Today, five 100% Cash-Secured Put options were sold in the Bristol-Myers Squibb Co. (ticker BMY) at the November 19th, 2021 $55.00 strike price at $.70 per share when Bristol-Myers' price was $56.57. This out-of-the-money position has a probability of expiration of 68.4% at the options expiration date. Cash-Secured Puts were sold instead of their comparable Covered Calls in this case. The time value available was an identical $.70 for either position so the positions (Cash-Secured Puts or Covered Calls) had identical risk/reward profiles.
Bristol-Myers reported the Q3 2021 earnings this morning which were in line with expectations with revenues of $11.6B (10% above last year's quarter) and Non-GAAP earnings per share of $2.00. This earnings season it seems that stocks get punished when earnings only meet expectations and that is true in this case with Bristol-Myers since the stock declined by 2.87% today when this position was established. But I like BMY's compelling valuation with the midpoint of their full-year earnings at $7.47 per share which is a P/E ratio of only 7.6 based on the price today when this transaction was made. Further single-digit earnings growth is currently expected for next year and analysts are bullish with 14 of the 18 analysts following the company have a Buy or Outperform rating, 4 have Hold ratings, and none have an Underperform or Sell rating. Their average target price is $74.63 (+31.9% above the current price).
As detailed below for this Bristol-Myers 100% Cash-Secured Puts position, there is potential for a +1.3% absolute return in 24 days (equivalent to a +19.4% annualized return-on-investment).
Bristol-Myers Squibb Co. (BMY) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
10/27/2021 Sold 5 Bristol-Myers November 19th, 2021 $55.00 100% Cash-Secured Put options @ $.70 per share. The Implied Volatility of the Puts was 22.9 when they were sold, which as desired by the Covered Calls Advisor is above the S&P 500 Volatility Index (VIX) which is currently at 15.6.
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 five Put options sold.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $27,153.35
= ($55.00 - $.70) * 500 shares + $3.35 commission
Net Profit:
(a) Options Income: +$346.65
= ($.70 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Bristol-Myers stock is above $55.00 strike price at the Nov.19th expiration): +$0.00
= ($55.00 - $55.00) * 500 shares
Total Net Profit (If Bristol-Myers is above the $55.00 strike price at options expiration): +$346.65
= (+$346.65 options income +$0.00 dividend income +$0.00 capital appreciation)
Absolute Return: +1.3%
= +$346.65/$27,153.35
Annualized Return: +19.4%
= (+$346.65/$27,153.35)*(365/24 days)
The
downside 'breakeven price' at expiration is at $54.30 ($55.00 - $.70),
which is 4.0% below the current market price of $56.57.
