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Wednesday, September 11, 2019

Continuation of Covered Calls Position in CommScope Holdings Co. Inc.

Upon the September 21st, 2018 options expiration, the five short Cash-Secured Puts position in CommScope Holdings Co. Inc. (ticker symbol COMM) expired with the stock price below the $15.00 strike price.  So, the August Put options expired and 500 shares of CommScope Holdings Co. Inc. stock were purchased in the Covered Calls Advisor Portfolio.  Today, with the price of CommScope stock at $13.01, a sell-to-open order was executed to sell 5 Sept 20, 2019 Call options at the $13.00 strike price for $.40 per share to continue this Covered Calls position.

As detailed below, the overall return-on-investment result for this CommScope Holdings Co. Inc. position if the stock is in-the-money (i.e. above the $13.00 strike price) at expiration is -5.5% absolute return in 72 days (equivalent to a -27.9% annualized return-on-investment).  


CommScope Holdings Co. Inc. (COMM) -- Continuation Covered Calls Position
The transactions to-date are as follows:
07/10/2019  Sold 5 COMM August 16th, 2019 $15.00 100% Cash-Secured Put options @ $.80
Note: the price of CommScope stock was $15.56 when this transaction was executed.
08/16/2019 Stock was below strike price at expiration, so 5 Put options expired and 500 shares of CommScope were purchased at $15.00 per share.
09/11/2019 Sold 5 COMM Sept 20, 2019 $13.00 Call options at $.40 per share
Note: the price of COMM stock was $13.01 when these Calls were sold


A possible overall performance result (including commissions) for this CommScope Holdings Covered Calls position is as follows:
Covered Calls Cost Basis: $7,508.30
= $15.00 *500 shares + $8.30 commission

Net Profit Components:
(a) Options Income: +$591.70
= ($.80 +$.40) * 500 shares - $8.30 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If COMM shares assigned at $13.00 strike price at options expiration): -$1,004.95
=($13.00-$15.00)* 500 shares - $4.95 commissions

Total Net Profit (If CommScope shares assigned at $13.00 at Sept 20, 2019 expiration): -$413.25
= (+$591.70 +$0.00 -$1,004.95)

Absolute Return: -5.5%
= -$413.25/$7,508.30
Annualized Return: -27.9%
= (-$413.25/$7,508.30)*(365/72 days)

Saturday, September 7, 2019

Early Assignment of Occidental Petroleum Covered Calls

Early this morning I received email and text notifications from my broker (Schwab) that all 4 Occidental Petroleum Corp. (ticker symbol OXY) Call options were exercised early, so the 400 shares of Occidental Petroleum stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $40.00 strike price. 

Details of the transactions and the results for this Occidental Petroleum position are provided below.  When this Covered Calls position was established, the time value (i.e. extrinsic value) was $.55 = [$2.56 options premium - ($42.01 stock price - $40.00 strike price).  By yesterday's market close (the last business day prior to the ex-dividend date which is Monday, Sept 9th), the time value had declined to $0.00, so the full $.55 options income profit per share potential was achieved upon the early assignment closing of this position.  The per share price had increased from $42.01 when the position was originally established (on August 26th) to $45.46 at yesterday's market close.  Because the time value remaining in the Call options had declined to $0.00 at Friday's (Sept. 6th) market close, the owner of the Calls exercised their option to buy the shares at the $40.00 strike price in order for them to capture the $.79 dividend.  As detailed below, this early assignment provided an attractive return-on-investment (roi) result: +1.4% absolute return (equivalent to +38.2% annualized roi for the 13 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.  As always, the transactions details will be posted on this blog site the same day that they occur.

The detailed results for this Occidental Petroleum position are provided below.


Occidental Petroleum Corp. (OXY) -- Early Assignment of OXY Covered Calls Position

The transactions were:
08/26/2019 Bought 400 Occidental Petroleum shares @ $42.01
08/26/2019 Sold 4 OXY 09/20/2019 $40.00 Call options @ $2.56
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was 174 contracts and the Implied Volatility was very attractive at 40.3 considering the large size and relative predictability of Oxy's business.
09/06/2019 Early exercise of 4 OXY Sept 20th, 2019 $40.00 Call options, so 400 OXY shares assigned (i.e. sold) at $40.00 strike price.

The overall performance result (including commissions) for this Occidental Petroleum Covered Calls position is as follows:
Covered Calls Cost Basis: $15,787.63
= ($42.01 - $2.56) *400 shares + $7.63 commissions

Net Profit Components:
(a) Options Income: +$1,024.00
= ($2.56 *400 shares)
(b) Dividend Income (Call options exercised early on Sept 6th, the business day prior to Sept 9th ex-dividend date): +$0.00
(c) Capital Appreciation (OXY assigned early on Sept 6th): -$808.95
+($40.00 -$42.01) *400 shares - $4.95 commissions

Total Net Profit [Options exercised on Sept 6th (business day prior to Sept 9th ex-dividend date)]: +$215.05
= (+$1,024.00 +$0.00 -$808.95)

Absolute Return: +1.4%
= +$215.05/$15,787.63
Annualized Return: +38.2%
= (+$273.71/$13,224.95)*(365/13 days)

Monday, August 26, 2019

Covered Calls Established in Occidental Petroleum Corp. Using Dividend Capture Strategy

Today, a Covered Calls position was established in Occidental Petroleum Corp. (ticker symbol OXY) with a September 20, 2019 expiration and at the $40.00 strike price.  This position has an expected upcoming quarterly ex-dividend on September 9th of $.79 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the Sept 20th, 2019 options expiration date.  At the $40.00 strike price, the annual dividend yield is a very high 7.9%.  Quarterly earnings were reported recently, so the next earnings report will not be until November.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, a slightly in-the-money Covered Calls position was established. 

As detailed below, a potential return-on-investment result is +1.4% absolute return (equivalent to +33.1% annualized return for the next 15 days) if the stock is assigned early (business day prior to September 9th ex-date); OR +3.4% absolute return (equivalent to +47.2% annualized return over the next 26 days) if the stock is assigned on the September 20th options expiration date.


Occidental Petroleum Corp. (OXY) -- New Covered Calls Position
Although unlikely, if the current time value (i.e. extrinsic value) of $.55 [$2.56 options premium -($42.01 stock price - $40.00 strike price) remaining in the four short Call options decays substantially (down to about $.15 or less) by Sept 6th (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 400 Occidental Petroleum shares away to capture the dividend payment.

The transactions were:
08/26/2019 Bought 400 Occidental Petroleum shares @ $42.01
08/26/2019 Sold 4 OXY 09/20/2019 $40.00 Call options @ $2.56
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was 174 contracts and the Implied Volatility was very attractive at 40.3 considering the large size and relative predictability of Oxy's business.
09/09/2018 Upcoming quarterly ex-dividend of $.79 per share

Two possible overall performance results (including commissions) for this Occidental Petroleum Covered Calls position are as follows:
Covered Calls Cost Basis: $15,787.63
= ($42.01 - $2.56) *400 shares + $7.63 commissions

Net Profit Components:
(a) Options Income: +$1,024.00
= ($2.56 *400 shares)
(b) Dividend Income (If option exercised early on Sept 6th, the business day prior to Sept 9th ex-div date): +$0.00; or
(b) Dividend Income (If Occidental Petroleum shares assigned at Sept 20th, 2019 expiration): +$316.00
= ($.79 dividend per share x 400 shares)
(c) Capital Appreciation (If OXY assigned early on Sept 6th): -$808.95
+($40.00 -$42.01) *400 shares - $4.95 commissions; or
(c) Capital Appreciation (If OXY assigned at $40.00 strike price at options expiration): -$808.95
+($40.00 -$42.01) *400 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Sept 6th (business day prior to Sept 9th ex-dividend date)]: +$215.05
= (+$1,024.00 +$0.00 -$808.95); or
2. Total Net Profit (If Occidental Petroleum shares assigned at $40.00 at Sept 20th, 2019 expiration): +$531.05
= (+$1,024.00 +$316.00 -$808.95)

1. Absolute Return [If OXY option exercised on Sept 6th (business day prior to ex-dividend date)]: +1.4%
= +$215.05/$15,787.63
Annualized Return (If option exercised early): +33.1%
= (+$273.71/$13,224.95)*(365/15 days); or
2. Absolute Return (If Occidental Petroleum shares assigned at $40.00 at Sept 20, 2019 expiration): +3.4%
= +$531.05/$15,787.63
Annualized Return (If OXY stock assigned at $67.50 at Dec 21, 2018 expiration): +47.2%
= (+$531.05/$15,787.63)*(365/26 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $40.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $38.66 ($42.01 -$2.56 -$.79) provides 8.0% downside protection below today's purchase price.

The Covered Calls Advisor has established a set of eleven criteria to evaluate potential Covered Calls using a dividend capture strategy.  The minimum threshold desired to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, ten of the eleven criteria are achieved for this Occidental Petroleum Corp. Covered Calls position.