Established Position in JPMorgan Chase & Co.

The Covered Calls Advisor Portfolio established a new positions in JPMorgan Chase & Co. (ticker symbol JPM) by selling 100% cash-secured Put options. The Feb2016 options expiration was chosen and conservative out-of-the-money Puts were sold with downside protection to the strike price.

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 these positions were established using 100% cash securitization for the Put options sold.

 As detailed below, the JPMorgan Chase & Co. investment will yield a +1.6% absolute return in 31 days (which is equivalent to a +49.4% annualized return-on-investment) if the stock closes above the $62.50 strike price on the Jan2016 options expiration date. 


1.  JPMorgan Chase & Co. (JPM) -- New Position
The transaction was as follows:
01/04//2016  Sold 3 JPM 100% cash-secured $62.50 Put options @ $1.05
Note: The price of JPM was $63.28 when this transaction was executed.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $18,757.95
= $62.50*300 + $7.95

Net Profit:
(a) Options Income: +$304.80
= ($1.05*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If JPM is above $62.50 strike price at Jan2016 expiration): +$0.00
= ($62.50-$62.50)*300 shares

Total Net Profit (If JPM is above $62.50 strike price at Jan2016 options expiration): +$304.80
= (+$304.80 +$0.00 +$0.00)

Absolute Return (If JPM is above $62.50 strike price at Jan2016 options expiration): +1.6%
= +$304.80/$18,757.95
Annualized Return (If JPM is above $62.50 at expiration): +49.4%
= (+$304.80/$18,757.95)*(365/12 days)

The downside 'breakeven price' at expiration is at $61.45 ($62.50 - $1.05), which is 2.9% below the current market price of $63.28.
The 'crossover price' at expiration is $64.33 ($63.28 + $1.05).  This is the price above which it would have been more profitable to simply buy-and-hold JPMorgan stock until January 15th (the Jan2016 options expiration date) rather than selling these Put options.

Early Exercise of JPMorgan Chase & Co. Covered Calls

Early this morning, I received notification from my broker that the covered calls position in JPMorgan Chase & Co. (Ticker Symbol JPM) with a Jan2016 expiration and at the $62.50 strike price was exercised early. The JPMorgan shares had risen from $64.77 when purchased to $66.03 at yesterday's market close and the time value remaining in the call option had declined to less than $.10; so the owner of the Call options exercised his/her option to buy the shares at the $62.50 strike price in order to capture Monday's quarterly ex-dividend payment of $.44 per share.

The actual return-on-investment result for this closed position was a +1.6% absolute return (equivalent to +23.9% annualized return for the 24 days holding period).

The transactions associated with this JPMorgan position were as follows:
12/11/2015 Bought 200 JPM shares @ $64.77
12/11/2015 Sold 2 JPM Jan2016 $62.50 Call options @ $3.32
12/31/2015 Early exercise of Call options; so 200 JPM shares sold at $62.50 strike price.

The overall performance result (including commissions) for this JPMorgan Chase & Co.(JPM) covered calls position were:
Stock Purchase Cost: $12,961.95
= ($64.77*200 +$7.95 commission)

Net Profit:
(a) Options Income: +$665.50
= ($3.32*200 shares) - $1.50 commissions

(b) Dividend Income (JPM stock assigned on last business day prior to Jan 4, 2016 ex-dividend date): +$0.00

(c) Capital Appreciation (stock assigned early on Dec 31st): -$461.95
+($62.50 -$64.77)*200 - $7.95 commissions; or

Total Net Profit (options exercised on last business day prior to Jan 4th ex-div date): +$203.55

= (+$665.50 +$0.00 -$461.95)

Absolute Return (options exercised on last business day prior to ex-div date): +1.6%

= +$203.55/$12,961.95

Annualized Return: +23.9%

= (+$203.55/$12,961.95)*(365/24 days)

Established Covered Calls Position in General Motors Co.

Today, a new covered calls position was established in General Motors Co. (ticker symbol GM).  Three hundred shares of GM were purchased at $34.31 and three in-the-money Jan2016 Call options were sold at the $33.00 strike price for $1.66 each.
As shown below, this investment will provide a +0.8% absolute return in 19 days (which is equivalent to a +16.2% annualized return) if GM stock remains above the $33.00 strike price on the January 15th options expiration date.

This potential return-on-investment result is attractive to us option sellers given this conservative investment -- there is 3.8% downside protection (from the current $34.31 stock price to the $33.00 strike price).  The implied volatility in the options was approximately 28 when this position was established and there are no quarterly earnings or ex-dividends prior to the expiration date at the end of next week. 

The details of the associated transactions and a potential return-on-investment result are as follows:

1.  General Motors Co. (GM) -- New Covered Calls Position The transactions were as follows:
12/28/2015  Bought 300 General Motors Co. shares @ $34.31
12/28/2015 Sold 3 GM Jan2016 $33.00 Call options @ $1.66
Note: the stock purchase and the sale of these call options was done as a simultaneous buy/write transaction.

A possible overall performance result (including commissions) would be as follows:
Bought 300 shares GM: $10,300.95
= $34.31*300 + $7.95 commission

Net Profit:
(a) Options Income: +$487.80
= ($1.66*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If GM is above $33.00 strike price at Jan2016 expiration): -$400.95
= ($33.00-$34.31)*300 shares - $7.95 commissions

Total Net Profit (If GM is above $33.00 strike price at Jan2016 options expiration): +$86.85
= (+$487.80 options income +$0.00 dividend income -$400.95 capital appreciation)

Absolute Return (If GM is above $33.00 strike price at Jan2016 options expiration): +0.8%
= +$86.85/$10,300.95
Annualized Return (If GM stock is above $33.00 at expiration): +16.2%
= (+$86.85/$10,300.95)*(365/19 days)

The downside 'breakeven price' at expiration is at $32.65 ($34.31 -$1.66), which is 5.1% below the current market price of $34.31.

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 GM position is 72%. This compares with a probability of profit of 50.2% for a buy-and-hold of General Motors stock over the same time period. Using this probability of profit of 72%, the Expected Value annualized ROI of this investment (if held until expiration) is +11.7% (+16.2% * 72%).

The 'crossover price' at expiration is $35.97 ($34.31 + $1.66).  This is the price above which it would have been more profitable to simply buy-and-hold GM stock until January 15th (the Jan2016 options expiration date) rather than establishing this covered calls position.

Established New Position in Alibaba Group Holding Ltd.

Today, the Covered Calls Advisor established a new position in Alibaba Group Holding Ltd. (ticker symbol BABA) by selling two Nov2016 Put options at the $90.00 strike price. This position is a conservative one since it was established when the price of Alibaba was $92.74 (3.0% downside protection to the strike price) and exactly one week remaining until the options expiration date.

As detailed below, the Alibaba Group Holding Ltd. investment will yield a +0.8% absolute return in 8 days (which is equivalent to a +36.6% annualized return-on-investment) if Alibaba stock closes above the $90.00 strike price on the Nov 18th options expiration date. 

Today was Alibaba's annual Singles Day, and they transacted an incredible $17.73 billion (yes that's Billion -- with a B), an increase of 24% above the same day last year. 

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

The implied volatility in the options was 35 when this position was established; so the $.77 price per share received when the Puts were sold is a nice premium to receive for us option sellers.     

1. Alibaba Group Holding Ltd (BABA) --
The transaction was as follows:
11/11/2016  Sold 2 BABA 100% cash-secured $90.00 Put options with Nov2016 expirations @ $.77
Note: the price of Alibaba was $92.74 today when this transaction was executed.

A potential performance result (including commissions) could be as follows:
100% Cash-Secured Cost Basis: $18,000.00
= $90.00*200

Net Profit:
(a) Options Income: +$144.55
= ($.77 * 200 shares) - $9.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BABA closes above $90.00 strike price at Nov2016 expiration): +$0.00
= ($90.00 -$90.00)*200 shares

Total Net Profit: +$144.55
= (+$144.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +0.8%
= +$144.55/$18,000.00
Annualized Return: +36.6%
= (+$144.55/$18,000.00)*(365/8 days)

The downside 'breakeven price' at expiration is at $78.92 ($80.00 - $1.08), which is 6.0% below the current market price of $83.92.

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 Alibaba short Puts position is 74%. This compares with a probability of profit of 50.3% for a buy-and-hold of this Alibaba stock over the same time period. Using this probability of profit of 74%, the expected value annualized return-on-investment (if held until expiration) is +15.2% (+20.5% * 74%), an attractive risk/reward profile for this conservative investment.  

The 'crossover price' at expiration is $85.00 ($83.92 + $1.08).  This is the price above which it would have been more profitable to simply buy-and-hold Alibaba stock until the Jan2016 options expiration date rather than selling these Put options.