The Covered Calls Advisor does not use margin, so the detailed information on these positions and some potential results shown below reflect the fact that both positions were established using 100% cash securitization for the Put options sold.
As detailed below, the potential returns are:
1. Celgene Corp.: +1.8% absolute return in 30 days (equivalent to a +22.2% annualized return-on-investment)
2. Delta Air Lines Inc.: +1.4% absolute return in 30 days (equivalent to a +17.1% annualized return-on-investment)
Note: the Implied Volatility (IV) of the options at the time they were sold was 34 for Celgene Corp. and 35 for Delta Air Lines, so both options exceeded the Covered Calls Advisor's minimum threshold of IV>20 and thus provides a sufficiently attractive potential return-on-investment relative to the conservative risk profile of each position.
1. Celgene Corp. (CELG) -- New Position
The transaction was as follows:
03/17/2016 Sold 2 CELG 100% cash-secured $90.00 Put options @ $1.65Note: The price of CELG was $95.00 when this transaction was executed.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $18,007.95
= $90.00*200 + $7.95
Net Profit:
(a) Options Income: +$328.50
= ($1.65*200 shares) - $1.50 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If CELG is above $90.00 strike price at Apr2016 expiration): +$0.00
= ($90.00-$90.00)*200 shares
Total Net Profit (If Celgene is above $90.00 strike price at Apr2016 options expiration): +$328.50
= (+$328.50 +$0.00 +$0.00)
Absolute Return (If CELG is above $90.00 strike price at Apr2016 options expiration): +1.8%
= +$328.50/$18,007.95
Annualized Return (If CELG is above $90.00 at expiration): +22.2%
= (+$328.50/$18,007.95)*(365/30 days)
The downside 'breakeven price' at expiration is at $88.35 ($90.00 - $1.65), which is 7.0% below the current market price of $95.00.
The 'crossover price' at expiration is $96.65 ($95.00 + $1.65). This is the price above which it would have been more profitable to simply buy-and-hold Celgene Corp. stock until April 15th (the Apr2016 options expiration date) rather than selling these Put options.
2. Delta Air Lines Inc. (DAL) -- New PositionThe transaction was as follows:
03/17/2016 Sold 4 DAL 100% cash-secured $45.00 Put options @ $.64
Note: The price of DAL was $48.42 when this transaction was executed.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $18,007.95
= $45.00*400 + $7.95
Net Profit:
(a) Options Income: +$253.00
= ($.64*400 shares) - $3.00 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If DAL is above $45.00 strike price at Apr2016 expiration): +$0.00
= ($45.00 -$45.00)*400 shares
Total Net Profit (If DAL is above $45.00 strike price at Apr2016 options expiration): +$253.00
= (+$253.00 +$0.00 +$0.00)
Absolute Return (If DAL is above $45.00 strike price at Apr2016 options expiration): +1.4%
= +$253.00/$18,007.95
Annualized Return (If DAL is above $45.00 at expiration): +17.1%
= (+$253.00/$18,007.95)*(365/30 days)
The downside 'breakeven price' at expiration is at $44.36 ($45.00 - $.64), which is 8.4% below the current market price of $48.42.
The 'crossover price' at expiration is $49.06 ($48.42 + $.64). This is the price above which it would have been more profitable to simply buy-and-hold Delta Air Lines shares until April 15th (the Apr2016 options expiration date) rather than selling these Put options.
