Established New Position in Deere & Co.

Today, a good-til-cancelled order was placed to sell two July 20th, 2018 Deere & Co. (ticker DE) Put options at the $138.00 strike price for $2.68 per share.  At 10:45am, the order was executed when the stock was at $139.28. 

As detailed below, there is potential for a +1.9% absolute return in 16 days (equivalent to a +43.8% annualized return-on-investment).

Deere & Co. (DE) -- New 100% Cash-Secured Puts Position

This position was established when the price of Deere & Co. stock was $139.28 (0.9% downside protection to the strike price) and 16 days remaining until the July 20th options expiration date.

With the recent increase in international trade tariff threats, agricultural stocks like John Deere have seen a swift decline in price accompanied by a substantial rise in the implied volatility of options, so the $2.68 price per share received when the Puts were sold is an attractive premium to receive for these out-of-the-money Put options.

Selling 100% Cash-Secured Puts is synthetically equivalent to Covered Calls.  In this case, Puts were chosen because of their better options liquidity (and thus tighter bid/ask spread).  The open interest at the $138.00 strike price for the Calls was 946 contracts but only 109 for their counterpart Call options.     

The transaction was as follows:
07/05/2018  Sold 2 DE July 20, 2018 $138.00 100% cash-secured Put options @ $2.68

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 two Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $27,600.00
= $138.00*200 shares

Net Profit:
(a) Options Income: +$529.71
= ($2.68*200 shares) - $6.29 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Deere stock is above $138.00 strike price at July 20,2018 expiration): +$0.00
= ($138.00-$138.00)*200 shares

Total Net Profit (If Deere stock price is above $138.00 strike price at July 20th options expiration): +$529.71
= (+$529.71 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Deere stock is above $138.00 strike price at July 20th, 2018 options expiration): +1.9%
= +$529.71/$27,600.00
Annualized Return: +43.8%
= (+$529.71/$27,600.00)*(365/16 days)

The downside 'breakeven price' at expiration is at $135.32 ($138.00 - $2.68), which is 2.8% below the current market price of $139.28.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the July 20th options expiration) for this John Deere & Co. short Puts position is 57.4%. This compares with a probability of profit of 50.4% for a buy-and-hold of Deere shares over the same time period. Using this probability of profit of 57.4%, the expected value annualized return-on-investment (if held until expiration) is +25.1% (+43.8% * 57.4%), an attractive risk/reward profile for this relatively conservative investment.  

Roll Out Covered Calls in Blackstone Group LP

Today, a continuation Covered Calls position was established in Blackstone Group L.P. (ticker BX) for the July 20th, 2018 options expiration at the $35.00 strike price.  When the stock was at $34.02 today and the July 20th, 2018 $35.00 Calls were priced at $.32, this Advisor decided to sell 5 Call options against the 500 shares of BX stock currently held in the portfolio.

As detailed below, two potential return-on-investment results are (1) a +0.2% absolute return in 170 days (equivalent to a +0.4% annualized return-on-investment) if BX stock price unchanged at $34.02 at July 20th options expiration; or (2) a +3.0% absolute return in 170 days (equivalent to a +6.4% annualized return-on-investment) if assigned at the July 20th expiration.

Blackstone Group L.P. (BX) -- Roll Out Covered Calls Position

The implied volatility of the Call options was 22.5 and the open interest was 2,842 contracts today when this transaction was made. 

The transactions to-date are as follows:
01/31/2018 Bought 500 shares of Blackstone Group stock @ $36.24 per share 
01/31/2018 Sold 5 BX February 16th, 2018 $35.00 Call options @ $1.50 per share
Note: this was a simultaneous Buy/Write transaction
02/01/2018 Rolled-Up-and-Out to the March 16th, 2018 $36.00 strike price at at net debit of $.70 ($2.19 - $1.49) per share
02/08/2018 $425.00 (Ex-distribution of $.85 per share x 500 shares)
03/16/2018 Call options expired with stock price below strike price
05/07/2018 $175.00 received (ex-distribution of $.35 x 500 shares)
07/03/2018 Sold 5 July 20, 2018 $35.00 Call options @ $.32 per share
Note: the price of BX was $34.02 when these options were sold

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $17,378.30
= ($36.24 - $1.50)* 500 shares + $8.30 commissions

Net Profit Components:
(a) Options Income: +$543.40
= ($1.50 - $.70 + $.32) * 500 shares -2*$8.30 commissions

(b) Distribution Income:  $600.00
= ($.85 + $.35) per share * 500 shares 
(c) Capital Appreciation (If BX stock price is unchanged at $34.02 at July 20th options expiration):  -$1,114.95
= ($34.02 - $36.24) * 500 shares -$4.95 commission; OR
(c) Capital Appreciation (If BX stock price is assigned at $35.00 strike price at July 20th options expiration): -$624.95
= ($35.00 - $36.24) * 500 shares -$4.95 commission

1. Total Net Profit (If BX stock price unchanged at $34.02 at July 20th options expiration):  +$28.45
= (+$543.40 options income +$600.00 distribution income -$1,114.95 capital appreciation); OR
2. Total Net Profit (If BX stock price is assigned at $35.00 strike price at July 20th options expiration):  +$518.45
= (+543.40 options income + $600.00 distribution income - $624.95 capital appreciation)

1. Absolute Return (If BX stock price unchanged at $34.02 at July 20th options expiration): +0.2%
= +$28.45/$17,378.30
Equivalent Annualized Return: +0.4%
= (+$28.45/$17,378.30)*(365/170 days); OR
2. Absolute Return (If BX stock price is assigned at $35.00 strike price at July 20th options expiration): +3.0%
= +$518.45/$17,378.30
Equivalent Annualized Return: +6.4%
= (+$518.45/$17,378.30)*(365/170 days)

Continuation of Covered Calls Positions in Citigroup Inc.

At the June 15th, 2018 options expiration, the Covered Calls position in Citigroup Inc. (ticker C) expired with the stock price below the strike price.  So, the Call options expired and the stock shares were retained in the Covered Calls Advisor's Portfolio.  Yesterday, the Covered Calls Advisor continued this Covered Calls positions by selling the July 20th, 2018 $68.00 Call options against the current long stock position in Citigroup stock. 

The detailed transaction history and two potential return on investment results are as follows:

1.  Citigroup Inc. (C) --Roll Out Covered Calls Position 

The transactions were as follows:
04/23/2018 Bought 500 shares of Citigroup stock @ $69.73 per share 
04/23/2018 Sold 5 Citigroup May 18th, 2018 $67.50 Call options @ $3.01 per share
Note: this was a simultaneous Buy/Write transaction
05/04/2018 $160.00 ex-dividend = $.32 per share x 500 shares
05/18/2018 Bought-to-Close 5 Citi May 18th $67.50 Call options at $2.40 per share
05/18/2018 Sold-to-Open 5 Citi June 15, 2018 $67.50 Call options at $3.13 per share
Note: the price of Citi stock was $69.89 when this Call spread transaction occurred today
06/15/2018 5 Citi Call options expired with stock price below the $67.50 strike price
06/27/2018 Sold 5 Citigroup July 20, 2018 $68.00 Call options @ $1.40 to continue Citigroup Covered Calls position
Note: the price of Citi stock was $67.46 when these Calls were sold


Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $33,368.30
= ($69.73 - $3.01)* 500 shares + $8.30 commission

Net Profit Components:
(a) Options Income: +$2,553.41
= ($3.01 -$2.40 + $3.13 + $1.40) * 500 shares - 2*$8.30 commissions
(b) Dividend Income: +$160.00 = $.32 per share * 500 shares 
(c) Capital Appreciation (If Citi stock price is unchanged at $67.46 at June 15th expiration): -$1,139.95
= ($67.46 -$69.73)* 500 shares - $4.95 commission; OR
(c) Capital Appreciation (If Citi is above $68.00 strike price at June 15th expiration): -$869.95
= ($68.00 -$69.73)* 500 shares - $4.95 commission

1.  Total Net Profit (If Citi stock price is unchanged at $67.46 at June 15th expiration) : +$1,573.46
= (+$2,553.41 options income +$160.00 dividend income -$1,139.95 capital appreciation); OR
2.  Total Net Profit (If Citi is above $68.00 strike price at June 15th expiration) : +$1,843.46
= (+$2,553.41 options income +$160.00 dividend income -$869.95 capital appreciation);

1.  Absolute Return (If Citi stock price is unchanged at $67.46 at June 15th expiration): +4.7%
= +$1,573.46/$33,368.30
Equivalent Annualized Return: +19.6%
= (+$1,573.46/$33,368.30)*(365/88 days); OR
2.  Absolute Return (If Citi is above $68.00 strike price at June 15th expiration): +5.5%
= +$1,843.46/$33,368.30
Equivalent Annualized Return: +22.9%
= (+$1,843.46/$33,368.30)*(365/88 days)

Established Covered Calls Position in Alibaba Group Holding Ltd.

Today, a new Covered Calls positions was established in Alibaba Group Holding Ltd. with a July 20th, 2018 options expiration date.  A moderately conservative in-the-money position was established given the Covered Calls Advisor's current Overall Market Meter sentiment of Slightly Bearish.

The Covered Calls Advisor intended to continue the pattern of prior months by establishing Covered Calls positions in Alibaba.  The stock price declined by more than $10 today, so I decided to take advantage of the spike in implied volatility to 35.9 in these Call options when this position was established today.

As detailed below, a potential return-on-investment result is +1.8% absolute return in 26 days (equivalent to a +24.7% annualized return-on-investment).

Today's transactions and a potential result are detailed below:

1. Alibaba Group Holding Ltd. (BABA) -- New Covered Calls Position

The transactions were as follows:
06/25/2018 Bought 200 shares of Alibaba stock @ $190.92 per share 
06/25/2018 Sold 2 Alibaba July 20th, 2018 $180.00 Call options @ $14.06 per share
Note: this was a simultaneous Buy/Write transaction

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $35,378.29
= ($190.92 - $14.06)* 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$2,812.00
= ($14.06* 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is above $180.00 strike price at July 20th expiration): -$2,188.95
= ($180.00 -$190.92)* 200 shares - $4.95 commission

Total Net Profit: +$623.05
= (+$2,812.00 options income +$0.00 dividend income -$2,188.95 capital appreciation)

Absolute Return: +1.8%
= +$623.05/$35,378.29
Equivalent Annualized Return: +24.7%
= (+$623.05/$35,378.29)*(365/26 days)

The downside 'breakeven price' at expiration is at $176.86 ($190.92 - $14.06), which is 7.4% below the current market price of $190.92.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the July 20th, 2018 options expiration) for this Alibaba Covered Calls position is 74.9%, so the expected value annualized ROI of this investment (if held until expiration) is +18.5% (+24.7% * 74.9%), a very nice result for this moderately in-the-money Covered Calls position.

The 'crossover price' at expiration is $194.06 = $190.92 + [$14.06 - ($190.92 - $180.00)].
This is the price above which it would have been more profitable to simply buy-and-hold Alibaba stock until the July 20th, 2018 options expiration date rather than establishing this Covered Calls position.