Established New Short Put Options Position in Micron Technology Inc.

Today, the Covered Calls Advisor established a new position in Micron Technology Inc. (ticker symbol MU) by selling three Nov2015 Put options at the $15.00 strike price.

As detailed below, the Micron Technology investment will yield a +2.9% absolute return in 8 days (which is equivalent to a +131.3% annualized return-on-investment) if Micron closes above the $15.00 strike price on the Nov2015 options expiration date. 

The implied volatility in the options was high at 49 when this position was established; so the $.47 price per share received when the Puts were sold is very attractive to us option sellers, especially since the level of unknowns between now and next Friday's Nov2015 options expiration is relatively low, given that MU has already announced their quarterly earnings results.  

1.  Micron Technology Inc. (MU) -- New Position
The transaction was as follows:
11/13//2015  Sold 3 MU 100% cash-secured $15.00 Put options @ $.47
Note: The price of MU was $14.92 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 three Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $4,508.95
= $15.00*300 + $8.95

Net Profit:
(a) Options Income: +$129.80
= ($.47*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If MU is above $15.00 strike price at Nov2015 expiration): +$0.00
= ($17.00-$17.00)*300 shares

Total Net Profit (If MU is above $15.00 strike price at Nov2015 options expiration): +$129.80
= (+$129.80 +$0.00 +$0.00)

Absolute Return (If MU is above $15.00 strike price at Nov2015 options expiration): +2.9%
= +$129.80/$4,508.95
Annualized Return (If MU is above $15.00 at expiration): +131.3%
= (+$129.80/$4,508.95)*(365/8 days)

The downside 'breakeven price' at expiration is at $14.53 ($15.00 - $.47), which is 2.6% below the current market price of $14.92.
The 'crossover price' at expiration is $15.39 ($14.92 + $.47).  This is the price above which it would have been more profitable to simply buy-and-hold Micron stock until Nov 20th (the Nov2015 options expiration date) rather than selling these Put options.

Country Value Rankings

A comprehensive approach to asset allocation extends beyond diversification solely by asset classes (i.e. stocks, bonds, real estate, commodities, etc.). It should also include diversification by global geography. Behavioral finance research has clearly identified the profound tendency of most investors to succumb to "home-country bias". Legendary investor John Templeton was a leading advocate for developing a globally oriented value investing perspective to achieve investing outperformance.

The Covered Calls Advisor has developed a method for determining the relative investing worthiness of twenty-two countries and two regions around the world.  The "Country Value Rankings" table below is based on a weighted-average ranking system.  The eight factors used to calculate these rankings are as follows:

Today's results, shown in the table below, provides a value-oriented and objective framework that assists this advisor make decisions regarding overweighting and underweighting specific countries and regions in the Covered Calls Advisor's Portfolio.

 


 

From the chart above, the resulting overall market ratings for individual countries and regions are:
Very Bullish (Above 25 total points) -- China
Bullish (20-25 points) -- Singapore and South Korea
Slightly Bullish (15-20 points) -- Taiwan, Malaysia, Switzerland, Sweden, and Germany
Neutral (10-15 points) -- Emerging Markets, Spain, Hong Kong, Australia, and U.S.A.
Slightly Bearish -- Mexico, United Kingdom, Canada, Europe/Asia Developed Countries, France, and India
Bearish -- Italy and Japan
Very Bearish -- S Africa, Russia, and Brazil



Future investments in the Covered Calls Advisor Portfolio will overweight the higher rated countries. It should also be noted that the U.S. is currently ranked 13th of the 24 ratings and the overall rating for the U.S. is at the very low end of the range for Neutral.

This Country Value Rankings spreadsheet is detailed in terms of both the methodology used and the resources used to capture the information for each country. If you are interested in these details and would like further information or clarification, please email your comments and questions (to the address in the top right sidebar of this blog). They are always welcomed.

Hopefully, this information is helpful in your thinking and analysis of your own equities selection methods related to your covered calls investing process!  Going forward, it is my intention to update this information quarterly.

Regards and Godspeed to All,
Jeff

Covered Calls Position Established in Cummins Inc.

Today, a new covered calls position was established in Cummins Inc. (ticker symbol CMI) with a Nov2015 expiration.  The Cummins stock was purchased at $103.97 and the Nov2015 Call options were simultaneously (i.e. a single buy-write transaction) sold at the $102.00 strike price for $3.12 each.

This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (Nov 18th) prior to the November 20th options expiration date.  Details of this position are provided below.

1. Cummins Inc. (CMI)

A $.975 quarterly dividend goes ex-dividend on November 18th.  If the current time value (i.e. extrinsic value) of $1.15 [$3.12 option premium - ($103.97 stock price - $102.00 strike price)] remaining in the short call options decay substantially by November 17th (the day prior to the ex-dividend date), then there is a possibility that the call option owner will exercise his/her option and will call the stock away to capture the dividend.  

As shown below, either early assignment or assignment at the Nov2015 options expiration date will provide very good return-on-investment results.

These two potential return-on-investment results are:

If Early Assignment: +1.0% absolute return (equivalent to +41.1% annualized return for the next 9 days) if the stock is assigned early (the business day prior to the Nov 18th ex-div date); OR

If Dividend Capture:  +1.9% absolute return (equivalent to +59.3% annualized return over the next 12 days) if the stock is assigned at Nov2015 expiration on November 20th.

11/09/2015 Bought 200 CMI shares @ $103.97
11/09/2015 Sold 2 CMI Nov2015 $102.00 Call options @ $3.12
11/18/2015 Upcoming ex-dividend of $.975 per share

Two possible overall performance results (including commissions) for this Cummins (CMI) covered calls position are as follows:
Stock Purchase Cost: $20,802.95
= ($103.97*200+$8.95 commission)

Net Profit:
(a) Options Income: +$613.55
= ($3.12*200 shares) - $10.45 commissions
(b) Dividend Income (If option exercised early on business day prior to Nov 18th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Nov2015 expiration): +$195.00
= ($.975 dividend per share x 200 shares)

(c) Capital Appreciation [If stock assigned early on Nov 17th (business day prior to November 18th ex-div date)]: -$402.95
+($102.00-$103.97)*200 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $102.00 at Nov2015 expiration): -$402.95
+($102.00-$103.97)*200 - $8.95 commissions

Total Net Profit (If option exercised on business day prior to ex-div date): +$210.60

= (+$613.55 +$0.00 -$402.95); or

Total Net Profit (If stock assigned at $102.00 at Nov2015 expiration): +$405.60

= (+$613.55 +$195.00 -$402.95)

1. Absolute Return (If option exercised on day prior to ex-div date): +1.0%

= +$210.60/$20,802.95

Annualized Return (If option exercised early): +41.1%

= (+$210.60/$20,802.95)*(365/9 days); OR

2. Absolute Return (If stock assigned at $102.00 at Nov2015 expiration): +1.9%

= +$405.60/$20,802.95

Annualized Return (If stock assigned): +59.3%

= (+$405.60/$20,802.95)*(365/12 days)

Either outcome would provide a very good return.  These returns will be achieved as long as the stock is above the $102.00 strike price.

Established New Position in Time Warner Inc.

Today, the Covered Calls Advisor established a new position in Time Warner Inc. (ticker symbol TWX) by selling three Nov2015 Put options at the $67.50 strike price. This position is a conservative one since it was established with 1.8% downside protection to the strike price.

As detailed below, the Time Warner Inc. investment will yield a +1.6% absolute return in 12 days (which is equivalent to a +47.9% annualized return-on-investment) if TWX closes above the $67.50 strike price on the Nov2015 options expiration date. 

This potential return is excellent given the 1.8% downside protection (from the $68.74 stock price to the $67.50 strike price) when the position was established.  The implied volatility in the options was relatively high at about 32 when this position was established; so the $1.10 price per share received when the Puts were sold is very attractive to us option sellers.     

1.  Time Warner Inc. (TWX) -- New Position
The transaction was as follows:
11/09/2015  Sold 3 TWX 100% cash-secured $67.50 Put options @ $1.10
Note: The price of TWX was $68.74 today when this transaction was executed.

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 three Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $20,250.00
= $67.50*300

Net Profit:
(a) Options Income: +$318.80
= ($1.10*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TWX is above $67.50 strike price at Nov2015 expiration): +$0.00
= ($67.50-$67.50)*300 shares

Total Net Profit (If TWX is above $67.50 strike price at Nov2015 options expiration): +$318.80
= (+$318.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If TWX is above $67.50 strike price at Nov2015 options expiration): +1.6%
= +$318.80/$20,250.00
Annualized Return: +47.9%
= (+$318.80/$20,250.00)*(365/12 days)

The downside 'breakeven price' at expiration is at $66.40 ($67.50 - $1.10), which is 3.4% below the current market price of $68.74.
The 'crossover price' at expiration is $69.84 ($68.74 + $1.10).  This is the price above which it would have been more profitable to simply buy-and-hold TWX until Nov 20th (the Nov2015 options expiration date) rather than selling these Put options.