Established a 100% Cash-Secured Puts Position in American Airlines Group Inc.

Today, the Covered Calls Advisor established a 100% Cash-Secured Puts position in American Airlines Group Inc. (Ticker Symbol AAL) with an Oct2014 expiration and at the $35.00 strike price.  As detailed below, this investment will provide a +4.0% absolute return in 26 days (which is equivalent to a +56.6% annualized return) if American Airlines closes at or above $35.00 at options expiration on Oct 18th.

Details of this transaction along with a potential return-on-investment result are: 

American Airlines Group Inc. (AAL)
The transaction is as follows:
09/23/2014 Sold 4 Oct2014 $35.00 Puts @ $1.44
Note: The price of American Airlines was $35.03 when this transaction was executed.

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 one Put option sold.

A possible overall performance result (including commissions) for this AAL transaction would be as follows:
100% Cash-Secured Cost Basis: $14,000.00
= $35.00*400
Note:  the price of AAL was $35.03 when these Put options were sold.

Net Profit:
(a) Options Income: +$564.05
= ($1.44*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AAL closes above $35.00 at Oct2014 expiration): +$0.00
= ($35.00-$35.00)*400 shares

Total Net Profit (If AAL is above $35.00 strike price at Oct2014 options expiration):+$564.05 
= (+$564.05 +$0.00 +$0.00)

Absolute Return (If AAL is above $35.00 at Oct2014 options expiration and Put options thus expire worthless): +4.0%
= +$564.05/$14,000.00
Annualized Return (If AAL is above $35.00 at expiration): +56.6%
= (+$564.05/$14,000.00)*(365/26 days)

The downside 'breakeven price' at expiration is at $33.56 ($35.00 - $1.44), which is 4.2% below the current market price of $35.03.
The 'crossover price' at expiration is $36.47 ($35.03 + $1.44).  This is the price above which it would have been more profitable to simply buy-and-hold American Airlines Group Inc. stock until October 18th (the Oct2014 options expiration date) rather than holding these short Put options.

Overall Market Meter is "Neutral"

The Covered Calls Advisor recalculated the current values for each of the eight factors used to determine the "Overall Market Meter" rating.  This month, the Overall Market Meter rating remains unchanged at Neutral.

The eight factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next three indicators), and
- growth (the last indicator).

The current Market Meter average of 3.00 (see blue line at the bottom of the chart above) is precisely in the middle of the Neutral range (Neutral range is from 2.51 to 3.50). 

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Neutral sentiment is to "on-average sell 1% out-of-the-money covered calls for the next options expiration month".

Your comments or questions regarding this post (or the details related to any of the eight factors used in this model) are welcomed. Please email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

July 2014 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained one covered calls position in Citigroup Inc. with a July 2014 expiration.  The stock closed in-the-money upon options expiration last Friday, so the 700 shares were called away.   The resulting annualized return-on-investment from this position was +16.1%.

The history of these Citigroup transactions and the associated return-on-investment result are detailed below as follows:

1.  Citigroup Inc. (C) -- Closed
The transactions were as follows:

3/24/2014 Sold 7 Apr2014 $49.00 Puts @ $.89

Note: The price of Citi was $50.03 when this transaction was executed.
4/19/2014 Seven Citigroup Put options expired
Note: The price of Citi was $48.22 upon Apr2014 options expiration
4/22/2014 Sold 7 Citigroup May2014 $49.00 call options at $.62 to establish a covered calls position
Note: The price of Citi was $48.28 when these Call options were sold
5/01/2014 Ex-dividend $7.00 = ($.01*700 shares)
5/16/2014 Seven Citigroup Call options expired
5/22/2014 Sold 7 Citigroup Jun2014 $48.00 Call options at $.49
Note: the price of Citi was $47.10 when these Calls were sold
06/20/2014 Seven Citigroup Call options expired

Note: the price of Citi was $47.34 upon Jun2014 options expiration
07/03/2014 Sold 7 Citigroup Jul2014 $49.00 Call options @ $.60
07/18/2014 7 Call options assigned and 700 Citi shares sold at $49.00 strike price
Note: the price of Citi was $49.56 at Jul2014 expiration

The overall result (including commissions) is as follows:

100% Cash-Secured Cost Basis: $34,300.00
= $49.00*700

Net Profit:

(a) Options Income: +$1,763.20

= ($.89 + $.62+$.49+$.60)*700 shares - 4*$14.20 commissions

(b) Dividend Income: +$7.00

(c) Capital Appreciation: +$0.00

= ($49.00-$49.00)*700 shares

Total Net Profit: +$1,770.20 

= (+$1,763.20 +$7.00 +$0.00)

Absolute Return: +5.2%
= +$1,770.20/$34,300.00
Annualized Return-on-Investment: +16.1%
= (+$1,770.20/$34,300.00)*(365/117 days)

June 2014 Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained five positions with June 2014 expirations.  The results for these five positions so far are as follows:

- Four of the five positions (Ensco PLC Class A, Fusion-io Inc., HollyFrontier Corp., and Southwest Airlines) were closed out at expiration. This was the optimal result for these positions in that the maximum potential return-on-investment (ROI) results were actually achieved from when the June positions were established.  The annualized ROIs for these four closed positions are:
Ensco PLC Class A = +3.3% absolute return (equivalent to +33.0% annualized return for the 37 day holding period)
Fusion-io Inc. = +11.8% absolute return (equivalent to +79.8% annualized return for the 54 day holding period)
HollyFrontier Corp. = +1.2% absolute return (equivalent to +14.4% annualized return for the 30 day holding period)
Southwest Airlines = +2.8% absolute return (equivalent to +22.6% annualized return for the 46 day holding period)

The detailed transactions history and results for each of these four closed positions is detailed below. The cash available from the closing of these positions will be retained in the Covered Calls Advisor Portfolio until new covered calls and/or 100% cash-secured puts positions are established (most likely in the next week or two). These transactions will be posted on this blog the same day they occur.

- One of the five positions (Citigroup Inc.) ended at expiration with the price of the stock at $47.34 which was below the $48.00 strike price.  So the seven Citigroup call options expired and the 700 long shares of Citigroup were retained in the Covered Calls Advisor Portfolio.  A decision will be made early this week to either sell these shares or to establish a covered calls position by selling July2014 call options against the current long stock holdings. When this decision is made and the accompanying transaction is completed, a post will be made on this blog on the same day with the Citigroup-related transactions details to-date.

Details of the four closed transactions and their associated return-on-investment results are as follows:

1.  Ensco PLC Class A (ESV) -- Closed
The transaction was as follows:
05/16/2014 Sold 4 Jun2014 $50.00 Puts @ $1.70
Note: The price of Ensco was $49.82 when this transaction was executed.
06/20/2014 ESV Jun2014 Puts expired
Note: the price of ESV was $55.08 at the Jun2014 options expiration

The Covered Calls Advisor does not use margin, so the detailed information on this position and results shown below reflect the fact that this position was established using 100% cash securitization for the four Put options sold.

The overall performance result (including commissions) for this Ensco transaction was as follows:
100% Cash-Secured Cost Basis: $20,000.00
= $50.00*400
Note: the price of Ensco was $49.82 when these Put options were sold.

Net Profit:
(a) Options Income: +$668.05
= ($1.70*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($50.00-$50.00)*400 shares

Total Net Profit:+$668.05 
= (+$668.05 +$0.00 +$0.00)

Absolute Return: +3.3%
= +$668.05/$20,000.00
Annualized Return: +33.0%
= (+$668.05/$20,000.00)*(365/37 days)


2.   Fusion-io Inc. (FIO) -- Closed 
The transactions were as follows:
04/28/2014 Sold 7 Fusion-io Inc. (FIO) May2014 $9.00 Put Options @ $.80
Note: the price of FIO was $8.40 when these Puts were sold.
05/16/2014 FIO put options expired, so 700 shares of FIO were purchased at $9.00
Note: the price of FIO was $8.09 on the May2014 options expiration date
05/21/2014 Sold to Open 7 FIO Jun2014 $9.00 Call options @ $.30
Note: the price of FIO was $8.63 when these call options were sold
06/20/2014 700 shares of FIO stock sold at $9.00 strike price
Note: the price of FIO was $11.69 on the Jun2014 options expiration date

The overall performance results(including commissions) for these FIO transactions was as follows:
100% Cash-Secured Cost Basis: $6,300.00
= $9.00*700

Net Profit:
(a) Options Income: +$743.60
= ($.80+$.30) *700 shares - 2*$13.20 commissions
(b) Dividend Income: +$0.00
(c)  Capital Appreciation (FIO closed above the $9.00 strike price upon Jun2014 expiration):
+$0.00 = ($9.00-$9.00)*700 shares

Total Net Profit (FIO closed above $9.00 strike price at Jun2014 options expiration): +$743.60 = (+$743.60 +$0.00 +$0.00)

Absolute Return (FIO stock was above $9.00 strike price upon Jun2014 expiration stock was called away): +11.8%
= +$743.60/$6,300.00
Annualized Return: +79.8%
= (+$743.60/$6,300.00)*(365/54 days)


3.  HollyFrontier Corporation (HFC) -- Closed 
The transactions were as follows:
5/23/2014 Bought 300 HFC shares @ $49.32
5/23/2014 Sold 3 HFC Jun2014 $47.00 Call Options @ $2.65
Note: the price of HFC was $49.38 today when these options were sold.
5/28/2014 Ex-dividend for special dividend of $.50 per share
6/4/2014 Ex-dividend of $.32 for quarterly dividend of $.32 per share
6/20/2014 300 shares of HFC sold at special-dividend-adjusted $46.50 strike price
Note: the price of HFC was $49.63 on the Jun2014 options expiration date

The overall performance result (including commissions) for this HollyFrontier Corp (HFC) covered calls position was as follows:
Stock Purchase Cost: $14,804.95
= ($49.32*300+$8.95 commission)

Net Profit:
(a) Options Income: +$783.80
= ($2.65*300 shares) - $11.20 commissions
(b) Dividend Income (Stock assigned on Jun2014 options expiration date): +$246.00
= ($.50 + $.32) dividends per share x 300 shares)

(c) Capital Appreciation (Stock assigned at $46.50 at Jun2014 expiration): -$854.95
=+($46.50-$49.32)*300 - $8.95 commissions

Total Net Profit (stock assigned at $46.50 on Jun2014 options expiration date): +$174.85

= (+$783.80 +$246.00 -$854.95)

Absolute Return (stock assigned at $46.50 at Jun2014 options expiration date): +1.2%
= +$174.85/$14,804.95
Annualized Return: +14.4%

= (+$174.85/$14,804.95)*(365/30 days)

4. Southwest Airlines (LUV) -- Closed

The transactions were as follows:
05/07/2014 Bought 400 LUV shares @ $24.15
05/07/2014 Sold 4 LUV Jun2014 $24.00 Call Options @ $.85
Note: the price of LUV was $24.15 today when these options were sold.
06/03/2014 Ex-dividend of $.04 per share

06/20/2014 400 shares of LUV sold at $24.00 strike price

Note: the price of LUV was $27.29 at Jun2014 options expiration

A possible overall performance result (including commissions) for these Southwest Airlines covered calls is as follows:
Stock Purchase Cost: $9,668.95
= ($24.15*400+$8.95 commission)

Net Profit:
(a) Options Income: +$328.05
= 400*$.85 - $11.95 commissions
(b) Dividend Income: +$16.00 = $.04 per share * 400 shares
(c) Capital Appreciation (LUV assigned at $24.00) = -$68.95
= ($24.00-$24.15)*400 - $8.95 commissions

Total Net Profit (LUV assigned at $24.00): +$275.10
= (+$328.05 +$16.00 -$68.95)

Absolute Return: +2.8%
= +$275.10/$9,668.95
Annualized Return: +22.6%
= (+$275.10/$9,668.95)*(365/46 days)