Established Covered Calls Positions in Alibaba Group Holding Ltd. and Bank of America Corp.

Today, two new Covered Calls positions were entered in Alibaba Group Holding Ltd. (ticker BABA) and Bank of America Corp. (ticker BAC).   Both positions were established for the December 15th, 2017 options expiration date and given the Covered Calls Advisor's current Overall Market Meter sentiment of Neutral, in-the-money positions were established.

As detailed below, the potential return-on-investments are:

• Alibaba Group:  A +2.3% absolute return in 37 days (equivalent to a +22.2% annualized return-on-investment); and
• Bank of America Corp.:  A +1.6% absolute return in 37 days (equivalent to a +15.6% annualized return-on-investment) 

The transactions and potential results are detailed below:

1. Alibaba Group Holding Ltd. (BABA) -- New Covered Calls Position

The implied volatility of the Call options was 30.5 when this position was established, a high level given there is no earnings report prior to the December 15th options expiration.

The transactions were as follows:
11/09/2017 Bought 300 shares of Alibaba stock @ $182.08 per share 
11/09/2017 Sold 3 Alibaba December 15th, 2017 $175.00 Call options @ $11.28 per share
Note: this was a simultaneous Buy/Write transaction

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $51,246.96
= ($182.08 - $11.28)* 300 shares + $6.96 commission

Net Profit Components:
(a) Options Income: +$3,384.00
= ($11.28* 300 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is above $175.00 strike price at Dec 15th expiration): -$2,128.95
= ($175.00 -$182.08)* 300 shares - $4.95 commission

Total Net Profit: +$1,155.05
= (+$3,284.00 options income +$0.00 dividend income -$2,128.95 capital appreciation)

Absolute Return: +2.3%
= +$1,155.05/$51,246.96
Equivalent Annualized Return: +22.2%
= (+$1,155.05/$51,246.96)*(365/37 days)

The downside 'breakeven price' at expiration is at $170.80 ($182.08 - $11.28), which is 6.2% below the current market price of $182.08.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the December 15th, 2017 options expiration) for this Alibaba Covered Calls position is 67.8%, so the expected value annualized ROI of this investment (if held until expiration) is +15.1% (+22.2% * 67.8%), a nice result for this moderately in-the-money Covered Calls position.

The 'crossover price' at expiration is $193.36 ($182.08 + $11.28).  This is the price above which it would have been more profitable to simply buy-and-hold Alibaba stock until the December 15th, 2017 options expiration date.


2. Bank of America Corp. (BAC) -- New Covered Calls Position

The implied volatility of the Call options was 24.1 when this position was established.  There is no intervening earnings report prior to expiration.  There is an upcoming ex-dividend of $.12 on November 30th which is included in the analysis below.

The transactions were as follows:
11/09/2017 Bought 1,000 shares of Bank of America stock @ $26.29 per share 
11/09/2017 Sold 10 Bank of America Dec 15th, 2017 $25.00 Call options @ $1.57 per share
Note: this was a simultaneous Buy/Write transaction

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $24,731.65
= ($26.29 - $1.57)* 1,000 shares + $11.65 commission

Net Profit Components:
(a) Options Income: +$1,570.00
= ($1.57* 1,000 shares)
(b) Dividend Income: +$120.00 = $.12 per share * 1,000 shares 
(c) Capital Appreciation (If BAC is above $25.00 strike price at Dec 15th expiration): -$1,294.95
= ($25.00 -$26.29)* 1,000 shares - $4.95 commission

Total Net Profit: +$395.05
= (+$1,570.00 options income +$120.00 dividend income -$1,294.95 capital appreciation)

Absolute Return: +1.6%
= +$390.05/$24,731.65
Equivalent Annualized Return: +15.6%
= (+$390.05/$24,731.65)*(365/37 days)

The downside 'breakeven price' at expiration is at $24.60 ($26.29 stock price - $1.57 options income - $.12 dividend income), which is 6.4% below the current market price of $26.29.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the December 15th, 2017 options expiration) for this Bank of America Covered Calls position is 71.5%, so the expected value annualized ROI of this investment (if held until expiration) is +11.2% (+15.6% * 71.5%), a nice result for this in-the-money Covered Calls position.