Sold 100% Cash-Secured Puts -- Hartford Financial Services Group (HIG)

Today, the Covered Calls Advisor established a new 100% Cash-Secured Puts position in Hartford Financial Services Group (Symbol HIG) with an Apr2012 expiration.

The transaction was as follows:
03/23/2012 Sold 3 Hartford Financial Services Group (HIG) Apr2012 $21.00 Put Options @ $.67
Note: the price of HIG was $21.29 today when these Puts were sold.

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 this position was established using 100% cash securitization for the three Put options sold.

A possible overall performance results(including commissions) for this Hartford Financial Services Group (HIG) transaction would be as follows:
100% Cash-Secured Cost Basis: $6,300.00
= $21.00*300

Net Profit:
(a) Options Income: +$189.80
= ($.67*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HIG above $21.00 at Apr2012 expiration): +$0.00
= ($21.00-$21.00)*300

Total Net Profit(If HIG above $21.00 at Apr2012 options expiration): +$189.80
= (+$189.80 +$0.00 +$0.00)

Absolute Return (If HIG above $21.00 at Apr2012 options expiration and Put options thus expire worthless): +3.0%
= +$189.80/$6,300.00
Annualized Return (If stock price above $21.00 at expiration): +36.7%
= (+$189.80/$6,300.00)*(365/30 days)

The downside 'breakeven price' at expiration is at $20.33 ($21.00 - $.67).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Apr2012 options expiration) for this Hartford Financial Services Group (HIG) cash-secured Puts position is 69.9%. This compares with a probability of profit of 51.2% for a buy-and-hold of HIG over the same time period.

The 'crossover price' at expiration is $21.67 ($21.00 + $.67).
This is the price above which it would have been more profitable to simply buy-and-hold HIG until Apr 17, 2012 (the Apr21st 2012 options expiration date) rather than holding the short Put options. The probability of exceeding this crossover price at expiration is 43.7%.

Closed -- iPath S&P 500 VIX Short Term Futures ETF (VXX)

The position in iPath S&P 500 VIX Short-Term Futures ETF (VXX) was closed today at a substantial loss. The position was established in the event of a significant pullback in the S&P 500. This pullback has not occurred and market volatility has continued its recent decline.

The transactions history was as follows:
02/24/2012 Sold 3 iPath S&P 500 VIX Short-Term Futures ETN (VXX) Mar2012 $25.00 Put Options @ $2.49
Note: the price of VXX was $23.76 today when these Puts were sold.
03/17/2012 Options assigned and VXX purchased at $25.00 strike price.
03/23/2012 Sold-to-Close 300 VXX shares @ $18.30

The overall performance result (including commissions) for the iPath S&P 500 VIX Short-Term Futures ETF (VXX) transactions was as follows:
Stock Purchase Cost: $7,508.95
= ($25.00*300+$8.95 commission)

Net Profit:
(a) Options Income: +$735.80
= $2.49*300 shares - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Stock sold at $18.30): -$2,018.95
+($18.30-$25.00)*300 - $8.95 commissions

Total Net Profit: -$1,283.15
= (+$735.80 +$0.00 -$2,018.95)

Absolute Return: -17.1%
= -$1,283.15/$7,508.95

Establish Market Vectors Russia Index ETF Covered Calls

A new covered calls position was established today in the Covered Calls Advisor Portfolio(CCAP) with the purchase of Market Vectors Russia Index ETF (Symbol RSX) covered calls as follows:

Established Market Vectors Russia Index ETF (RSX) Covered Calls for Feb2012:
03/23/2012 Bought 300 RSX @ $30.85
03/23/2012 Sold 3 RSX Apr2012 $31.00 Calls @ $1.10
Note: the price of RSTX was $30.95 these call options were sold.

Although there are unlimited outcomes, two possible overall performance results(including commissions) for this Market Vectors Russia Index ETF (RSX) position are as follows:
Stock Purchase Cost: $9,263.95
= ($30.85*300 + $8.95 commission)

Net Profit:
(a) Options Income: +$318.80
= ($1.10*300 shares) - $11.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If price of RSX is unchanged at $30.85): -$8.95
= ($30.85-$30.85)*300 - $8.95 commissions
(c) Capital Appreciation (If RSX above $31.00 at Apr2012 expiration): +$36.05
+($31.00-$30.85)*300 - $8.95 commissions

Total Net Profit(If RSX unchanged at $30.85): +$309.85
= (+$318.80 +$0.00 -$8.95)
Total Net Profit(If RSX above $31.00 at Apr2012 options expiration): +$354.85
= (+$318.80 +$0.00 +$36.05)

1. Absolute Return if Unchanged at $30.85: +3.3%
= +$309.85/$9,263.95
Annualized Return If Unchanged (ARIU): +40.7%
= (+$309.85/$9,263.95)*(365/30 days)

2. Absolute Return (If RSX above $31.00 at Apr2012 options expiration): +3.8%
= +$354.85/$9,263.95
Annualized Return (If TBT above $19.00 at expiration): +46.6%
= (+$354.85/$9,263.95)*(365/30 days)

The downside 'breakeven price' at expiration is at $29.75 ($30.85 - $1.10).
Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing calculator, the resulting probability of making a profit (if held until Apr2012 options expiration) for this Market Vectors Russia Index ETF (RSX) covered calls position is 66.7%. This compares with a probability of profit of 51.1% for a buy-and-hold of RSX over the same time period.

The 'crossover price' at expiration is $32.10 ($31.00 + $1.10).
This is the price above which it would have been more profitable to simply buy-and-hold this Russia ETF until April 21, 2012 (the Apr2012 options expiration date) rather than holding the covered calls position. The Options Pricing Model indicates that the probability that this will occur is 33.8%.

Establish iShares MSCI Emerging Markets ETF Covered Calls

Today, a new covered calls position was established in iShares MSCI Emerging Markets ETF (Symbol EEM) with an Apr2012 expiration and at the $44.00 strike price. The transactions and some possible outcomes are as follows:

03/21/2012 Bought 500 EEM shares @ $43.31
03/21/2012 Sold 5 EEM Apr2012 $44.00 Call Options @ $.78

Two possible overall performance results(including commissions) for the iShares MSCI Emerging Markets ETF (EEM) transactions would be as follows:
Stock Purchase Cost: $21,663.95
= ($43.31*500+$8.95 commission)

Net Profit:
(a) Options Income: +$377.30
= ($.78*500 shares) - $12.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If equity price unchanged at $43.31): -$8.95
+($43.31-$43.31)*500 - $8.95 commissions
(c) Capital Appreciation (If EEM assigned at $44.00): +$336.05
+($44.00-$43.31)*500 - $8.95 commissions

Total Net Profit(If price unchanged at $43.31 at Apr2012 expiration): +$368.35
= (+$377.30 +$0.00 -$8.95)
Total Net Profit(If equity assigned at $44.00 at Apr2012 expiration): +$713.35
= (+$377.30 +$0.00 +$336.05)

1. Absolute Return (If EEM price unchanged at Apr2012 expiration): +1.7%
= +$368.35/$21,663.95
Annualized Return (If stock price unchanged at Apr2012 expiration): +19.4%
= (+$368.35/$21,663.95)*(365/32 days)

2. Absolute Return (If EEM equity assigned at $44.00 at Apr2012 expiration): +3.3%
= +$713.35/$21,663.95
Annualized Return (If stock assigned): +37.6%
= (+$713.35/$21,663.95)*(365/32 days)