The transaction was as follows:
08/02/2012 Sold 7 General Motors Co.(GM) Aug2012 $19.00 Put Options @ $.32
Note: the price of GM was $19.50 today when these Puts were sold.
The Covered Calls Advisor does not use margin, so the detailed information on this position and some potential results shown below reflect the fact that this position was established using 100% cash securitization for the seven Put options sold.
A possible overall performance results(including commissions) for this General Motors Co. transaction would be as follows:
100% Cash-Secured Cost Basis: $13,300.00 = $19.00*700
Net Profit:
(a) Options Income: +$209.80
= ($.32*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If GM above $19.00 at Aug2012 expiration): +$0.00
= ($19.00-$19.00)*700
Total Net Profit (If GM remains above $19.00 at Aug2012 options expiration): +$209.80 = (+$209.80 +$0.00 +$0.00)
Absolute Return (If GM above $19.00 at Aug2012 options expiration and Put options thus expire worthless): +1.6%
= +$209.80/$13,300.00
Annualized Return (If stock price above $21.00 at expiration): +33.9%
= (+$209.80/$13,300.00)*(365/17 days)
The downside 'breakeven price' at expiration is at $18.68 ($19.00 - $.32). Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Aug2012 options expiration) for this General Motors Co.(GM) cash-secured Puts position is 65.6%. This compares with a probability of profit of 51.1% for a buy-and-hold of GM over the same time period.
The 'crossover price' at expiration is $19.82 ($19.50 + $.32). This is the price above which it would have been more profitable to simply buy-and-hold GM until Aug 17th(the Aug2012 options expiration date) rather than holding the short Put options. The probability of exceeding this crossover price at expiration is 42.2%.
