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Saturday, December 16, 2017

December 15th, 2017 Options Expiration Results

The Covered Calls Advisor Portfolio had fifteen positions with December 15th 2017 options expirations.  Five positions (2 positions in Bank of America, Best Buy, Devon Energy, and Schlumberger) had early assignments (on the day prior to the ex-dividend date in each instance) and the financial results from those positions were posted on this blog the same day they occurred.

Of the total fifteen positions, the remaining ten positions were held until yesterday's December 15th expiration.  Of these, eight positions (Blackstone Group LP, Citgroup Inc., The Coca-Cola Company, Delta Air Lines Inc., Devon Energy Corp., Freeport McMoRan Inc., Lam Research Corp., and Sinclair Broadcast Group Inc.) closed in-the-money, so the maximum possible return-on-investment result was achieved for each of these positions:
  • Blackstone Group LP:  +1.7% absolute return (+17.3% annualized return) in 36 days
  • Citigroup Inc.:  +2.9% absolute return (+20.0% annualized return) in 53 days  
  • The Coca-Cola Company:  +1.4% absolute return (+17.7% annualized return) in 29 days
  • Delta Air Lines Inc.:  +2.2% absolute return (+22.7% annualized return) in 36 days
  • Devon Energy Corp.:  +12.8% absolute return (+22.9% annualized return) in 204 days  
  • Freeport McMoRan Inc.:  +6.2% absolute return (+53.6% annualized return) in 42 days
  • Lam Research Corp.:  +1.8% absolute return (+38.3% annualized return) in 17 days
  • Sinclair Broadcast Group:  +1.9% absolute return (+37.8% annualized return) in 18 days
The cash now available in the Covered Calls Advisor Portfolio from the closing of these eight 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 (Alibaba and General Motors) 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 either the stock is sold or continuation Covered Calls positions are established. 


To show how return-on-investment results for a closed Covered Calls position are calculated, the details for one of the eight assigned positions (Blackstone Group LP) is provided here:


Blackstone Group L.P. (BX) -- Covered Calls Position Closed
The implied volatility of the Call options was 25.2 when this position was established.  There weree no ex-dividend dates or earnings reports prior to the December 15th options expiration date.

The transactions were as follows:
11/10/2017 Bought 500 shares of Blackstone Group stock @ $31.96 per share 
11/10/2017 Sold 5 BX December 15th, 2017 $31.00 Call options @ $1.49 per share
12/15/2017 Blackstone Group stock closed at $31.41 (above $31.00 strike price) at expiration, so 5 Call options expired and 500 shares of BX stock owned were sold at $31.00

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $15,243.30
= ($31.96 - $1.49)* 500 shares + $8.30 commissions

Net Profit Components:
(a) Options Income: +$745.00
= ($1.49* 500 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (BX stock assigned at $31.00 strike price at Dec 15th expiration): -$484.95
= ($31.00 -$31.96)* 500 shares - $4.95 commission

Total Net Profit: +$260.05
= (+$745.00 options income +$0.00 dividend income -$484.95 capital appreciation)

Absolute Return: +1.7%
= +$260.05/$15,243.30
Equivalent Annualized Return: +17.3%
= (+$260.05/$15,243.30)*(365/36 days)

Friday, December 15, 2017

Established Covered Calls Position in Financial Select Sector SPDR Fund

A Covered Calls position has been established in the Financial Select Sector SPDR Fund (ticker XLF) at the $28.00 strike price and for the December 29th, 2017 options expiration date. Today, XLF went ex-distibution at $.1283 per share. Capturing this distribution is included in the potential financial results detailed below. In this case, a slightly out-of-the money strike price was chosen as the stocks of large banks and insurance companies, which are the predominant holdings in the XLF Fund, should benefit from the expected passage next week of the current tax bill.  

As detailed below, two potential return-on-investment results are:
  • +1.1% absolute return in 16 days (equivalent to a +25.3% annualized return-on-investment) if the price of XLF is unchanged upon the Dec 29th options expiration; OR
  • +1.8% absolute return in 16 days (equivalent to a +41.3% annualized return-on-investment) if the price of XLF rises to above the $28.00 strike price on the expiration date 


  • Financial Select Sector SPDR Fund (XLF) -- New Covered Calls Position
    The transactions were as follows:
    12/14/2017 Bought 1,000 shares of Financial Select Sector SPDR Fund shares @ $27.80 
    12/14/2017 Sold 10 XLF Dec 29th, 2017 $28.00 Call options @ $.18 per share
    Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of these Call options was 14.8 
    12/15/2017 Ex-Distribution of $128.30 = $.1283 per share x 1,000 shares

    Two possible overall performance result (including commissions) would be as follows:
    Covered Calls Cost Basis: $27,811.65
    = ($27.80 - $.18)* 1,000 shares + $11.65 commission

    Net Profit Components:
    (a) Options Income: +$180.00
    = ($.18* 1,000 shares)
    (b) Distribution Income: +$128.30
    = $.1283 per share * 1,000 shares 
    (c) Capital Appreciation (If XLF is unchanged at $27.80 purchase price at Dec 29th expiration): +$0.00
    = ($27.80 -$27.80)* 1,000 shares; OR
    (c) Capital Appreciation (If XLF is above $28.00 strike price at Dec 29th expiration): +$195.05
    = ($28.00 -$27.80)* 1,000 shares - $4.95 commission

    (a) Total Net Profit (If XLF price unchanged at $27.80 at expiration): +$308.30
    = (+$180.00 options income +$128.30 distribution income -$0.00 capital appreciation); OR
    (b) Total Net Profit (If XLF shares assigned at expiration): +$503.35
    = (+$180.00 options income +$128.30 distribution income +$195.05 capital appreciation)

    (a) Absolute Return (If XLF price unchanged at expiration): +1.1%
    = +$308.30/$27,811.65
    Equivalent Annualized Return: +25.3%
    = (+$308.30/$27,811.65)*(365/16 days); OR
    (b) Absolute Return (If XLF shares assigned at expiration): +1.8%
    = +$503.35/$27,811.65
    Equivalent Annualized Return: +41.3%
    = (+$503.35/$27,811.65)*(365/16 days)

    The downside 'breakeven price' at expiration is at $27.4917 ($27.80 price per share - $.18 options income - $.1283 distribution income), which is 1.1% below the current market price of $27.80.

    Thursday, December 14, 2017

    Early Assignment of Devon Energy Corp. Covered Calls

    Early this morning, the Covered Calls Advisor received notifications from my broker (Schwab) that three Devon Energy Corp. (ticker symbol DVN) December 15th, 2017 $36.00 Call options were exercised early, so 300 shares of Devon Energy stock in the Covered Calls Advisor Portfolio (CCAP) were assigned (i.e. sold) at the $36.00 strike price. 

    As you might recall, the Covered Calls Advisor Portfolio (CCAP) was short 5 Dec. 15th $36.00 Call options and was fully covered by 500 long shares of Devon stock.  So, three of the five Devon Covered Calls were exercised early by the owners of these Call options and the remaining 2 Covered Calls remain in the CCAP.  The possibility of some Dec 15th $36.00 Devon Call owners choosing to exercise early to capture the $.06 ex-dividend today while other owners didn't is not surprising.  There was only $0.05 per share [$2.11 midpoint of Call options' $2.03/$2.18 bid/ask price - ($38.06 current stock price - $36.00 strike price)] time value remaining in these Call options.  So some Call owners were willing to immediately forego the remaining $0.05 per share time value by exercising their option to buy the shares (in order to capture today's $0.06 per share ex-dividend).

    As detailed below, the actual return-on-investment result achieved for the three Devon Covered Calls that were assigned today was a +12.5% absolute return (equivalent to +22.7% annualized return) for the 202 days this position was held.  The Covered Calls Advisor will retain the cash received in the Covered Calls Advisor Portfolio until a new Covered Calls position is established.  The two Devon Covered Calls remaining in the Covered Calls Advisor Portfolio will likely be assigned at their Dec 15th options expiration at market close tomorrow.


    Devon Energy Corp. (DVN) -- Covered Calls Position Closed by Early Assignment
    The transactions history was as follows:
    05/25/2017  Bought 500 Devon Energy Corp. shares @ $37.45
    05/25/2017 Sold 5 DVN June 16, 2017 $36.00 Call options @ $2.10
    Note: this was a simultaneous buy/write transaction.
    06/13/2017 Ex-dividend of $30.00 ($.06 x 500 shares)
    06/16/2017 5 DVN June 16th, 2017 Call options expired
    Note: the price of DVN stock closed at $31.76 upon the June 16th options expiration date.
    07/03/2017 Sold 5 DVN July 21, 2017 $33.00 Call options @ $.87 per share
    07/21/2017 5 DVN Call options expired
    07/26/2017 Sold 5 DVN Aug 18, 2017 $35.00 Call options @ $.65 per share
    08/18/2017 5 DVN Call options expired
    Note: the price of DVN stock was $30.40 upon expiration of the Aug 18th Call options
    09/14/2017 Ex-dividend of $30.00 ($.06 x 500 shares)
    09/14/2017 Sold 5 DVN October 20th, 2017 $35.00 Call options @ $.89 per share
    Note: the price of DVN stock was $34.12 today when the Oct 20th Call options were sold
    10/20/2017 5 DVN Call options expired
    Note: the price of DVN stock was $34.92 upon expiration of the Oct 20th Call options
    10/27/2017 Sold 5 DVN November 17th, 2017 $36.00 Call options @ $.93 per share
    Note: the price of DVN stock was $35.66 today when the Nov 17th Call options were sold
    11/17/2017 Bought-to-Close 5 DVN Nov 17th $36.00 Call options @ $2.73
    11/17/2017 Sold-to-Open 5 DVN Dec 15th, 2017 $36.00 Call options @ $3.14
    12/14/2017 Three DVN Call options exercised early (day prior to ex-dividend date); so stock assigned (sold) at $36.00 strike price.
    Note: the closing price of Devon stock was $38.06 when these Calls were exercised

    The overall performance result (including commissions) was as follows:
    Cost Basis of Original Covered Calls Position Established in DVN: $10,607.97
    = ($37.45 - $2.10)*300 + (3/5) * $4.95 commission

    Net Profit Components:
    (a) Options Income: +$1,734.90
    = ($2.10 + $.87 + $.65 + $.89 +$.93 -$2.73 +$3.14) *300 shares - 6*$3.35 commissions
    (b) Dividend Income: +$36.00
    = ($.06 + $.06) * 300 shares
    (c) Capital Appreciation: -$439.95
    = ($36.00-$37.45)*300 shares - $4.95 commissions

    Total Net Profit: +$1,330.95
    = (+$1,734.90 options income +$36.00 dividends -$439.95 capital appreciation)

    Absolute Return: +12.5%
    = +$1,330.95/$10,607.97
    Annualized Return: +22.7%
    = (+$1,330.95/$10,607.97)*(365/202 days)