Search This Blog

Thursday, August 18, 2016

Overall Market Meter Remains "Slightly Bearish"

Today, the Covered Calls Advisor recalculated the current values for each of the seven factors used to determine the "Overall Market Meter" rating.  The result is that the Covered Calls Advisor's current market viewpoint remains at Slightly Bearish.  A graphical representation of the "Overall Market Meter" is shown in the right sidebar on this page.    

The seven factors used can be categorized as:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next two indicators), and
- growth (the last indicator).
Note: The rating for each of these factors is not subjective.  Each factor is calculated using objective, quantifiable measures.

















The current Market Meter average of 3.00 (see blue line at the bottom of the chart above) is in the Slightly Bearish range (Note: the Slightly Bearish range is from 2.35 to 3.09). 

Both of the value-related factors are now Very Bearish.  The current P/E ratio for the S&P 500 (based on the average of the Operating and As Reported earnings for the past year) is very high at 23.9.  This is much higher than the expected current P/E ratio of 18.6 (based on the current 2.1% CPI-U inflation rate for the past year).  The market would have to decline by 22.2% from its current level to reach a P/E ratio of 18.6.  Despite the fact that most other factors are Bullish, these two Very Bearish value factors (i.e. P/E Ratio and the Total Market to GDP Ratio) coupled with an expectation of modest sales and earnings growth over the next year explains why the Covered Calls Advisor Portfolio is currently 25% invested and 75% in cash at this time.  

As shown in the right sidebar, the covered calls investing strategy corresponding to this overall Slightly Bearish sentiment is to "on-average sell 1% in-the-money covered calls for the next options expiration month".

Your comments or questions regarding this post (or the details related to any of the seven factors used in this model) are welcomed. Please email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Monday, August 1, 2016

July 2016 Option Expiration Results

The Covered Calls Advisor Portfolio (CCAP) contained three positions with July 2016 expirations.  The three positions (Alphabet Inc., Home Depot Inc., and S&P 500 ETF) were 100% cash-secured Put options and all three were closed out upon expiration since the stock price was above the strike price at options expiration.

The overall average annualized return-on-investment for these three positions was +21.5%.  The return-on-investment result for each position was:
  • Alphabet Inc. = +1.5% absolute return (+28.3% annualized return)
  • Home Depot Inc. = +0.8% absolute return (+16.3% annualized return)
  • S&P 500 ETF = +0.9% absolute return (+19.8% annualized return)
The details for each position is shown below.  The cash now available from the closing of these positions will be retained in the Covered Calls Advisor Portfolio until new covered calls and/or 100% cash-secured puts positions are established.  Any new positions will be posted on this site on the same day they occur.

1. Alphabet Inc. (GOOGL) -- 100% Cash-Secured Put Options Closed at Expiration
The transaction was as follows:
06/27/2016  Sold 1 GOOGL Jul2016 $665.00 100% cash-secured Put option @ $9.90
Note: the price of GOOGL was $679.87 today when this transaction was executed.
07/15/2016 GOOGL Jul2016 options expired
Note: price of GOOGL was $735.63 upon options expiration

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: $66,500.00
= $665.00*100

Net Profit:
(a) Options Income: +$981.30
= ($9.90*100 shares) - $8.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (GOOGL is above $665.00 strike price at Jul2016 expiration): +$0.00
= ($665.00-$665.00)*100 shares

Total Net Profit: +$981.30
= (+$981.30 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.5%
= +$981.30/$66,500.00
Annualized Return: +28.3%
= (+$981.30/$66,500.00)*(365/19 days)



2. Home Depot Inc. (HD) -- 100% Cash-Secured Puts Position Closed at Expiration
The transaction was as follows:
06/27/2016  Sold 3 HD Jul2016 $120.00 100% cash-secured Put options @ $1.05
Note: the price of HD was $125.09 today when this transaction was executed.
07/15/2016 HD Jul2016 options expired
Note: price of HD was $134.78 upon options expiration

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $36,000.00
= $120.00*300

Net Profit:
(a) Options Income: +$304.80
= ($1.05*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (HD was above $120.00 strike price at Jul2016 expiration): +$0.00
= ($120.00-$120.00)*300 shares

Total Net Profit: +$304.80
= (+$304.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +0.8%
= +$304.80/$36,000.00
Annualized Return: +16.3%
= (+$304.80/$36,000.00)*(365/19 days)


3. S&P 500 ETF (SPY) -- 100% Cash-Secured Puts Position  Closed at Expiration
The transaction was as follows:
06/27/2016  Sold 3 SPY Jul2016 $192.50 100% cash-secured Put options @ $1.86
Note: the price of SPY was $199.75 today when this transaction was executed.
07/15/2016 SPY Jul2016 options expired
Note: price of SPY was $215.83 upon options expiration

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $57,750.00
= $192.50*300

Net Profit:
(a) Options Income: +$547.80
= ($1.86*300 shares) - $10.20 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (SPY was above $192.50 strike price at Jul2016 expiration): +$0.00
= ($192.50-$192.50)*300 shares

Total Net Profit: +$547.80
= (+$547.80 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +0.9%
= +$547.80/$57,750.00
Annualized Return: +19.8%
= (+$547.80/$57,750.00)*(365/19 days)