Established Position in SPDR S&P 500 ETF

The Covered Calls Advisor Portfolio established a new positions in SPDR S&P 500 ETF (ticker symbol SPYSPDR S&P 500 ETF) by selling two 100% cash-secured Put options. The Feb2016 options expiration were chosen and out-of-the-money Puts were sold with downside protection to the $181.00 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 two Put options sold.

 As detailed below, the SPDR S&P 500 ETF investment will yield a +2.3% absolute return in 31 days (which is equivalent to a +26.7% annualized return-on-investment) if the stock closes above the $181.00 strike price on the Feb2016 options expiration date. 


1.  SPDR S&P 500 ETF (SPY) -- New Position
The transaction was as follows:
01/20//2016  Sold 2 SPY 100% cash-secured $181.00 Put options @ $4.16
Note: The price of SPY was $184.03 when this transaction was executed.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $36,207.95
= $181.00*200 + $7.95

Net Profit:
(a) Options Income: +$822.55
= ($4.16*200 shares) - $9.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If SPY is above $181.00 strike price at Feb2016 expiration): +$0.00
= ($181.00 -$181.00)*200 shares

Total Net Profit (If SPY is above $181.00 strike price at Feb2016 options expiration): +$822.55
= (+$822.55 +$0.00 +$0.00)

Absolute Return (If SPY is above $181.00 strike price at Feb2016 options expiration): +2.3%
= +$822.55/$36,207.95
Annualized Return (If SPY is above $181.00 at expiration): +26.7%
= (+$822.55/$36,207.95)*(365/31 days)

The downside 'breakeven price' at expiration is at $176.84 ($181.00 - $4.16), which is 3.9% below the current market price of $184.03.
The 'crossover price' at expiration is $188.19 ($184.03 + $4.16).  This is the price above which it would have been more profitable to simply buy-and-hold SPY until February 19th (the Feb2016 options expiration date) rather than selling these Put options.

Current Positions

All positions with January 2016 options expirations expired last Friday.  A few ongoing covered calls positions have been established with Feb2016 options expiration dates and all current holdings are shown in the right sidebar.  Because of the large number of positions, the normal procedure of providing historical details for each individual position is not provided today since I do not have the time available now to do so.  The one new position in the S&P 500 established today is detailed in the following post and I intend to continue the normal method of posting the detailed transactions for all positions going forward.

The Covered Calls Advisor Portfolio is currently approximately 50% invested and 50% in cash, a reflection of the Overall Market Outlook of 'Slightly Bearish' and the large decline so far this year.  This year, I also intend to begin posting overall portfolio performance results monthly at the close of each calendar month.  This will compare the Covered Calls Advisor Portfolio against its Russell 3000 stock market benchmark.
    

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)