The Covered Calls Advisor established a short position by selling two Apple Inc. (Symbol AAPL) Jan30th, 2015 $112.00 Put options. This position expires after the Jan 27th earnings report, so the implied volatility of the options was substantially higher than would be the case if there was not an earnings release prior to expiration. Preliminary indications from several sources presage that iPhone 6 sales exceeded analyst expectations during the December-ending quarter, so an aggressive in-the-money short Puts position was established.As detailed below, this investment will yield a +1.0% absolute return in 11 days (which is equivalent to a +34.0% annualized return-on-investment) if Apple closes at the $108.50 price when this position was established today. If it rises to close above the $112.00 strike price, a +4.6% absolute return (equivalent to a +152.5% annualized return-on-investment) will be achieved.
The details are provided below.
1. Apple Inc. (AAPL)
The transaction was as follows:
01/21/2015 Sold 2 Apple Inc. Jan 30, 2015 $112.00 Puts @ $5.20
Note: The price of AAPL was $108.50 when this transaction was executed
The Covered Calls Advisor does not use margin, so the return-on-investment information on this position and some potential results shown below reflect the fact that this position was established using 100% cash securitization for the two Put options sold.
The purchase cost (including commissions) for this transaction was as follows:
100% Cash-Secured Cost Basis: $22,400.00
= $112.00*200
Note: the price of AAPL was $108.50 when these Put options were sold.
Net Profit:
(a) Options Income: +$1,029.55
= ($5.20*200 shares) - $10.45 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If AAPL closes unchanged at $108.50 at Jan 30th, 2015 expiration): -$800.00
= ($108.50 if price unchanged at expiration -$112.00 cash-secured cost basis)*200 shares; OR
(c) Capital Appreciation (If AAPL closes above $112.00 strike price at Jan 30th, 2015 expiration): +$0.00
= ($112.00 liquidation price if assigned -$112.00 cash-secured cost basis)*200 shares
1. Total Net Profit (If AAPL closes unchanged at $108.50 at Jan 30th, 2015 expiration): +$229.55
= (+$1,029.55 options income +$0.00 dividend income -$800.00 capital appreciation); OR
2. Total Net Profit (AAPL closed above $112.00 strike so the short options expired worthless): +$1,029.55
= (+$1,029.55 options income +$0.00 dividend income +$0.00 capital appreciation)
1. Absolute Return (If AAPL closes unchanged at $108.50 at Jan 30th, 2015 expiration): +1.0%
= +$229.55/$22,400.00
Annualized Return: +34.0%
= (+$229.55/$22,400.00)*(365/11 days); OR
2. Absolute Return (If AAPL closes above $112.00 strike price at Jan 30th, 2015 expiration): +4.6%
= +$1,029.55/$22,400.00
Annualized Return: +152.5%
= (+$1,029.55/$22,400.00)*(365/11 days)
