Tuesday, November 29, 2016

Sold a 100% Cash-Secured Put Option in Amazon.com Inc.

Today, the Covered Calls Advisor established a 100% Cash-Secured Put position in Amazon.com Inc.(Ticker Symbol AMZN) with a Dec2016 expiration and at the $750.00 strike price.  As detailed below, this investment will provide a +1.1% absolute return in 18 days (which is equivalent to a +23.0% annualized return) if Amazon.com stock closes at or above $750.00 at options expiration on Dec 16th.  Given the Covered Calls Advisor's current 'Slightly Bearish' overall market outlook, one out-of-the-money Put option was sold with the strike price of $750.00 below the stock price at $769.70 when these options were sold.
Note: This potential result exceeds the Covered Calls Advisor's desired threshold of >20% annualized return-on-investment.  

Details of this transaction along with a potential return-on-investment result are: 

Amazon.com Inc. (AMZN)
The transaction is as follows:
11/29/2016 Sold 1 Dec2016 $750.00 Put @ $8.60
Note: The price of Amazon.com stock was $769.70 when this transaction was executed.

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 Put option sold.

A possible overall performance result (including commissions) for this Amazon.com transaction would be as follows:
100% Cash-Secured Cost Basis: $75,000.00 = $750.00 * 100 shares

Net Profit:
(a) Options Income: +$851.30
= ($8.60*100 shares) - $8.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AMZN closes above $750.00 at Dec2016 expiration): +$0.00
= ($750.00-$750.00)*100 shares

Total Net Profit (If AMZN is above $750.00 strike price at Dec2016 options expiration):+$851.30 
= (+$851.30 +$0.00 +$0.00)

Absolute Return (If AMZN is above $750.00 at Dec2016 options expiration and Put option thus expire worthless): +1.1%
= +$851.30/$75,000.00
Annualized Return (If AMZN is above $750.00 at expiration): +23.0%
= (+$851.30/$75,000.00)*(365/18 days)

The downside 'breakeven price' at expiration is at $741.40 ($750.00 - $8.60), which is 3.7% below the current market price of $769.70.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Dec 16th, 2016 options expiration) for this Amazon.com short Pus position is 67.5%. This compares with a probability of profit of 50.3% for a buy-and-hold of Amazon.com stock over the same time period. Using this probability of profit of 67.5%, the Expected Value annualized ROI of this investment (if held until expiration) is +15.5% (+23.0% * 67.5%).
 
The 'crossover price' at expiration is $778.30 ($769.70 + $8.60).  This is the price above which it would have been more profitable to simply buy-and-hold Amazon.com stock until Dec 16th (the Dec2016 options expiration date) rather than selling this short Put option.

Monday, November 21, 2016

Update on Four Open Positions from Nov2016 Options Expiration

The four positions that ended at Nov2016 options expiration with the price of the stock below the strike price were Agnico Eagle Mines (500 shares), Alibaba Group (400 shares), Facebook (300 shares), and Hanes Brands (1,000 shares).  Today, two positions (Alibaba and Agnico Eagle Mines) were continued by establishing covered calls.  December 2016 call options were sold against the long shares in these companies.  Shares held in the other two stocks (Facebook and Hanes Brands) were sold today.  The transactions associated with each of these positions are detailed below.

I. Covered Calls Continuation Transactions -- Agnico Eagle Mines and Alibaba

Agnico Eagle Mines
The transactions to-date are:
10/26/2016 Bought 500 shares Agnico Eagle Mines Ltd.(AEM) @ $48.07
10/26/2016 Sold 5 AEM Nov2016 $46.00 Call options @ $3.12
11/18/2016 5 AEM Call options expired with AEM stock below strike price
11/21/2016 Sold 5 AEM Dec2016 $45.00 Call options @ $1.20
Note: price of AEM stock was $43.27 when these Dec2016 options were sold

Alibaba Group Holding
The transactions to-date are:
10/26/2016 Sold 4 Alibaba (BABA) Nov2016 $95.00 100% Cash-Secured Put options @ $1.25
11/18/2016 4 BABA Puts assigned and 400 shares of Alibaba purchased at $95.00
11/21/2016 Sold 4 BABA Dec2016 $95.00 Call options @ $2.26
Note: the price of BABA was $94.27 when these Call options were sold

The return-on-investment results for these two positions will be detailed when these positions are closed.


II. Two Positions Closed -- Facebook Inc. and Hanes Brands Inc.
The Covered Calls Advisor closed these two holdings today by selling the stock owned in each.  Details of the transactions and the associated results are as follows:

Facebook Inc.
The transactions history for this position was as follows:
10/26/2016 Sold 3 Facebook (FB) Nov2016 $125.00 100% Cash-Secured Put options @ $2.22
11/18/2016 3 FB Puts assigned and 300 shares of Facebook purchased at $125.00
11/21/2016 Sold 300 Facebook shares @ $121.67

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $37,500.00
= $125.00*300

Net Profit:
(a) Options Income: +$655.80
= ($2.22*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$999.00
= ($121.67-$125.00)*300 shares

Total Net Profit: -$343.20
= (+$655.80 options income +$0.00 dividend income -$999.00 capital appreciation)

Absolute Return: -0.9%
= -$343.20/$37,500.00
Annualized Return: -12.8%
= (-$343.20/$37,500.00)*(365/26 days)



Hanes Brands Inc. 
The transactions history for this position was as follows:
10/09/2016 Sold 10 Hanes Brands Inc.(HBI) Nov2016 $25.00 100% Cash-Secured Put options @ $.90
11/18/2016 10 Hanes Puts assigned and 1,000 shares of Hanes stock purchased at $25.00
11/21/2016 Sold 1,000 Hanes shares @ $24.49


The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $25,000.00
= $25.00*1,000

Net Profit:
(a) Options Income: +$884.55
= ($.90*1,000 shares) - $15.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$510.00
= ($24.49-$25.00)*1,000 shares

Total Net Profit: +$374.55
= (+$884.55 options income +$0.00 dividend income -$510.00 capital appreciation)

Absolute Return: +1.5%
= +$374.55/$25,000.00
Annualized Return: +12.7%
= (+$374.55/$25,000.00)*(365/43 days)

Sunday, November 20, 2016

November 2016 Option Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained nine positions with November 2016 expirations.  Five of the nine positions were closed out at the options expiration this past Friday.  For the remaining four positions, the price of the stock closed below the strike price; so the options expired and the associated long shares will remain in the Covered Calls Advisor Portfolio until these shares are either sold or continuation covered calls positions established by selling Dec2016 call options against the shares owned.  The results for these nine positions are presented below.  

I.  For the five closed positions:
The overall average annualized return-on-investment for these five closed positions was +26.3%.  The return-on-investment results for each position was:
  • Alibaba Group Holding Ltd = +0.8% absolute return (+36.6% annualized return)
  • Apple Inc. = +1.0% absolute return (+19.9% annualized return)
  • Celgene Corp. = +1.8% absolute return (+22.2% annualized return)
  • Deutsche Bank AG = +2.0% absolute return (+18.9% annualized return)
  • JetBlu Airways Corp. = +1.7% absolute return (+33.9% annualized return)
Two of these positions were Covered Calls and three were 100% Cash-Secured Puts.
Below are two examples that demonstrate how the returns shown above are calculated.  The Apple Inc. details are provided to show calculations for a Covered Calls position and the Alibaba Group Holding Ltd details are an example for a 100% Cash-Secured Puts position.

The cash now available in the Covered Calls Advisor Portfolio from the closing of these five positions will be retained until new covered calls and/or 100% cash-secured puts positions are established.  Any new positions established in the near future with this available cash will be posted on this site on the same day the transactions occur.

Apple Inc. -- Example of Covered Calls Position Closed at Expiration
The transactions were as follows:
11/01/2016  Bought 300 Apple Inc. shares @ $112.56
11/01/2016 Sold 3 AAPL Nov2016 $110.00 Call options @ $3.13
Note: this was a simultaneous buy/write transaction.
11/18/2016 Apple covered calls postion closed
Note: the price of AAPL was $110.04 at Nov2016 options expiration.

The overall performance result (including commissions) was as follows:
Bought 300 shares AAPL: $33,775.95
= $112.56*300 + $7.95 commission

Net Profit:
(a) Options Income: +$936.75
= ($3.13*300 shares) - $2.25 commissions
(b) Dividend Income: +$171.00 = $.57 * 300 shares
(c) Capital Appreciation (AAPL closed above $110.00 strike price at Nov2016 expiration): -$775.95
= ($110.00-$112.56)*300 shares - $7.95 commissions

Total Net Profit (AAPL closed above $110.00 strike price at Nov2016 options expiration): +$331.80
= (+$936.75 options income +$171.00 dividends -$775.95 capital appreciation)

Absolute Return: +1.0%
= +$331.80/$33,775.95
Annualized Return: +19.9%
= (+$331.80/$33,775.95)*(365/18 days)


Alibaba -- Example of 100% Cash-Secured Puts Position Closed at Expiration
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.

11/18/2016 Alibaba Puts expired with price of stock above the $90 strike price
Note: the price of BABA was $93.39 at Nov2016 options expiration.


The performance result (including commissions) was 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 (BABA closed 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)


II. For the four continuing positions:
The four positions that ended at Nov2016 options expiration with the price of the stock below the strike price were Agnico Eagle Mines (500 shares), Alibaba Group (400 shares), Facebook (300 shares), and Hanes Brands (1,000 shares).

These positions are included in the listing of the current Covered Calls Advisor Portfolio shown in the right sidebar on this page. For each of these four positions, the options expired and the long shares will remain in the Portfolio until they are either sold or new Covered Calls are established by selling associated Dec2016 options against the stock currently held.   In either case, transactions and overall position results will be posted on this site on the same day they occur.

Friday, November 18, 2016

Established a 100% Cash-Secured Puts Position in Noble Energy, Inc.

Today, the Covered Calls Advisor established a 100% Cash-Secured Puts position in Noble Energy, Inc.(Ticker Symbol NBL) with a Dec2016 expiration and at the $32.50 strike price.  As detailed below, this investment will provide a +1.8% absolute return in 29 days (which is equivalent to a +23.2% annualized return) if Noble Energy stock closes at or above $32.50 at options expiration on Dec 16th.  Given the Covered Calls Advisor's current 'Slightly Bearish' overall market outlook, five out-of-the-money Put options were sold with the strike price of $32.50 below the stock price of $34.95 when these options were sold.
Note: This potential result exceeds the Covered Calls Advisor's desired threshold of >20% annualized return-on-investment.  


Details of this transaction along with a potential return-on-investment result are: 

Noble Energy, Inc. (NBL)
The transaction is as follows:
11/18/2016 Sold 5 Dec2016 $32.50 Puts @ $.60
Note: The price of Noble Energy was $34.95 when this transaction was executed.

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 five Put options sold.

A possible overall performance result (including commissions) for this Noble Energy transaction would be as follows:
100% Cash-Secured Cost Basis: $16,250.00 = $32.50*500


Net Profit:
(a) Options Income: +$288.30
= ($.60*500 shares) - $11.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If NBL closes above $32.50 at Dec2016 expiration): +$0.00
= ($32.50-$32.50)*500 shares

Total Net Profit (If NBL is above $32.50 strike price at Dec2016 options expiration):+$288.30 
= (+$288.30 +$0.00 +$0.00)

Absolute Return (If NBL is above $32.50 at Dec2016 options expiration and Put options thus expire worthless): +1.8%
= +$288.30/$16,250.00
Annualized Return (If NBL is above $32.50 at expiration): +23.2%
= (+$288.30/$16,250.00)*(365/29 days)

The downside 'breakeven price' at expiration is at $31.90 ($32.50 - $.60), which is 8.7% below the current market price of $34.95.

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Dec 16th, 2016 options expiration) for this Noble Energy short Puts position is 76%. This compares with a probability of profit of 50.2% for a buy-and-hold of Noble Energy stock over the same time period. Using this probability of profit of 76%, the Expected Value annualized ROI of this investment (if held until expiration) is +17.6% (+23.2% * 76%).
 
The 'crossover price' at expiration is $35.55 ($34.95 + $.60).  This is the price above which it would have been more profitable to simply buy-and-hold Noble Energy stock until Dec 16th (the Dec2016 options expiration date) rather than holding these short Put options.