Established Covered Calls Position in Goldman Sachs Group Inc.

Today, a covered calls position was established in Goldman Sachs Group Inc. (ticker symbol GS) with a Jun2017 expiration and at the $205.00 strike price.  This position has an upcoming quarterly ex-dividend on May 30th of $.75 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the June 16th options expiration date.  Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, an in-the-money covered calls position was established. 

As detailed below, a potential return-on-investment result is +0.6% absolute return (equivalent to +19.8% annualized return for the next 11 days) if the stock is assigned early (business day prior to May 30th ex-date); OR +0.9% absolute return (equivalent to +11.9% annualized return over the next 29 days) if the stock is assigned on the June 16, 2017 options expiration date.


Goldman Sachs Group Inc. (GS) -- New Covered Calls Position

An ex-dividend occurs on May 30th for $.75.  Although somewhat unlikely, if the current time value (i.e. extrinsic value) of $1.35 [$13.05 option premium - ($216.70 stock price - $205.00 strike price)] remaining in the short call options decays substantially (down to about $.15 or less) by May 26th (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 JPM shares away to capture the dividend payment.


The transactions were:
05/19/2017 Bought 200 GS shares @ $216.70
05/19/2017 Sold 2 GS Jun2017 $205.00 Call options @ $13.05
Note: a simultaneous buy/write transaction was executed.
05/30/2017 Upcoming quarterly ex-dividend of $.75 per share

Two possible overall performance results (including commissions) for this GS covered calls position are as follows:
Stock Purchase Cost: $43,344.95
= ($216.70*200+$4.95 commission)

Net Profit:
(a) Options Income: +$2,603.75
= ($13.05*200 shares) - $6.25 commissions
(b) Dividend Income (If option exercised early on May 26th which is the business day prior to the May 30th ex-div date): +$0.00; or
(b) Dividend Income (If GS assigned at Jun2017 expiration): +$150.00
= ($.75 dividend per share x 200 shares)

(c) Capital Appreciation (If GS assigned early on May 26th): -$2,344.95
+($205.00-$216.70)*200 - $4.95 commissions; or
(c) Capital Appreciation (If GS assigned at $205.00 at Jun2017 expiration): -$2,344.95
+($205.00-$216.70)*200 - $4.95 commissions

1. Total Net Profit (If option exercised on day prior to May 30th ex-dividend date): +$258.80

= (+$2,603.75 +$0.00 -$2,344.95); or

2. Total Net Profit (If GS assigned at $205.00 at Jun2017 expiration): +$408.80

= (+$2,603.75 +$150.00 -$2,344.95)

1. Absolute Return [If option exercised on May 26th (business day prior to ex-dividend date)]: +0.6%

= +$258.80/$43,344.95

Annualized Return (If option exercised early): +19.8%

= (+$258.80/$43,344.95)*(365/11 days); or

2. Absolute Return (If GS assigned at $205.00 at Jun2017 expiration): +0.9%

= +$408.80/$43,344.95

Annualized Return: +11.9%

= (+$408.80/$43,344.95)*(365/29 days)

Either outcome provides a nice attractive return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $205.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $202.90 ($216.70 -$13.05 -$.75) provides 6.4% downside protection below today's purchase price.

The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls using a dividend capture strategy.  The minimum threshold to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, only eight of the eleven criteria are achieved for this Goldman Sachs position.

Established Positions in PulteGroup Inc. and Antero Resources Corp.

Two positions have been established in PulteGroup Inc.(ticker symbol PHM) and Antero Resources Corp.(ticker AR).  PulteGroup Inc. is a covered calls position with a Jun2017 expiration at the $22.00 strike price that includes the expected upcoming quarterly ex-dividend of $.09 on June 6th.  For Antero Resources Corp., ten June 2017 100% cash-secured Put options were sold at the $20 strike price.  The short Puts were chosen instead of covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.

As detailed below, some potential returns are:
1. PulteGroup Inc.: +1.5% absolute return in 36 days (equivalent to a +14.8% annualized return-on-investment) if the price of Pulte remains above the strike price at expiration.
2. Antero Resources Corp.: +2.2% absolute return in 36 days (equivalent to a +22.2% annualized return-on-investment)

The details for each position are provided below.

1. PulteGroup Inc. (PHM) -- New Covered Calls Position

The transactions were as follows:
05/12/2017 Bought 1,000 Pulte shares @ $22.80
05/12/2017 Sold 10 Pulte Jun2017 $22.00 Call options @ $1.06
Note: a simultaneous buy/write transaction was executed.
06/06/2017 Upcoming ex-dividend of $.09 per share

Two possible overall performance results (including commissions) for this Pulte covered calls position are as follows:
Stock Purchase Cost: $22,804.95
= ($22.80*1,000+$4.95 commission)

Net Profit:
(a) Options Income: +$1,048.55
= ($1.06*1,000 shares) - $11.45 commissions
(b) Dividend Income (if stock assigned on day prior to June 6th ex-div date): +$0.00; or

(b) Dividend Income (if dividend captured on 6/6/2017): +$90.00
= ($.09 dividend per share x 1,000 shares)
(c) Capital Appreciation (if stock assigned on day prior to June 6th ex-div date): -$804.95
=+($22.00-$22.80)*1,000 - $4.95 commissions; or
(c) Capital Appreciation (If stock assigned at Jun2017 options expiration): -$804.95
=+($22.00-$22.80)*1,000 - $4.95 commissions

1. Total Net Profit (If Pulte stock assigned on June 5th): +$243.60

= (+$1,048.55 options income +$0.00 dividend income -$804.95 capital appreciation); or

2. Total Net Profit (If Pulte stock assigned at $22.00 at Jun2017 expiration): +$333.60

= (+$1,048.55 +$90.00 +$804.95)

1. Absolute Return (If Pulte stock assigned on June 5th -- day prior to ex-div date): +1.1%

= +$243.60/$22,804.95

Annualized Return: +15.6%

= (+$243.60/$22,804.95)*(365/25 days); OR

2. Absolute Return (If Pulte assigned at $22.00 on June 16th options expiration date): +1.5%

= +$333.60/$22,804.95

Annualized Return: +14.8%

= (+$333.60/$22,804.95)*(365/36 days)

2. Antero Resources Corp. (AR) -- New 100% Cash-Secured Puts Position

Today, the Covered Calls Advisor established a new position in Antero Resources Corp. (ticker symbol AR) by selling ten Jun2017 Put options at the $20.00 strike price. This position is a conservative one since it was established when the price of Antero Resources was $20.86 (4.1% downside protection to the strike price) and 36 days remaining until the options expiration date.

The implied volatility of the Put options was 30.6 when this position was established; so the $.45 price per share received when the Puts were sold is a nice premium to receive for these 4.1% out-of-the-money Put options.    

The transaction was as follows:
05/12/2017  Sold 10 AR Jun2017 $20.00 100% cash-secured Put options @ $.45
Note: the price of Antero was $20.86 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 ten Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $20,000.00
= $20.00*1,000
Note: the price of AR was $20.86 when these options were sold

Net Profit:
(a) Options Income: +$438.55
= ($.45*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Antero stock is above $20.00 strike price at Jun2017 expiration): +$0.00
= ($20.00-$20.00)*1,000 shares

Total Net Profit (If Antero Resources stock price is above $20.00 strike price at Jun2017 options expiration): +$438.55
= (+$438.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If AR is above $20.00 strike price at Jun2017 options expiration): +2.2%
= +$438.55/$20,000.00
Annualized Return: +22.2%
= (+$438.55/$20,000.00)*(365/36 days)

The downside 'breakeven price' at expiration is at $19.55 ($20.00 - $.45), which is 6.3% below the current market price of $20.86.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the June 16th, 2017 options expiration) for this Antero Resources Corp. short Puts position is 68.5%. This compares with a probability of profit of 50.3% for a buy-and-hold of Antero shares over the same time period. Using this probability of profit of 68.5%, the expected value annualized return-on-investment (if held until expiration) is +15.2% (+22.2% * 68.5%), an attractive risk/reward profile for this conservative investment.  

The 'crossover price' at expiration is $21.31 ($20.86 + $.45).  This is the price above which it would have been more profitable to simply buy-and-hold AR stock until the June 2017 options expiration date of June 16th rather than selling these Put options.

Established Two New Short Put Positions

Today, two new 100% cash-secured Put option positions were established in Quanta Services Inc. (ticker PWR) and Twenty-First Century Fox Inc.(ticker FOXA) by selling June 2017 Put options. The price received was $.65 for both positions. Put options were chosen instead of the comparable covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.  The Covered Calls Advisor does not use margin, so the detailed information on these positions and the potential results shown below reflect the fact that these positions were established using 100% cash securitization for the Jun2017 Put options sold.

 The potential returns for each investment are:

• Quanta Services:  A +1.9% absolute return in 40 days (equivalent to a +17.6% annualized return-on-investment); and
• Twenty-First Century Fox Inc.:  A +2.3% absolute return in 40 days (equivalent to a +20.8% annualized return-on-investment)

1. Quanta Services Inc. (PWR) -- New 100% Cash-Secured Puts Position

This position was established when the price of Quanta Services was $34.27 (3.7% downside protection to the strike price).

The implied volatility of the Put options was 25.6 when this position was established; so the $.65 price received per share received when the Puts were sold is a nice premium to receive for these 3.7% out-of-the-money Put options.    

The transaction was as follows:
05/08/2017  Sold 6 PWR Jun2017 $33.00 100% cash-secured Put options @ $.65
Note: the price of PWR was $34.27 today when this transaction was executed.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $19,800.00
= $33.00*600
Note: the price of PWR was $34.27 when these options were sold

Net Profit:
(a) Options Income: +$381.15
= ($.65*600 shares) - $8.85 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PWR is above $33.00 strike price at Jun2017 expiration): +$0.00
= ($33.00-$33.00)*600 shares

Total Net Profit (If Quanta Services stock price is above $33.00 strike price at Jun2017 options expiration): +$381.15
= (+$381.15 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If PWR is above $33.00 strike price at Jun2017 options expiration): +1.9%
= +$381.15/$19,800.00
Annualized Return: +17.6%
= (+$381.15/$19,800.00)*(365/40 days)

The downside 'breakeven price' at expiration is at $32.35 ($33.00 - $.65), which is 5.6% below the current market price of $34.27.


2. Twenty-First Century Fox Inc. (FOXA) -- New 100% Cash-Secured Puts Position

This position was established when the price of Fox stock was $28.88 (3.0% downside protection to the $28.00 strike price) and 40 days remaining until the options expiration date.

The implied volatility of the Put options was 26.2 when this position was established; so the $.65 price received per share received when the Puts were sold is a nice premium to receive for these 3.0% out-of-the-money Put options.    

The transaction was as follows:
05/08/2017  Sold 10 FOXA Jun2017 $28.00 100% cash-secured Put options @ $.65
Note: the price of FOXA stock was $28.88 today when this transaction was executed.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $28,000.00
= $28.00*1,000


Net Profit:
(a) Options Income: +$638.55
= ($.65*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FOXA is above $28.00 strike price at Jun2017 expiration): +$0.00
= ($28.00-$28.00)*1,000 shares

Total Net Profit: +$638.55
= (+$638.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +2.3%
= +$638.55/$28,000.00
Annualized Return: +20.8%
= (+$638.55/$28,000.00)*(365/40 days)

The downside 'breakeven price' at expiration is at $27.35 ($28.00 - $.65), which is 5.3% below the current market price of $28.88.

Established New Position in Devon Energy Corp

Today, a new position was established in Devon Energy Corp.(ticker DVN) by selling ten May 2017 100% cash-secured Put options at the $36.00 strike price.  The short Puts were chosen instead of the comparable covered calls since the potential return-on-investment result was slightly higher for the Puts in this instance.

As detailed below, there is potential for a +1.5% absolute return in 16 days (equivalent to a +33.5% annualized return-on-investment).

Devon Energy Corp. (DVN) -- New 100% Cash-Secured Puts Position
This position was established when the price of Devon Energy Corp was $37.21 (3.3% downside protection to the strike price) and 16 days remaining until the options expiration date.

The implied volatility of the Put options was 33.3 when this position was established; so the $.54 price received per share received when the Puts were sold is a nice premium to receive for these 3.3% out-of-the-money Put options.    

The transaction was as follows:
05/04/2017  Sold 10 DVN May2017 $36.00 100% cash-secured Put options @ $.54
Note: the price of DVN was $37.21 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 ten Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $36,000.00
= $36.00*1,000
Note: the price of DVN was $37.21 when these options were sold

Net Profit:
(a) Options Income: +$528.55
= ($.54*1,000 shares) - $11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If DVN is above $36.00 strike price at May2017 expiration): +$0.00
= ($36.00-$36.00)*1,000 shares

Total Net Profit (If Devon Energy stock price is above $36.00 strike price at May2017 options expiration): +$528.55
= (+$528.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If DVN is above $36.00 strike price at May2017 options expiration): +1.5%
= +$528.55/$36,000.00
Annualized Return: +33.5%
= (+$528.55/$36,000.00)*(365/16 days)

The downside 'breakeven price' at expiration is at $35.46 ($36.00 - $.54), which is 4.7% below the current market price of $37.21.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the May 19th, 2017 options expiration) for this Devon Energy Corp short Puts position is 69.8%. This compares with a probability of profit of 50.3% for a buy-and-hold of DVN shares over the same time period. Using this probability of profit of 69.8%, the expected value annualized return-on-investment (if held until expiration) is +23.4% (+33.5% * 69.8%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $37.75 ($37.21 + $.54).  This is the price above which it would have been more profitable to simply buy-and-hold Devon stock until the May 19th, 2017 options expiration date rather than selling these Put options.