Continuation of Cal-Maine Foods Inc. Position

At the Dec2015 options expiration last Friday, the four Put options in Cal-Maine Foods Inc.(ticker symbol CALM) were assigned and 400 shares of Cal-Maine stock were purchased at the $50.00 strike price. Quarterly earnings were released after the market close yesterday and after an initial hit to the stock, the stock price recovered to above the $50 level.  At that point today, the Covered Calls Advisor established a covered calls position by selling four Jan2016 Call options against the 400 Cal-Maine shares held. The company also declared a quarterly dividend of $.751 which will go ex-dividend on Jan 25th (after the Jan2016 options expiration on Jan 15th). It is likely that the Covered Calls Advisor will roll the Jan2016 covered calls into a Feb2016 covered calls position to enable a potential dividend capture.

A potential return-on-investment is +7.2% absolute return (equivalent to +57.1% annualized) for the 46 days of this Cal-Maine investment. Details of these Cal-Maine transactions to-date and a potential return-on-investment result are provided below:


1. Cal-Maine Foods Inc. (CALM) -- Continuation

The transaction was as follows:
12/01/2015  Sold 4 CALM Dec2015 $50.00 100% cash-secured Put options @ $1.20
Note: the price of CALM was $52.10 today when this transaction was executed.
12/18/2015 4 CALM Dec2015 Puts assigned and 400 shares of Cal-Maine stock purchased at $50.00 strike price
Note: the price of CALM was $47.52 upon the Dec2015 options expiration
12/24/2015 Established a covered calls position by selling 4 Jan2016 $50.00 Call options @ $2.45
Note: the price of CALM was $50.84 when these Call options were sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $20,000.00
= $50.00*400

Net Profit:
(a) Options Income: +$1,438.10
= ($1.20 +$2.45)*400 shares - 2*$10.95 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If CALM is above $50.00 strike price at Jan2016 expiration): +$0.00
= ($50.00-$50.00)*400 shares

Total Net Profit (If CALM is above $50.00 strike price at Jan2016 options expiration): +$1,438.10
= (+$1,438.10 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If CALM is above $50.00 strike price at Jan2016 options expiration): +7.2%
= +$1,438.10/$20,000.00
Annualized Return: +57.1%
= (+$469.05/$20,000.00)*(365/46 days)

Closed Four Positions -- Avis Budget Group, Kinder Morgan, MetLife Inc., and Paccar Inc.

Today, three positions (Avis Budget Group Inc., MetLife Inc., and Kinder Morgan Inc.) were closed as follows:

1. Avis Budget Group Inc. (CAR) -- Closed
The transaction was as follows:

11/24/2015  Sold 3 CAR Dec2015 $37.50 100% cash-secured Put options @ $1.00
Note: the price of CAR was $38.95 today when this transaction was executed.
12/18/2015 Bought 300 CAR shares at $37.50 strike price
12/23/2015 Sold 300 CAR shares @ $36.50

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $11,250.00
= $37.50*300

Net Profit:
(a) Options Income: +$288.80
= ($1.00*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$294.00
= ($36.52 -$37.50)*300 shares

Total Net Profit: -$5.20
= (+$288.80 options income +$0.00 dividend income -$294.00 capital appreciation)

Absolute Return: -0.05%
= -$5.20/$11,250.00
Annualized Return: -0.6%
= (-$5.20/$11,250.00)*(365/29 days)


2. Kinder Morgan Inc. (KMI) -- Closed
The transactions were as follows:
11/27/2015 Bought 300 Kinder Morgan shares @ $23.95
11/27/2015 Sold 3 KMI Dec2015 $22.50 Call Options @ $1.80
12/18/2015 3 KMI Call options expired since price was below strike price at Dec2015 expiration
12/23/2015 Sold 300 KMI shares @ $16.30

The overall performance result (including commissions) was as follows:
Stock Purchase Cost: $7,192.95
= ($23.95*300+$7.95 commission)

Net Profit:
(a) Options Income: +$529.80
= 300*$1.80 - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation = -$2,302.95
= ($16.30 -$23.95)*300 - $7.95 commissions

Total Net Profit: -$1,773.15
= (+$529.80 +$0.00 -$2,302.95)

Absolute Return: -24.7%
= -$1,773.15/$7,192.95


3. MetLife Inc. (MET) -- Closed
The transactions were as follows:
12/09/2015 Bought 300 MetLife Inc. @ $48.43
12/09/2015 Sold 3 MET Dec2015 $47.50 Call Options @ $1.51
12/18/2015 Bought 300 MET shares at $47.50 strike price
12/23/2015 Sold 300 MET shares @ $47.653


The overall performance result (including commissions) was as follows:
Stock Purchase Cost: $14,536.95
= ($48.43*300+$7.95 commission)

Net Profit:
(a) Options Income: +$442.80
= 300*$1.51 - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation = -$241.05
= ($47.653-$48.43)*300 - $7.95 commissions

Total Net Profit: +$201.75
= (+$442.80 +$0.00 -$241.05)

Absolute Return: +1.4%
= +$201.75/$14,536.95
Annualized Return If Assigned (ARIA): +33.8%
= (+$201.75/$14,536.95)*(365/15 days)


4. Paccar Inc. (PCAR) -- Closed

The transactions were:
12/10/2015 Bought 200 PCAR shares @ $48.97
12/10/2015 Sold 2 PCAR Jan2016 $45.00 Call options @ $4.47
Note: a simultaneous buy/write transaction was executed.
12/16/2015 Special dividend of $1.40 per share.  Strike price adjusted to $43.60.
12/23/2015 Unwound covered calls position by simultaneous selling of 200 shares of PCAR @ $48.11 and buy-to-close of two short Call options @ $4.76.

The overall performance result (including commissions) for this PCAR covered calls position was as follows:
Stock Purchase Cost: $9,801.95
= ($48.97*200+$7.95 commission)

Net Profit:
(a) Options Income: -$68.95
= ($4.47-$4.76)*200 shares) - $9.45 - $1.50 commissions

(b) Dividend Income: +$280.00
= ($1.40 special dividend per share x 200 shares)

(c) Capital Appreciation: -$179.95
+($48.11-$48.97)*200 - $7.95 commissions

Total Net Profit: +$31.10

= (-$68.95 +$280.00 -$179.95)

Absolute Return: +0.3%

= +$31.10/$9,801.95

Annualized Return: +8.9%

= (+$31.10/$9,801.95)*(365/13 days)

Continuation of Devon Energy Corp, Goldman Sachs Inc., and Polaris Industries Inc. Covered Calls Positions

At the Dec2015 options expiration last Friday, the options in Devon Energy Corp, Goldman Sachs Inc., and Polaris Industries Inc. closed below their strike prices, so the options expired worthless in the Covered Calls Advisor Portfolio.  Today, ongoing covered calls were established for these three holdings as follows:

1. Devon Energy Corp. (DVN) -- Continuation of Covered Calls Position

11/19/2015 Bought 200 DVN shares @ $45.325
11/19/2015 Sold 2 DVN Dec2015 $42.50 Call options @ $4.05
12/11/2015 Ex-dividend of $.24 per share
12/18/2015 2 DVN Call options expired
12/23/2015 Sold 2 DVN Dec 31, 2015 Call options @ $1.14
Note: the price of DVN was $32.20 when these Calls were sold.

A possible overall performance result (including commissions) for this Devon covered calls position are as follows:
Stock Purchase Cost: $9,073.95
= ($45.325*200+$8.95 commission)

Net Profit:
(a) Options Income: +$1,017.10
= ($4.05 +$1.14)*200 shares - 2*$10.45 commissions

(b) Dividend Income: +$48.00
= ($.24 dividend per share x 200 shares)

(c) Capital Appreciation (If stock assigned at $32.00 at Dec 31, 2015 expiration): -$4,005.45
+($32.00-$45.325)*200 - $7.95 commissions

Total Net Profit (If stock assigned at $32.00 at Dec 31, 2015 expiration): -$2,940.35

= (+$1,017.10 +$48.00 -$4,005.45)

Absolute Return (If stock assigned at $32.00 at Dec 31, 2015 expiration): -32.4%

= -$2,940.35/$9,073.95

2. Goldman Sachs Group Inc. (GS) -- Continuation of Covered Call Position

11/24/2015 Bought 100 GS shares @ $187.06
11/24/2015 Sold 1 GS Dec2015 $180.00 Call option @ $8.75
Note: the price of GS was $187.21 when the option was sold
11/30/2015 Ex-dividend of $.65 per share
12/18/2015 1 Goldman Sachs Dec2015 $180.00 Call option expired
12/23/2015 Sold 1 GS Jan2016 Call option @ $4.95
Note: the price of GS was $181.25 when this Call option was sold.


A possible overall performance result (including commissions) for this Goldman Sachs covered call position is as follows:
Stock Purchase Cost: $18,713.95
= ($187.06*100+$7.95 commission)

Net Profit:
(a) Options Income: +$1,350.60
= ($8.75 +$4.95)*100 shares) - 2*$9.70 commissions

(b) Dividend Income: +$65.00
= ($.65 dividend per share x 100 shares)

(c) Capital Appreciation (If stock assigned at $180.00 at Jan2016 expiration): -$713.95
+($180.00-$187.06)*100 - $7.95 commissions

Total Net Profit (If stock assigned at $180.00 at Jan2016 expiration): +$701.65

= (+$1,350.60 +$65.00 -$713.95)

Absolute Return (If stock assigned at $180.00 at Jan2016 expiration): +3.7%

= +$701.65/$18,714.95

3. Polaris Industries Inc. (PII) -- Continuation of Covered Call Position

11/24/2015 Bought 100 PII shares @ $103.92
11/24/2015 Sold 1 PII Dec2015 $100.00 Call option @ $5.32
11/27/2015 Ex-dividend of $.53 per share
12/18/2015 1 Polaris Dec2015 $100.00 Call option expired
12/23/2015 Sold 1 PII Jan2016 Call option @ $1.50
Note: the price of PII was $86.20 when this Call option was sold.

A possible overall performance result (including commissions) for this Polaris covered call position is as follows:
Stock Purchase Cost: $10,400.95
= ($103.92*100+$8.95 commission)

Net Profit:
(a) Options Income: +$662.60
= ($5.32 +$1.50) *100 shares) - 2*$9.70 commissions
(b) Dividend Income: +$53.00
= ($.53 dividend per share x 100 shares)

(c) Capital Appreciation (If stock assigned at $90.00 strike price at Jan2016 expiration): -$1,399.95
+($90.00-$103.92)*100 - $8.95 commissions

Total Net Profit (If stock assigned at $90.00 at Jan2016 expiration): -$684.35

= (+$662.60 +$53.00 -$1,399.95)

Absolute Return (If stock assigned at $90.00 at Jan2016 expiration): -6.6%

= -$684.35/$10,400.95

Established New Position in The Walt Disney Company

Today, the Covered Calls Advisor established a new position in The Walt Disney Company (ticker symbol DIS) by selling two Jan2016 Put options at the $102.00 strike price. This position is a conservative one since it was established with 3.6% downside protection to the strike price.

As detailed below, The Walt Disney Company investment will yield a +1.7% absolute return in 26 days (which is equivalent to a +24.5% annualized return-on-investment) if Disney stock closes above the $102.00 strike price on the Jan 15th options expiration date. 

This potential return is very nice given the downside protection (from the $105.86 stock price to the $102.00 strike price) when the position was established.  The implied volatility in the options was 31 when this position was established; so the $1.83 price per share received when the Puts were sold is a nice premium to receive for us option sellers.     

1. The Walt Disney Company (DIS) -- New 100% Cash-Secured Puts Position
12/21/2015  Sold 2 DIS Jan2016 $102.00 100% cash-secured Put options @ $1.83
Note: the price of DIS was $105.86 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 Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $20,400.00
= $102.00*200
Note: the price of Disney was $105.86 when these options were sold

Net Profit:
(a) Options Income: +$356.55
= ($1.83*200 shares) - $9.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If DIS is above $102.00 strike price at the Jan2016 expiration): +$0.00
= ($102.00-$102.00)*200 shares

Total Net Profit (If Disney stock is above $102.00 strike price at Jan2016 options expiration): +$356.55
= (+$356.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Disney is above $102.00 strike price at Jan2016 options expiration): +1.7%
= +$356.55/$20,400.00
Annualized Return: +24.5%
= (+$356.55/$20,400.00)*(365/26 days)

The downside 'breakeven price' at expiration is at $100.17 ($102.00 - $1.83), which is 5.2% below the current market price of $105.68.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Jan 15th, 2016 options expiration) for this Disney short Puts position is 70%. This compares with a probability of profit of 50.2% for a buy-and-hold of The Walt Disney Company stock over the same time period. Using this probability of profit of 70%, the expected value annualized return-on-investment (if held until expiration) is +17.2% (+24.5% * 70%), an attractive risk/reward profile for this conservative investment.  

The 'crossover price' at expiration is $107.51 ($105.68 + $1.83).  This is the price above which it would have been more profitable to simply buy-and-hold Disney stock until the Jan2016 options expiration date rather than selling these Put options.