring this position closely every day to determine if the position should be closed out prior to the November 4th earnings report.
As detailed below, for this new Cigna Cash-Secured Puts position there is potential for a +2.4% absolute
return in 38 days (equivalent to a +22.7% annualized
return-on-investment).
Cigna Corp. (CI) -- New 100% Cash-Secured Puts PositionThe transaction today was as follows:
10/13/2021 Sold 2 Cigna November 19th, 2021 $190.00 100% Cash-Secured Put options @ $4.40 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: $37,121.34
= ($190.00 - $4.40) * 200 shares + $1.34 commission
Net Profit:
(a) Options Income: +$878.66
= ($4.40 *200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Cigna is above $190.00 strike price at the November 19th expiration): +$0.00
= ($190.00 - $190.00) * 200 shares
Total Net Profit (If Cigna stock price is above $190.00 strike price at options expiration): +$878.66
= (+$878.66 options income +$0.00 dividend income +$0.00 capital appreciation)
Absolute Return-on-Investment (If Cigna stock price is above $190.00 strike price at the Nov 19th options expiration) : +2.4%
= +$878.66/$37,121.34
Annualized Return: +22.7%
= (+$878.66/$37,121.34) * (365/38 days)
The downside 'breakeven price' at expiration is at $185.60 ($190.00 - $4.40), which is 6.3% below the current market price of $198.06.
