This morning, a short-term (11 days) 100% Cash-Secured Put options position was established in Global Payments Inc. (ticker GPN) at the December 16th, 2022 options expiration date and at the $95.00 strike price. Three Puts were sold at $1.35 per share when the stock price was at $98.90 (4.1% above the strike price). The Implied Volatility of these Puts was 41.3 when this position was established. Establishing positions where the Implied Volatility is greater than that
of the S&P 500 Volatility Index (i.e. VIX), which is currently at 21.6, is strongly preferred by the
Covered Calls Advisor. This preference is the fifth of the twelve investing "edges" (see here) utilized that contributes to our achieving outperformance in comparison with that of the benchmark S&P 500 Index. There is no earnings report or quarterly dividend prior to the December 16th options expiration date.
Global Payments is a company in the Information Technology sector that provides payment technology and software solutions for card, electronic, check, and digital-based payments in the Americas, Europe, and the Asia-Pacific. It operates through three segments: Merchant Solutions, Issuer Solutions, and Business and Consumer Solutions. Their valuation is attractive since their FY2022 P/E is estimated at only 10.6 which is 5 turns below its prior 5-year average, and their EPS are expected to continue growing another 11.8% in FY2023. They have beat analysts' quarterly estimates in each of the last 4 quarters and analysts' target price of $149.82 is +51.5% above today's purchase price.
The probability that Global Payments stock is above the strike price on the December 16th options expiration date (in which case the Puts expire worthless and the maximum potential profit is achieved) was 71.9% when this position was established. Just prior to establishing this position, a comparison was made to determine whether establishing a Covered Calls position or a Cash-Secured Puts position would be preferable. For this Global Payments position, selling the Puts was preferable since it provided the potential for a slightly higher annualized-return-on-investment.
Global Payments Inc. (GPN) -- New 100% Cash-Secured Puts Position
As detailed below for this Global Payments 100% Cash-Secured Puts
position, there is potential for a +1.4% absolute return in 11 days
(equivalent to a +47.6% annualized return-on-investment).
12/6/2022 Sold 3 Global Payments December 16th, 2022 $95.00 100% Cash-Secured Put options @ $1.35 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 three Global Payments Put options sold.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Puts Net Investment: $28,097.01
= ($95.00 - $1.35) * 200 shares + $2.01 commission
Net Profit:
(a) Options Income: +$402.99
= ($1.35 * 300 shares) - $2.01 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Global Payments stock is above the $95.00 strike price at the Dec. 16th options expiration): +$0.00
= ($95.00 - $95.00) * 300 shares
Total Net Profit [If Global Payments stock price is out-of-the-money (i.e. above $95.00 strike price) at options expiration]: +$402.99
= (+$402.99 options income +$0.00 dividend income +$0.00 capital appreciation)
Absolute Return-on-Investment: (If stock is above $90.00 strike price at the Nov. 18th, 2022 options expiration) : +1.4%
= +$402.99/$28,097.01
Annualized Return-on-Investment: +47.6%
= (+$402.99/$28,097.01) * (365/11 days)
Regards and Godspeed,
Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net
