Search This Blog

Wednesday, November 30, 2022

Established Covered Calls Position in Tapestry Inc.

A December 16th, 2022 Covered Calls buy/write limit order was placed in Tapestry Inc. (ticker TPR) at a net debit limit price of $34.51 per share.  Tapestry Inc. owns and is the designer and marketer of luxury accessories and lifestyle brands Coach, Kate Spade, and Stuart WeitzmanThe order was executed and 500 shares were purchased at $36.96 and five December 16th Call options were sold at the $35.00 strike price for $2.45 per share.  The Implied Volatility of these Call options was 39.9 when this transaction was executed and the Delta was 72.5.  In addition, there is an upcoming quarterly ex-dividend of $.30 per share (3.2% annual dividend yield) on December 8th which is prior to the options expiration date; so it is included in the potential return-on-investment calculations detailed below. 

Tapestry meets the five primary criteria currently preferred for new positions established by the Covered Calls Advisor:

 

As detailed below, two potential return-on-investment results are: 

  •  +1.4% absolute return (equivalent to +63.9% annualized return for the next 8 days) if the stock is assigned early (business day prior to the December 8th, 2022 ex-dividend date); OR 
  • +2.3% absolute return (equivalent to +48.6% annualized return over the next 17 days) if the stock is assigned on the December 16th, 2022 options expiration date.
These returns will be achieved as long as Tapestry's stock price is above the $35.00 strike price at options expiration.  If the stock declines below the strike price, the breakeven price of $34.21 per share ($36.96 stock purchase price - $2.45 Call options selling price - $.30 ex-dividend amount) provides a substantial 7.4% downside breakeven protection below today's stock purchase price.


Tapestry Inc. (TPR) -- New Covered Calls Position

The transactions were:
11/30/2022 Bought 500 Tapestry Inc. shares @ $36.96
11/30/2022 Sold 5 TPR 12/16/2022 $35.00 Call options @ $2.45 per share
12/08/2022 Upcoming quarterly ex-dividend of $.30 per share

Two possible overall performance results (including commissions) for this Tapestry Covered Calls position are as follows:
Covered Calls Net Investment: $17,258.35
= ($36.96 - $2.45) * 500 shares + $3.35 commissions

Net Profit Components:
(a) Options Income: +$1,221.65
= ($2.45 * 500 shares) - $3.35 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Dec. 8th ex-div date): +$0.00; or
(b) Dividend Income (If Tapestry shares assigned at the Dec 16th, 2022 options expiration): +$150.00
= ($.30 dividend per share x 500 shares)
(c) Capital Appreciation (If TPR assigned early on Dec 8th): -$980.00
+($35.00 - $36.96) * 500 shares ;or
(c) Capital Appreciation (If TPR shares assigned at $35.00 strike price at options expiration): -$980.00
+($35.00 - $36.96) * 500 shares


1. Total Net Profit [If options exercised on Dec. 7th (business day prior to the Dec. 8th ex-dividend date)]: +$241.65
= (+$1,221.65 +$0.00 - $980.00); or
2. Total Net Profit (If Tapestry shares assigned at $35.00 strike price at Dec. 16th, 2022 expiration): +$391.65
= (+$1,221.65 + $150.00 - $980.00)

1. Absolute Return [If TPR Call options exercised on business day prior to ex-dividend date]: +1.4%
= +$241.65/$17,258.35
Annualized Return (If options exercised early): +63.9%
= (+$241.65/$17,258.35) * (365/8 days); or
2. Absolute Return (If Tapestry shares assigned at $35.00 strike price on Dec. 16th, 2022 expiration): +2.3%
= +$391.65/$17,285.35
Annualized Return (If Tapestry stock assigned at $35.00 at the Dec. 16, 2022 expiration): +48.6%
= (+$391.65/$17,285.35) *(365/17 days)

The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a Dividend Capture Strategy.  The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved.  As shown in the table below, all nine criteria are met for this Tapestry Inc. Covered Calls position.


Tuesday, November 29, 2022

Covered Calls Established in Bank of America Corporation

A December 16th, 2022 Covered Calls buy/write limit order was executed today in Bank of America (ticker BAC) at a net debit price of $35.13 per share.  Five hundred shares were purchased at $36.80 and five December 16th, 2022 $35.50 strike price Call options were sold at $1.67 per share.  The corresponding extrinsic value (i.e. time value) was $.37 per share [$1.67 Call options premium - ($36.80 stock purchase price - $35.50 strike price)].   There is an intervening ex-dividend prior to the options expiration date in two days (on December 1st) at $.22 per share which is included in the potential return-on-investment results shown below.  The Implied Volatility of the Call options was 27.9 and the Delta was 72.6 when this position was established.  And as preferred, there is no quarterly earnings report prior to the options expiration date.

Some key numbers for this Bank of America Covered Calls position are:
Covered Calls Net Investment: $17,568.35
Time Value Profit if Assigned on Expiration Date: $181.65
Dividend Income if Assigned on the Options Expiration Date: $110.00
Total Potential Profit if Assigned ($181.65 time value profit + $110.00 dividend income): $291.65
Days Until the December 16th, 2022 Options Expiration: 18
Absolute Return-on-Investment if Assigned at Expiration: +1.7%
Annualized Return-on-Investment if Assigned at Expiration: +33.7%

Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net

Saturday, November 26, 2022

November 25th, 2022 Options Expiration Results

There was one Covered Calls position in the Covered Calls Advisor Portfolio with a  November 25th, 2022 weekly options expiration date.   This position in Exxon Mobil Corporation (ticker XOM) was closed out yesterday since its stock price of $113.21 at the market close yesterday was in-the-money, so the 200 shares owned were assigned (i.e. sold) at their $108.00 strike price.  

As detailed below, the return-on-investment (ROI) result was a +1.9% absolute return-on-investment (equivalent to +32.0% annualized return-on-investment) for the 22 days holding period).  This position was established using my Dividend Capture Strategy, so the return-on-investment result achieved includes receiving Exxon's $.91 per share quarterly dividend since the ex-dividend date occurred on November 14th which was during the 22 day period between November 4th when this Covered Calls position was established and the November 25th options expiration date.


Exxon Mobil Corporation (XOM) -- Covered Calls Position Assigned on the November 25th Options Expiration Date

The original simultaneous buy/write transactions was as follows: 11/4/2022 Bought 200 Exxon Mobil shares @ $112.53
11/4/2022 Sold 2 Exxon Mobil November 25th, 2022 $108.00 Call options @ $5.69 per share
11/14/2022 Quarterly ex-dividend at $.91 per share
11/25/2022 Two XOM $108.00 Calls expired in-the-money (Exxon Mobil stock was $113.21 at the market close yesterday (11/25/2022) and the 200 stock shares were sold at the $108.00 strike price to close out this Covered Calls position.

The overall performance result (including commissions) was as follows:
Covered Calls Net Investment: $21,369.34
= ($112.53 - $5.69) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,136.66
= ($5.69 * 200 shares) - $1.34 commission
(b) Dividend Income (XOM shares assigned at the Nov. 25th, 2022 expiration): +$182.00
= ($.91 dividend per share x 200 shares)
(c) Capital Appreciation (Exxon Mobil shares assigned at $108.00 strike price at options expiration): -$906.00
+($108.00 -$112.53) * 200 shares

Total Net Profit: +$412.66
= (+$1,136.66 options income +$182.00 dividend income -$906.00 capital appreciation)
 
Absolute Return-on-Investment: +1.9%
= +$412.66/$21,369.34
Annualized Return-on-Investment: +32.0%
= (+$412.66/$21,369.34) *(365/22 days)

Friday, November 25, 2022

Established Covered Calls in Kohl's Corporation

Late this afternoon, a Covered Calls position was established in Kohl's Corporation (ticker KSS) when the Covered Calls Advisor's buy/write limit order for the December 16th, 2022 $30.00s executed at a net debit price of $29.40.  Four hundred KSS shares were purchased at $31.98 and 4 December 16th, 2022 $30.00 Calls were sold at $2.58 per share.  So, the corresponding time value (aka extrinsic value) was $.60 per share = [$2.58 Call options premium - ($31.98 stock purchase price - $30.00 strike price)].  Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Call position was established--the Delta was 71.4, which closely approximates the probability that the Call options will be in-the-money on the options expiration date.  In addition, the Implied Volatility of the Calls was 48.0 when the position was established which, as desired, was above the VIX which was at 20.5. 

Kohl's goes ex-dividend at $.50 per share (6.3% annualized dividend yield at the current stock price) on December 6th, 2022, so this dividend is included in the potential return-on-investment results shown below.  There is no earnings report prior to the options expiration date.

Two potential return-on-investment results for this Kohl's Covered Calls position are: (a) +2.0% absolute return (equivalent to +67.3% annualized return for the next 11 days) if the stock is assigned early [i.e. on December 5th which is the last trading day prior to the December 6th ex-dividend date]; OR (b) +3.7% absolute return (equivalent to +61.9% annualized return over the next 22 days) if the stock is assigned on its December 16th, 2022 options expiration date. 

Kohl's Corporation (KSS) -- New Covered Calls Position
The simultaneous buy/write transactions was as follows:
11/25/2022 Bought 400 shares of Kohl's Corporation stock @ $31.98 per share 
11/25/2022 Sold 4 Kohl's Dec. 16th, 2022 $30.00 Call options @ $2.58 per share
12/6/2022 Upcoming ex-dividend at $.50 per share

The overall performance results (including commissions) would be as follows:
Covered Calls Net Investment: $11,761.34
= ($31.98 - $2.58) * 400 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,030.66
= ($2.58 * 400 shares) - $1.34 commission
(b) Dividend Income (If Kohl's stock assigned on the Dec. 6th ex-dividend date): $0.00
(b) Dividend Income (If Kohl's stock assigned on the December 16th options expiration date): +$200.00
= $.50 dividend per share x 400 shares
(c) Capital Appreciation (If Kohl's stock assigned on the 12/6/2022 ex-dividend date): -$792.00
= ($30.00 - $31.98) * 400 shares
(c) Capital Appreciation (If KSS stock is above $30.00 strike price and therefore assigned at the December 16th expiration): -$792.00
= ($30.00 - $31.98) * 400 shares


1. Potential Net Profit (If Kohl's shares assigned early on 12/5/2022, the day prior to the December 6th ex-dividend date): +$238.66
= (+$1,030.66 options income +$0.00 dividend income - $792.00 capital appreciation)
2. Potential Net Profit (If Kohl's stock price is above $30.00 strike price at the Dec.16th options expiration): +$438.66
= (+$1,030.66 options income +$200.00 dividend income - $792.00 capital appreciation)

1. Absolute Return-on-Investment (If Kohl's shares assigned on 12/5/2022, the day prior to the December 6th, 2022 ex-dividend date): +2.0%
= +$238.66/$11,761.34
Equivalent Annualized Return-on-Investment (If assigned early on day prior to ex-div date): +67.3%
= (+$238.66/$11,761.34 ) * (365/11 days)
2. Absolute Return-on-Investment (If KSS share price is above $30.00 strike price at the December 16th options expiration): +3.7%
= +$438.66/$11,761.34
Equivalent Annualized Return-on-Investment (If Kohl's shares assigned on the 12/16/2022 options expiration date): +61.9%
= (+$438.66/$11,761.34) * (365/22 days)

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  As shown below, all nine criteria are achieved for this Kohl's Corporation Covered Calls position.