Saturday, July 22, 2017

July 2017 Option Expiration Results

The Covered Calls Advisor Portfolio had nine positions with July 21, 2017 options expirations.  Three positions were closed prior to the July 21st expiration:
  • One covered calls position in JPMorgan Chase & Co. was closed by early assignment (See detailed results here: link
  • Two of these (Range Resources Corp. and Alibaba Group Holding Ltd.) were closed out by the Covered Calls Advisor a week early (on July 14th) since the short Puts had declined to only $.05 (See detailed results here: Range Resources link and here Alibaba link). 
Of the total nine positions, the remaining six were held until yesterday's July 21st expiration.  Of these, four positions (Pioneer Resources Co., Quanta Services Inc., Twenty-First Century Fox Inc., and Voya Financial Inc.) closed in-the-money, so the maximum possible return-on-investment result was achieved.  Details of the transactions and results for each of these positions are provided below.

The return-on-investment results for each closed position was:
  • Pioneer Resources Co.:  +1.8% absolute return (+17.9% annualized return) in 36 days
  • Quanta Services Inc.:  +1.9% absolute return (+17.6% annualized return) in 40 days  
  • Twenty-First Century Fox Inc.+3.1% absolute return (+15.4% annualized return) in 74 days
  • Voya Financial Inc.:  +1.6% absolute return (+19.2% annualized return) in 30 days 
The cash now available in the Covered Calls Advisor Portfolio from the closing of these four positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new position(s) established with this available cash will be posted on this site on the same day the transactions occur.  

The remaining two positions (Devon Energy Corp. and Foot Locker Inc.) closed yesterday with their stock price below their strike prices, so those shares will remain in the Covered Calls Advisor Portfolio (see holdings in right sidebar) until they are either sold or a continuation covered calls position is established. 

The details for each of the closed positions is as follows:


1.  Pioneer Resources Co. -- 100% Cash-Secured Put Option Closed at Expiration Pioneer
This position was established when the price of Pioneer Natural Resources was $156.93 (4.4% downside protection to the $150.00 strike price) and 36 days remaining until the July 21st options expiration date.

The implied volatility of the Put options was 27.8 when this position was established; so the $2.70 price received per share received when the Puts were sold is a nice premium to receive for these out-of-the-money Put options.    

The transactions were as follows:
06/16/2017  Sold 1 PXD July 21, 2017 $150.00 100% cash-secured Put option @ $2.70
07/21/2017 1 PXD Put option expired
Note: Price of PXD was $160.21 on July 21st options expiration date

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 Put option sold.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $15,000.00
= $150.00*100

Net Profit:
(a) Options Income: +$264.40
= ($2.70*100 shares) - $5.60 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (PXD was above $150.00 strike price at Jul2017 expiration): +$0.00
= ($150.00-$150.00)*100 shares

Total Net Profit: +$264.40
= (+$264.40 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.8%
= +$264.40/$15,000.00
Annualized Return: +17.9%
= (+$264.40/$15,000.00)*(365/36 days)


2. Quanta Services Inc. (PWR) -- Covered Calls Position Closed
The transactions have been 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.
06/16/2017 6 PWR Jun2017 Put options expired and 600 shares of PWR were purchased at $33.00 strike price
Note: the price of PWR was $32.10 upon the market close last Friday at Jun2017 expiration
06/19/2017 Sold 6 PWR July 21, 2017 $33.00 Call options @ $.55
Note: the price of PWR was $32.28 when these Call options were sold
07/21/2017 6 Call options in-the-money at expiration, so 600 shares of PWR were sold at $33.00 strike price
Note: the price of PWR was slightly in-the-money at $33.05 upon expiration

The performance result (including commissions) was as follows:
Cost Basis: $19,804.95
= $33.00*600 + $4.95 commission

Net Profit:
(a) Options Income: +$702.30
= ($.65 + $.55) *600 shares - 2*$8.85 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($33.00-$33.00)*600 shares

Total Net Profit (PWR stock price was above $33.00 strike price at July 21, 2017 options expiration): +$381.15= (+$381.15 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (PWR above $33.00 strike price at July 21, 2017 options expiration): +1.9%= +$381.15/$19,804.95
Annualized Return: +17.6%
= (+$381.15/$19,804.95)*(365/40 days)


3. Twenty-First Century Fox Inc. (FOXA) -- Covered Calls Position Closed
The transactions have been 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.
06/16/2017 10 FOXA Jun2017 Put options expired and 1,000 shares of FOXA were purchased at $28.00 strike price
Note: the price of FOXA was $27.45 upon the market close last Friday at Jun2017 expiration
06/19/2017 Sold 10 FOXA July 21, 2017 $27.00 Call options @ $1.25
Note: the price of FOXA was $27.76 when these Call options were sold
07/21/2017 10 FOXA Call options in-the-money at expiration, so 1,000 shares of FOXA were sold at $27.00 strike price
Note: the price of FOXA was at $27.84 upon expiration


The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $28,004.95
= $28.00*1,000 + $4.05 commission

Net Profit:
(a) Options Income: +$1,877.10
= ($.65 +$1.25) *1,000 shares - 2*$11.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (FOXA is above $27.00 strike price at July 21, 2017 expiration): -$1,000.00
= ($27.00-$28.00)*1,000 shares

Total Net Profit: +$877.10
= (+$1,877.10 options income +$0.00 dividend income -1,000.00 capital appreciation)

Absolute Return: +3.1%
= +$877.10/$28,004.95
Annualized Return: +15.4%
= (+$877.10/$28,004.95)*(365/74 days)


4. Voya Financial Inc. (VOYA) -- 100% Cash-Secured Puts Closed
This position was established when the price of Voya Financial Inc. was $35.04 (3.0% downside protection to the strike price) and 30 days remaining until the options expiration date.

The implied volatility of the Put options was 23.5 when this position was established; so the $.55 price received per share received when the Puts were sold is a nice premium to receive for these out-of-the-money Put options (i.e. strike price below the current stock price).    

The transaction was as follows:
06/22/2017  Sold 7 VOYA July 21, 2017 $34.00 100% cash-secured Put options @ $.55
Note: the price of VOYA was $35.04 today when this transaction was executed.
07/21/2017 7 VOYA Put options expired
Note: Price of VOYA was $37.58 on July 21st options expiration date

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 seven Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $23,800.00
= $34.00*700 shares

Net Profit:
(a) Options Income: +$375.50
= ($.55*700 shares) - $9.50 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (VOYA was above $34.00 strike price at July 21st expiration): +$0.00
= ($34.00-$34.00)*700 shares

Total Net Profit: +$375.50
= (+$375.50 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return : +1.6%
= +$375.50/$23,800.00
Annualized Return: +19.2%
= (+$375.50/$23,800.00)*(365/30 days)

Friday, July 14, 2017

Closed Position in Range Resources Corp.

Today, the Covered Calls Advisor closed out the ten Range Resources Corp. (ticker symbol RRC) July 21, 2017 short Put options position at the $20.00 strike price.  This decision was made since the price of Range Resources stock has risen from $21.44 when the Puts were originally sold to $22.53 today.  So, the majority of the maximum potential profit has already been achieved since the Put options that originally were sold for $.45 per share were today bought back at only $.05 and with 7 days remaining until the July 21, 2017 options expiration date.  Another benefit of closing the position today is that Schwab now offers commission-free transactions on option buy-to-close transactions at $.05 or less.

As detailed below, the actual return-on-investment result for this closed position was a +1.94% absolute return (equivalent to +29.5% annualized return) for the 24 days holding period.  This +29.5% annualized return result was slightly higher than the +25.0% annualized ROI that would have occurred if the Put options had instead expired on the July 21st options expiration date.

The details achieved from closing this Range Resources Corp. position today are as follows:

Range Resources Corp. (RRC) -- Closing Position
This position was established when the price of Range Resources Corp. was $21.44 (6.7% downside protection to the strike price) and 32 days remaining until the July 21st options expiration date.

With the recent decline in the price of oil and gas being accompanied by a swift decline in energy-related stocks, the implied volatility of options in Range Resources have increased substantially from an average of 33.0 during the last quarter to 41.2 this morning when this position was established; so the $.45 price per share received when the Puts were sold is an attractive premium to receive for these out-of-the-money Put options.    

The transactions were as follows:
06/20/2017  Sold 10 RRC July 21, 2017 $20.00 100% cash-secured Put options @ $.45
Note: the price of RRC was $21.44 when these Put options were sold
07/14/2017 Bought-to-Close 10 RRC Put options @ $.05 per share
Note: the price of RRC was $22.53 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.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $20,000.00
= $20.00*1,000

Net Profit:
(a) Options Income: +$388.55
= ($.45 -$.05)*1,000 shares - $11.45 commissions
Note: No commission by Schwab on buy-to-close transactions at or below $.05 per share
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($20.00-$20.00)*1,000 shares

Total Net Profit: +$388.55
= (+$388.55 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.94%
= +$388.55/$20,000.00
Annualized Return: +29.5%
= (+$388.55/$20,000.00)*(365/24 days)

Closed Position in Alibaba Group Holding Ltd.

Today, the Covered Calls Advisor closed out the Alibaba Group Holding Ltd (ticker symbol BABA) July 21, 2017 short Put options position at the $135.00 strike price.  This decision was made since the price of BABA has risen quickly from the $138.41 price originally to $150.69 today so that there was only $.05 of time value remaining in the Put options.  Thus, the overwhelming majority of the maximum potential profit has already been achieved with 7 days remaining until the July 21, 2017 options expiration date.  Another benefit is that Schwab now offers commission-free transactions on option buy-to-close transactions at $.05 or less.

As detailed below, the actual return-on-investment result for this closed position was a +1.84% absolute return (equivalent to +44.7% annualized return) for the 15 days holding period.  This 44.7% annualized return result was higher than the +29.7% annualized ROI that would have occurred if the Put options had instead expired on the July 21st options expiration date.

The details achieved from closing this Alibaba position today are as follows:

Alibaba Group Holding Ltd (BABA) -- Closing Position
The transactions were as follows:
06/29/2017  Sold 2 BABA 100% cash-secured $135.00 Put options with July 21, 2017 expirations @ $2.56
Note: the price of Alibaba was $138.41 today when this transaction was executed.
07/14/2017 Bought-to-Close 2 BABA Put options @ $.05 per share
Note: the price of BABA was $150.69 when this transaction was executed.

The overall performance result (including commissions) was follows:
100% Cash-Secured Cost Basis: $27,000.00
= $135.00*200 shares

Net Profit:
(a) Options Income: +$495.75
= ($2.56 -$.05) * 200 shares - $6.25 commissions
Note: No commission by Schwab on buy-to-close transactions at or below $.05 per share
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$0.00
= ($135.00 -$135.00)*200 shares

Total Net Profit: +$495.75
= (+$495.75 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.84%
= +$495.75/$27,000.00
Annualized Return: +44.7%
= (+$505.75/$27,000.00)*(365/15 days)

Friday, July 7, 2017

Established Covered Calls Position in Foot Locker Inc. -- Example of Dividend Capture Strategy

Today, a covered calls position was established in Foot Locker Inc. (ticker symbol FL) with a July 21, 2017 expiration and at the $48.00 strike price.  This position has an upcoming quarterly ex-dividend on July 12th of $.31 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the July 21st options expiration date.  Given the Covered Calls Advisor's current overall market outlook, an in-the-money covered calls position was established.  A Covered Calls positions was preferable to its comparable short Put options position in this instance since the maximum potential income of $.71 ($.31 ex-div plus $.40 time value) for the Covered Calls was $.04 per share greater than the $.67 that was then available for selling 100% cash-secured Put options.   

As detailed below, a potential return-on-investment result is +0.75% absolute return (equivalent to +54.9% annualized return for the next 5 days) if the stock is assigned early (business day prior to July 12th ex-date); OR +1.4% absolute return (equivalent to +33.5% annualized return over the next 15 days) in the much more likely event that the stock is assigned on the July 21, 2017 options expiration date.


Foot Locker Inc. (FL) -- New Covered Calls Position
An ex-dividend occurs on July 12th for $.31.  If the current time value (i.e. extrinsic value) of $.40 [$2.12 option premium - ($49.72 stock price - $48.00 strike price)] remaining in the short call options decays substantially (down to about $.10 or less) by July 11th (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 500 Foot Locker shares away to capture the dividend payment.

The transactions were:
07/07/2017 Bought 500 FL shares @ $49.72
07/07/2017 Sold 5 FL July 21,2017 $48.00 Call options @ $2.12
Note: a simultaneous buy/write transaction was executed.
07/12/2017 Upcoming quarterly ex-dividend of $.31 per share

Two possible overall performance results (including commissions) for this Foot Locker covered calls position are as follows:
Stock Purchase Cost: $24,864.95
= ($49.72*500+$4.95 commission)

Net Profit:
(a) Options Income: +$1,051.80
= ($2.12*500 shares) - $8.20 commissions
(b) Dividend Income (If option exercised early on July 11th, the business day prior to July 12th ex-div date): +$0.00; or
(b) Dividend Income (If FL assigned at July 21st, 2017 expiration): +$155.00
= ($.31 dividend per share x 500 shares)
(c) Capital Appreciation (If FL assigned early on July 11th): -$864.95
+($48.00-$49.72)*500 - $4.95 commissions; or
(c) Capital Appreciation (If FL assigned at $48.00 strike price at July 21st options expiration): -$864.95
+($48.00-$49.72)*500 - $4.95 commissions

1. Total Net Profit [If option exercised on July 11th (business day prior to July 12th ex-dividend date)]: +$186.85
= (+$1,051.80 +$0.00 -$864.95); or
2. Total Net Profit (If FL assigned at $48.00 at July 21st expiration): +$341.85
= (+$1,051.80 +$155.00 -$864.95)

1. Absolute Return (If option exercised on business day prior to ex-dividend date): +0.75%
= +$186.85/$24,864.95
Annualized Return (If option exercised early): +54.9%
= (+$186.85/$24,864.95)*(365/5 days); or
2. Absolute Return (If FL assigned at $48.00 at July 21, 2017 expiration): +1.4%
= +$341.85/$24,864.95
Annualized Return (If FL assigned at $48.00 at July 21st expiration): +33.5%
= (+$341.85/$24,864.95)*(365/15 days)

Either outcome provides an excellent return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $48.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $47.29 ($49.72 -$2.12 -$.31) provides 4.9% 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 desired to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, all eleven criteria are achieved for this Foot Locker Inc. position.