Covered Calls Position Established in International Paper

Today, a new covered calls position was established in International Paper (ticker symbol IP) with an Aug2015 expiration.  The International Paper stock was purchased at $47.30 and the Aug2015 Call options were simultaneously (i.e. a single buy-write transaction was made) sold at the $46.00 strike price for $1.59 each.

This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (Aug 12th) prior to the August 21st options expiration date.  Details of this position is provided below.

1. International Paper (IP)

A $.40 quarterly dividend goes ex-dividend on August 12th.  Although unlikely, if the current time value (i.e. extrinsic value) of $.29 [$1.59 option premium - ($47.30 stock price - $46.00 strike price)] remaining in the short call options decay substantially below the $.40 dividend amount by August 11th (the day prior to the ex-div date), then there is a possibility that the call option owner will exercise early and will call the stock away to capture the dividend.

As shown below, two potential return-on-investment results for this position are:

If Early Assignment: +0.4% absolute return (equivalent to +18.6% annualized return for the next 8 days) if the stock is assigned early (the day prior to Aug 12th ex-div date); OR

If Dividend Capture:  +1.3 absolute return (equivalent to +24.1% annualized return over the next 19 days) if the stock is assigned at Aug2015 expiration on August 21st.

08/03/2015 Bought 200 IP shares @ $47.30
08/03/2015 Sold 2 IP Aug2015 $46.00 Call options @ $1.59

08/12/2015 Upcoming ex-dividend of $.40 per share

Two possible overall performance results (including commissions) for this International Paper (IP) covered calls position are as follows:
Stock Purchase Cost: $9,468.95
= ($47.30*200+$8.95 commission)

Net Profit:
(a) Options Income: +$307.55
= ($1.59*200 shares) - $10.45 commissions
(b) Dividend Income (If option exercised early on day prior to Aug 11th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Aug2015 expiration): +$80.00
= ($.40 dividend per share x 200 shares)

(c) Capital Appreciation (If stock assigned early on Aug 11th): -$268.95
+($46.00-$47.30)*200 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $46.00 at Aug2015 expiration): -$268.95
+($46.00-$47.30)*200 - $8.95 commissions

Total Net Profit (If option exercised on day prior to Aug 12th ex-div date): +$38.60

= (+$307.55 +$0.00 -$268.95); or

Total Net Profit (If stock assigned at $46.00 at Aug2015 expiration): +$118.60

= (+$307.55 +$80.00 -$268.95)

1. Absolute Return (If option exercised on day prior to ex-div date): +0.4%

= +$38.60/$9,468.95

Annualized Return (If option exercised early): +16.5%

= (+$38.60/$9,468.95)*(365/9 days); OR

2. Absolute Return (If stock assigned at $46.00 at Aug2015 expiration): +1.3%

= +$118.60/$9,468.95

Annualized Return (If stock assigned): +24.1%

= (+$118.60/$9,468.95)*(365/19 days)

Either outcome would provide a very good return.  These returns will be achieved as long as the stock is above the $46.00 strike price at assignment.

Established Short 100% Cash-Secured Puts Position in iShares China Large-Cap ETF

Today, the Covered Calls Advisor established a 100% cash-secured Puts position in iShares China Large-Cap ETF (Symbol FXI) by selling 7 Aug2015 Put options at the $39.00 strike price. This position indicates that the Covered Calls Advisor is willing to purchase FXI shares at $39.00 (for future covered calls investments) upon the market close on August 21st if the stock declines to below $39.00 at that time.  This is a somewhat conservative investment since FXI was at $39.90 (2.2% above the strike price) when this position was established.

As detailed below, this investment will achieve a +1.7% absolute return in 19 days (which is equivalent to a +33.5% annualized return) if FXI remains above $39.00 at the August 21st options expiration date.

This transaction and the associated potential return-on-investment result is detailed below.

1.  iShares China Large-Cap ETF (FXI) -- New Position
The transaction was as follows:
08/03/2015 Sold 7 iShares China Large-Cap ETF Aug2015 $39.00 Puts @ $.70
Note: The price of FXI was $39.90 when this transaction was executed.

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

A possible overall performance result (including commissions) for this transaction would be as follows:
100% Cash-Secured Cost Basis: $27,300.00
= $39.00*700
Note:  the price of FXI was $39.90 when the Put options were sold.

Net Profit:
(a) Options Income: +$475.80
= ($.70*700 shares) - $14.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI is above $39.00 strike price at Aug2015 expiration): +$0.00
= ($39.00-$39.00)*700 shares

Total Net Profit (If FXI is above $39.00 strike price upon the Aug2015 options expiration): +$475.80
= (+$475.80 +$0.00 +$0.00)

Absolute Return (If FXI is above $39.00 strike price at Aug2015 options expiration): +1.7%
= +$475.80/$27,300.00
Annualized Return: +33.5%
= (+$475.80/$27,300.00)*(365/19 days)

The downside 'breakeven price' at expiration is at $38.30 ($39.00 - $.70), which is 4.1% below the current market price.
The 'crossover price' at expiration is $40.60 ($39.90 + $.70).  This is the price above which it would have been more profitable to simply buy-and-hold FXI shares until August 21st (the Aug2015 options expiration date) rather than holding these short Put options.

Covered Calls Position Established in Exxon Mobil Corp.

Today, a new covered calls position was established in Exxon Mobil Corporation (ticker symbol XOM) with an Aug2015 expiration.  The Exxon Mobil stock was purchased at $78.96 after today's disappointing earnings release when the stock price had declined by almost 5% from yesterday's closing price.  The Aug2015 Call options were simultaneously (i.e. a single buy-write transaction was made) sold at the $78.00 strike price for $1.80 each.

This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (Aug 11th) prior to the August 21st options expiration date.  Details of this position is provided below.

1. Exxon Mobil Corp. (XOM)

A $.73 quarterly dividend goes ex-dividend on August 11th.  Although unlikely, if the current time value (i.e. extrinsic value) of $.84 [$1.80 option premium - ($78.96 stock price - $78.00 strike price)] remaining in the short call options decay substantially below the $.73 dividend amount by August 10th (the day prior to the ex-div date), then there is a possibility that the call option owner will exercise early and will call the stock away to capture the dividend.

As shown below, two potential return-on-investment results for this position are:

Closed Three Positions -- Hertz, United Continental, and YRC Worldwide

This Covered Calls Advisor closed three positions (Hertz Global Holdings Inc., United Continental Holdings Inc., and YRC Worldwide Inc.) in the portfolio by selling the long stock positions.


The detailed transactions for each position as well as the return-on-investment performance are as follows:

1.  Hertz Global Holdings Inc. (HTZ) -- Closed
The transactions were as follows:
04/29/2015 Sold 4 Hertz Global Holdings Inc. May2015 $21.00 Puts @ $.65
Note: The price of HTZ was $20.84 when this transaction was executed. 
05/15/2015 Four HTZ Puts expired and 400 shares of Hertz stock was purchased at the $21.00 strike price
Note: the price of HTZ was $20.60 upon May2015 options expiration
05/22/2015 Closed out Hertz position by selling 400 shares of HTZ stock at $20.96

The Covered Calls Advisor does not use margin, so the detailed information on this position and the result 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 transaction was as follows:
100% Cash-Secured Cost Basis: $8,400.00
= $21.00*400
Note: the price of HTZ was $20.84 when these Put options were sold.

Net Profit:
(a) Options Income: +$248.05
= ($.65*400 shares) - $11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$24.95
= ($20.96-$21.00)*400 shares - $8.95 commissions

Total Net Profit: +$223.10
= (+$248.05 +$0.00 -$8.95)

Absolute Return: +2.7%
= +$223.10/$8,400.00
Annualized Return: +42.1%
= (+$223.10/$8,400.00)*(365/23 days) 

2. United Continental Holdings Inc. (UAL) -- Closed
The transactions were as follows:
03/24/2015  Sold 3 UAL 100% cash-secured $64.00 Apr2015 Put options @ $1.25
Note: The price of UAL was $67.70 when this transaction was executed.
04/17/2015 3 UAL Puts expired and 300 shares of United Continental stock was purchased at the $64.00 strike price
Note: the price of UAL was $61.49 upon Apr2015 options expiration
05/05/2015 Closed out United Continental position by selling 300 UAL stock at $59.41 per share

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $19,200.00
= $64.00*300

Net Profit:
(a) Options Income: +$363.80
= ($1.25*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$1,377.00
= ($59.41-$64.00)*300 shares

Total Net Profit: -$1,013.20
= (+$363.80 +$0.00 -$1,377.00)

Absolute Return: -5.3%
= -$1,103.20/$19,200.00
Annualized Return: -45.9%
= (-$1,103.20/$19,200.00)*(365/42 days)



3.  YRC Worldwide Inc. (YRCW) -- Closed
The transactions are as follows:
02/23/2015  Sold 4 YRCW Mar2015 $20.00 100% cash-secured Put options @ $1.30
Note: The price of YRCW was $19.67 when this transaction was executed.
04/17/2015 4 YRCW Puts expired and 400 shares of YRW Worldwide stock was purchased at the $20.00 strike price
Note: the price of YRCW was $16.08 upon Apr2015 options expiration
05/05/2015 Closed out YRC Worldwide position by selling 400 YRCW stock at $13.77 per share
The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $8,000.00
= $20.00*400

Net Profit:
(a) Options Income: +$696.10
= ($1.30 + $.50)*400 shares - 2*$11.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$2,492.00
= ($13.77 - $20.00)*400 shares

Total Net Profit: -$1,795.90
= (+$696.10 +$0.00 -$2,492.00)

Absolute Return: -22.4%
= -$1,795.90/$8,000.00
Annualized Return: -115.4%
= (-$1,795.90/$8,000.00)*(365/71 days)