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Wednesday, June 3, 2020

Established Covered Calls Position in ViacomCBS Inc.

A new Covered Calls position has been established in ViacomCBS Inc. (ticker VIAC) with a June 19th, 2020 options expiration date. Four ViacomCBS Call options were sold at $1.76 at the $21.00 strike price when the stock price was $22.33.  There is no earnings report prior to the options expiration date, but there is an intervening ex-dividend of $.24 per share on June 12th which is included in the return-on-investment results detailed below.

As is often the case when there is an intervening ex-dividend, the Covered Calls position was chosen instead of its comparable 100% Cash-Secured Puts position since the annualized return-on-investment potential is slightly better with the Covered Calls  -- +69.9% for the Covered Calls versus +65.3% for the Cash-Secured Puts for this position (as shown in the image below):








Click on image above for an enlarged view.


As detailed below, a potential return-on-investment result is +3.3% absolute return in 17 days (equivalent to a +69.9% annualized return-on-investment).  

ViacomCBS Inc.(VIAC) -- New Covered Calls Position
The transaction was as follows:
06/03/2020 Bought 400 shares of ViacomCBS stock @ $22.33 per share 
06/03/2020 Sold 4 ViacomCBS June 19th, 2020 $21.00 Call options @ $1.76 per share
Note: this was a simultaneous Buy/Write transaction.  The Implied Volatility of the Call options was 47.5 and the Open Interest was 1,313 contracts when this transaction was executed. 

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $8,230.68
= ($22.33 - $1.76) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$704.00
= ($1.76 * 400 shares)
(b) Dividend Income: +$96.00
= $.24 per share x 400 shares 
(c) Capital Appreciation (If ViacomCBS stock is above $21.00 strike price at June 19th expiration): -$532.00
= ($21.00 - $22.33) * 400 shares

Total Net Profit: +$268.00
= (+$704.00 options income +$96.00 dividend income -$532.00 capital appreciation)

Absolute Return: +3.3%
= +$268.00/$8,230.68
Equivalent Annualized Return: +69.9%
= (+$268.00/$8,230.68)*(365/17 days)

The downside 'breakeven price' at expiration is at $20.57 ($22.33 - $1.76), which is 7.9% below the current market price of $22.33.


Tuesday, June 2, 2020

New Cash-Secured Puts Position Established in Micron Technology Inc.

Today, a new position was established in Micron Technology Inc. (ticker MU) by selling three June 19, 2020 100% Cash-Secured Put options at the $43.00 strike price.  A limit order was executed early in the trading session this morning when the price of MU stock was $45.82 (6.6% above the $43.00 strike price).   

This is the second Micron Cash-Secured Puts position established with a June 19th expiration date, the primary difference being that the first one was at the $40.00 strike price (details of this prior position at this link).  The cash to establish this new position was available from the Covered Calls Advisor's Covered Calls position in Applied Materials that was assigned at options expiration last Friday.

The Implied Volatility of the Put options was 52.0 when this new Micron position was established; so the $279.99 ($.94 per share x 300 shares - $2.01 commission) is a nice premium to receive for these out-of-the-money (i.e. strike price below the current stock price) Put options.  Importantly, there is no earnings report prior to the June 19th options expiration date, Micron's next quarterly earnings report now scheduled for June 29th.

Micron is very highly rated by analysts.  Reuters Research indicates that currently 27 analysts have a Buy or Outperform rating, 7 have a Hold, and 1 has a Strong Sell, and their average target price is $62.  Also, although the Covered Calls Advisor depends primarily on fundamental value factors in deciding what stocks to purchase, a minor consideration is given to technical factors.  In that regard, the 2-day relative strength index [i.e. RSI(2)] for Micron moved into short-term oversold territory this morning at 26.7 (note: below 30 is normally considered as oversold and above 70 is considered overbought) when this position was established.  This compares with a close-to-average of 49.5 for Micron's RSI(14) level and a RSI(14) of 59 for the semiconductor industry (as indicated by SMH).

As detailed below, for this new Micron position there is potential for a +2.2% absolute return in 18 days (equivalent to a +45.0% annualized return-on-investment).

MICRON TECHNOLOGY INC. (MU) -- New 100% Cash-Secured Puts Position (2nd position in Micron with a June 19th options expiration date)
The transaction today was as follows:
06/02/2020  Sold 3 MU June 19th, 2020 $43.00 100% Cash-Secured Put options @ $.94 per share.
Note: there was a very high Open Interest of 12,329 contracts in this option, so the price spread between the Bid and Ask prices was advantageous at only $.02 per share.

The Covered Calls Advisor does not use margin, so the detailed information on this position and the potential result detailed below reflect that this position was established using 100% cash securitization for the three Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $12,620.01
= ($43.00 - $.94) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$279.99
= ($.94 *300 shares) - $2.01 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Micron Technology Inc. is above $43.00 strike price at the June 19th expiration): +$0.00
= ($43.00 - $43.00) *300 shares

Total Net Profit (If Micron stock price is above $43.00 strike price at options expiration): +$279.99
= (+$279.99 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Micron stock price is above $43.00 strike price at June 19th options expiration) : +2.2%
= +$279.99/$12,620.01
Annualized Return: +45.0%
= (+$279.99/$12,620.01)*(365/18 days)

The downside 'breakeven price' at expiration is at $42.06 ($43.00 - $.94), which is 8.2% below the current market price of $45.82.

The probability of making a profit (if held until the June 19th, 2020 options expiration) for this Micron Technology Inc. short Puts position was 73.1% when this position was established.  Using this probability of profit, the expected value annualized return-on-investment (if held until expiration) is +32.9% (+45.0% * 73.1%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $46.76 ($45.82 + $.94).  This is the price above which it would have been more profitable to simply buy-and-hold Micron Technology stock until the June 19th, 2020 options expiration date rather than selling these Put options.

Friday, May 29, 2020

May 29th, 2020 Options Expiration -- Applied Materials Inc. Covered Calls Position Assigned

The May 29th, 2020 $52.00 Covered Call position in Applied Materials Inc. expired in-the-money, so the 300 shares of AMAT were assigned (i.e. sold) at the $52.00 strike price.  As detailed below, the return-on-investment (ROI) result was  +1.9% absolute return (equivalent to +62.1% annualized return-on-investment for the 11 days holding period).

Applied Materials Inc. (AMAT) -- Covered Calls Position Closed
The transactions were as follows:
05/19/2020 Bought 300 shares of Applied Materials Inc. @ $54.21 per share 
05/19/2020 Sold 3 Applied Materials May 29th, 2020 $52.00 Call options @ $2.95 per share
Note: the Implied Volatility of the Call option was 42.3 and the next quarterly earnings report is after the 5/29/2020 expiration date
05/20/2020 Ex-dividend date at $.22 per share
05/29/2020 3 AMAT May 29th, 2020 $52.00 Call options were in-the-money, so the options expired and the 300 shares of AMAT stock were sold at the $52.00 strike price.
Note: AMAT stock price was $56.18 at the market close on the 5/29 options expiration date.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $15,380.01
= ($54.21 - $2.95) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$885.00
= ($2.95 * 300 shares)
(b) Dividend Income: +$66.00
= $.22 per share x 300 shares 
(c) Capital Appreciation (Applied Materials stock was above $52.00 strike price at the May 29th options expiration): -$663.00
= ($52.00 -$54.21) * 300 shares

Total Net Profit: +$288.00
= (+$885.00 options income +$66.00 dividend income -$663.00 capital appreciation)

Absolute Return: +1.9%
= +$288.00/$15,380.01
Equivalent Annualized Return: +62.1%
= (+$288.00/$15,380.01)*(365/11 days)