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Saturday, January 19, 2019

January 18th, 2019 Options Expiration Results

The Covered Calls Advisor Portfolio had eleven positions with January 18th, 2019 options expirations.  Nine of these positions were closed (i.e. completed) so far this calendar year by yesterday's January monthly options expiration date:
  • Seven positions (Anadarko Petroleum Corp., Bank of America Corp., Commercial Metals Co., Fluor Corp., JPMorgan Chase & Co. (2 positions), and Occidental Petroleum Corp.) closed in-the-money at the January 18th, 2019 options expiration, so those shares were assigned (sold) at their respective strike prices. 
  • One position with a Jan 18th expiration (Caterpillar Inc.) was assigned early.  The results of this position were posted previously here.
  • One position (U.S. Steel) was slightly out-of-the-money and the position was closed during market trading on the Jan 18th options expiration date. 
  • Two positions (Alibaba Group Holding and Alphabet Inc.) were rolled out from Jan 18th expirations to Feb 15th expirations.

Just as for calendar year 2018 (link), overall return-on-investment (roi) results will be determined for calendar year 2019 (Jan 1st through Dec 31st).  The roi calculations for each of the nine closed positions so far this year are detailed below.  A summary of roi results for these nine closed positions is as follows:
  • Anadarko Petroleum Corp.:  +10.9% absolute return (+220.2% annualized return) in 18 days
  • Bank of America Corp.:  +7.3% absolute return (+148.4% annualized return) in 18 days 
  • Caterpillar Inc.:  +2.3% absolute return (+46.2% annualized return) in 18 days
  • Commercial Metals Co.:  +1.8% absolute return (+64.7% annualized return) in 10 days
  • Fluor Corp.:  +10.5% absolute return (+213.7% annualized return) in 18 days 
  • JPMorgan Chase & Co. position #1:  +5.0% absolute return (+101.3% annualized return) in 18 days
  • JPMorgan Chase & Co. position #2:  +4.9% absolute return (+99.7% annualized return) in 18 days
  • Occidental Petrolem Corp.:  +7.6% absolute return (+153.2% annualized return) in 18 days 
  • U.S. Steel Corp.:  +18.0% absolute return (+365.6% annualized return) in 18 days
The cash now available in the Covered Calls Advisor Portfolio from the closing of these nine positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new position(s) established with this available cash will be posted on this site on the same day the transactions occur.  The majority of 4th quarter earnings reports will be issued between now and the February monthly options expiration, so most new positions will be established in companies in order to avoid their earnings release dates and their associated uncertainties.   

The remaining two positions (Alibaba Position #1 and Alphabet Inc.) were in-the-money yesterday.  Since these are core positions in the Covered Calls Advisor Portfolio, both positions were continued by rolling them out and up ("out" to the Feb 15th expiration date and "up" to a higher strike price) during the final hour of trading yesterday.  These transactions were done close to market close to squeeze out almost all of the time value remaining in their January 18th Call options prior to continuing these positions by rolling out to the February 15th options expirations.  These two positions are included in the current Covered Calls Advisor Portfolio shown in the right sidebar of this blog along with the six other February 15th, 2019 Covered Calls positions (Alibaba Group Holding position #2, Blackstone Group L.P., CVS Health Corp. position #1, CVS Health Corp. position #2, Lam Research Corp., and Lowes Companies Inc.) currently held in the Covered Calls Advisor Portfolio.  The details for these two positions year-to-date are:

1.  Alibaba Position #1 (BABA) -- Continuing Covered Calls Position
The transactions were as follows:
01/01/2019 200 BABA shares owned at $137.07 per share
01/07/2019 2 Jan 18, 2019 $145.00 short Call options sold at $2.09 per share
01/18/2019 Bought-to-Close 2 Jan 18th $145.00 Calls @ $11.22
01/18/2019 Sold-to-Open 2 Feb 15th, 2019 $155.00 Calls @ $7.47

2.  Alphabet Inc. (GOOGL) -- Continuing Covered Calls Position
The transactions were as follows:
01/01/2019 100 GOOGL shares owned at $1,044.96 per share
01/01/2019 1 Jan 18th, 2019 $1,085.00 short Call option valued at $19.80 per share
01/18/2019  Bought-to-Close 1 Jan 18th $1,085.00 Call option @ $19.25
01/18/2019 Sold-to-Open 1 Feb 15th, 2019 $1,095.00 Call @ $41.70


------------------

The detailed transactions and results for the nine 2019 year-to-date closed positions are as follows:

1.  Anadarko Petroleum Corp. (APC) -- Covered Calls Position Closed
The transactions were as follows:
01/01/2019 300 APC shares owned at $43.84 per share
01/07/2019 Sold 3 APC Jan 18, 2019 $47.50 Call options at $1.14 per share
01/18/2019 3 APC Call options closed in-the-money and stock assigned (i.e. sold) at $47.50 strike price
Note: Closing price of APC stock was $48.67 upon Jan 18th options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $13,152.00
= $43.84 * 300 shares

Net Profit Components:
(a) Option Income: +$335.04
= ($1.14 * 300 shares) - $6.96 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (APC was above $47.50 strike price at Jan 18th expiration): +$1,093.05
= ($47.50 -$43.84) * 300 shares - $4.95 commission

Total Net Profit (APC shares assigned at expiration): +$1,428.09
= (+$335.04 options income +$0.00 dividend income +$1,093.05 capital appreciation)

Absolute Return: +10.9%
= +$1,428.09/$13,152.00
Equivalent Annualized Return: +220.2%
= (+$1,428.09/$13,152.00)*(365/18 days)


2.  Bank of America Corp. (BAC) -- Covered Calls Position Closed
The transactions were as follows:
01/01/2019 1,000 BAC shares owned at $24.64 per share
01/04/2019 Sold 10 BAC Jan 18, 2019 $26.00 Call options at $0.46 per share
Note: price of BAC shares was $25.51 when these Call options were sold
01/18/2019 10 BAC Call options closed in-the-money and stock assigned (i.e. sold) at $26.00 strike price
Note: Closing price of BAC stock was $29.30 upon Jan 18th options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $24,640.00
= $24.64 * 1,000 shares

Net Profit Components:
(a) Option Income: +$448.35
= ($.46 * 1,000 shares) - $11.65 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (BAC was above $26.00 strike price at Jan 18th expiration): +$1,355.05
= ($26.00 -$24.64) * 1,000 shares - $4.95 commission

Total Net Profit (BAC shares assigned at expiration): +$1,803.40
= (+$448.35 options income +$0.00 dividend income +$1,355.05 capital appreciation)

Absolute Return: +7.3%
= +$1,803.40/$24,640.00
Equivalent Annualized Return: +148.4%
= (+$1,428.09/$12,810.00)*(365/18 days)


3.  Caterpillar Inc. (CAT) -- Covered Calls Position Closed by Early Assignment
The transactions were as follows:
01/01/2019 100 CAT shares owned at $127.07 per share
01/01/2019 Owned 1 short CAT Jan 18, 2019 $115.00 Call option at $14.68 per share
01/18/2019 1 CAT Call option exercised early so stock assigned (i.e. sold) at $115.00 strike price

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $11,239.00
= ($127.07 - $14.68) * 100 shares

Net Profit Components:
(a) Option Income: +$1,468.00
= ($14.68 * 100 shares) 
(b) Dividend Income: +$0.00
(c) Capital Appreciation (APC was above $47.50 strike price at Jan 18th expiration): -$1,211.95
= ($115.00 -$127.07) * 100 shares - $4.95 commission

Total Net Profit: +$256.05
= (+$1,468.00 options income +$0.00 dividend income -$1,211.95 capital appreciation)

Absolute Return: +2.3%
= +$256.05/$11,239.00
Equivalent Annualized Return: +46.2%
= (+$256.05/$11,239.00)*(365/18 days)


4.  Commercial Metals Co. (CMC) -- Covered Calls Position Closed
The transactions were:
01/09/2019 Bought 300 shares of Commercial Metals Co. stock @ $15.83 per share 
01/09/2019 Sold 3 CMC Jan 18th, 2019 $15.00 Call options @ $.99 per share
01/14/2019 Ex-dividend of $36.00 ($.12 per share x 300 shares)
01/18/2019 2 CMC Call options closed in-the-money and stock assigned (i.e. sold) at $15.00 strike price
Note: Closing price of CMC stock was $17.00 upon Jan 18th options expiration.

The overall performance result (including commissions) was:
Covered Calls Cost Basis: $4,458.96
= ($15.83 - $.99)* 300 shares + $6.96 commissions

Net Profit Components:
(a) Options Income: +$297.00
= ($.99* 300 shares)
(b) Dividend Income: +$36.00
= $.12 per share * 300 shares 
(c) Capital Appreciation (Commercial Metals Co. stock was above $15.00 strike price at Jan 18th expiration): -$253.95
= ($15.00 -$15.83)* 300 shares - $4.95 commission

Total Net Profit (CMC stock assigned at expiration): +$79.05
= (+$297.00 options income +$36.00 dividend income -$253.95 capital appreciation)

Absolute Return: +1.8%
= +$79.05/$4,458.96
Equivalent Annualized Return: +64.7%
= (+$79.05/$4,458.96)*(365/10 days)



5.  Fluor Corp. (FLR) -- Covered Calls Position Closed
The transactions were as follows:
01/01/2019 200 FLR shares owned at $32.20 per share
01/04/2019 Sold 2 FLR Jan 18, 2019 $35.00 Call options at $0.65 per share
Note: price of FLR shares was $33.96 when these Call options were sold
01/18/2019 2 FLR Call options closed in-the-money and stock assigned (i.e. sold) at $35.00 strike price
Note: Closing price of FLR stock was $38.53 upon Jan 18th options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $6,440.00
= $32.20 * 200 shares

Net Profit Components:
(a) Option Income: +$123.71
= ($.65 * 200 shares) - $6.29 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (FLR was above $35.00 strike price at Jan 18th expiration): +$555.05
= ($35.00 -$32.20) * 200 shares - $4.95 commission

Total Net Profit (If assigned at expiration): +$678.76
= (+$123.71 options income +$0.00 dividend income +$555.05 capital appreciation)

Absolute Return: +10.5%
= +$678.76/$6,440.00
Equivalent Annualized Return: +213.7%
= (+$678.76/$6,440.00)*(365/18 days)


6.  JPMorgan Chase & Co. (JPM) Position #1 -- Covered Calls Position Closed
The transactions were as follows:
01/01/2019 200 JPM shares owned at $97.62 per share
01/04/2019 Sold 2 JPM Jan 18, 2019 $100.00 Call options at $2.52 per share
Note: price of JPM stock was $100.08 when Call options were sold
01/18/2019 2 JPM Call options exercised early so stock assigned (i.e. sold) at $100.00 strike price
Note: price of JPM stock was $104.59 at Jan 18th options expiration

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $19,524.00
= $97.62 * 200 shares

Net Profit Components:
(a) Option Income: +$504.00
= ($2.52 * 200 shares) 
(b) Dividend Income: +$0.00
(c) Capital Appreciation (JPM was above $100.00 strike price at Jan 18th expiration): +$471.05
= ($100.00 -$97.62) * 200 shares - $4.95 commission

Total Net Profit: +$975.05
= (+$504.00 options income +$0.00 dividend income +$471.05 capital appreciation)

Absolute Return: +5.0%
= +$975.05/$19,524.00
Equivalent Annualized Return: +101.3%
= (+$975.05/$19,524.00)*(365/18 days)

7.  JPMorgan Chase & Co. (JPM) Position #2 (JPM) -- Covered Calls Position Closed
The transactions were as follows:
01/01/2019 300 JPM shares owned at $97.62 per share
01/01/2019 Owned 3 short JPM Jan 18, 2019 $100.00 Call options at $1.58 per share
01/03/2019 Ex-dividend of $240.00 ($.80 per share x 300 shares) 
01/18/2019 3 JPM Call options closed in-the-money and stock assigned (i.e. sold) at $100.00 strike price
Note: Closing price of JPM stock was $104.59 upon Jan 18th options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $28,812.00
= (97.62 - $1.58) * 300 shares

Net Profit Components:
(a) Option Income: +$467.04
= ($1.58 * 300 shares) - $6.96 commissions
(b) Dividend Income: +$240.00 ex-dividend = $.80 per share x 300 shares
(c) Capital Appreciation (JPM was above $100.00 strike price at Jan 18th expiration): +$709.05
= ($100.00 -$97.62) * 300 shares - $4.95 commission

Total Net Profit (300 JPM shares assigned at expiration): +$1,416.09
= (+$467.04 options income +$240.00 dividend income +$709.05 capital appreciation)

Absolute Return: +4.9%
= +$1,416.09/$28,812.00
Equivalent Annualized Return: +99.7%
= (+$1,428.09/$13,152.00)*(365/18 days)


8.  Occidental Petroleum Corp. (OXY) -- Covered Calls Position Closed
The transactions were as follows:
01/01/2019 200 OXY shares owned at $61.38 per share
01/01/2019 Owned 2 short OXY Jan 18, 2019 $65.00 Call options at $0.97 per share

01/18/2019 2 OXY Call options closed in-the-money and stock assigned (i.e. sold) at $65.00 strike price
Note: Closing price of OXY stock was $67.03 upon Jan 18th options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $12,082.00
= ($61.38 - $.97) * 200 shares

Net Profit Components:
(a) Option Income: +$194.00
= ($.97 * 200 shares) 
(b) Dividend Income: +$0.00
(c) Capital Appreciation (OXY was above $65.00 strike price at Jan 18th expiration): +$719.05
= ($65.00 -$61.38) * 200 shares - $4.95 commission

Total Net Profit (OXY shares assigned at expiration): +$913.05
= (+$194.00 options income +$0.00 dividend income +$719.05 capital appreciation)

Absolute Return: +7.6%
= +$913.05/$12,082.00
Equivalent Annualized Return: +153.2%
= (+$913.05/$12,082.00)*(365/18 days)


9.  U.S. Steel Corp. (X) -- Covered Calls Position Closed
The transactions were as follows:
01/01/2019 400 X shares owned at $18.24 per share
01/04/2019 Sold 4 X Jan 18, 2019 $22.00 Call option at $.22 per share
Note: price of U.S. Steel stock was $20.29 when Calls were sold
01/18/2019 Bought-to-Close 4 X Jan 18th $22.00 Call options @ $.03 per share
01/18/2019 Sold 400 U.S. Steel shares @ $21.37

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $7,296.00
= $18.24 * 400 shares

Net Profit Components:
(a) Option Income: +$68.37
= ($.22 - $.03) * 400 shares - $7.63 commissions 
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$1,247.05
= ($21.37 -$18.24) * 400 shares - $4.95 commission

Total Net Profit: +$1,315.42
= (+$68.37 options income +$0.00 dividend income +$1,247.05 capital appreciation)

Absolute Return: +18.0%
= +$1,315.42/$7,296.00
Equivalent Annualized Return: +365.6%
= (+$1,315.42/$7,296.00)*(365/18 days)

Friday, January 18, 2019

Early Assignment of Caterpillar Inc. Covered Calls Position

Early this morning, the Covered Calls Advisor received notification from my broker (Schwab) that the Caterpillar Inc. (ticker symbol CAT) February 15th, 2019 Call option was exercised early, so the 100 shares of Caterpillar stock in the Covered Calls Advisor Portfolio was assigned (i.e. sold) at the $115.00 strike price. 

Caterpillar stock was $134.54 at yesterday's market close.  The Covered Calls Advisor is pleased that the Call option owner decided to exercise their option early (one day prior to CAT's ex-dividend date since there was still $.76 time value [$20.30 midpoint of Call option bid/ask price - ($134.54 current stock price - $115.00 strike price)] remaining in these Call options.  The Call owner was willing to immediately forego the remaining $0.76 per share (by exercising their option to buy the shares) in order to capture today's $.86 per share ex-dividend.  The per share stock price had increased from $121.68 when this Caterpillar position was originally established on December 22nd, 2018 to $134.54 (17.0% in-the-money) at yesterday's market close.

As detailed below, the actual return-on-investment result achieved for this Caterpillar position a +4.6% absolute return (equivalent to +62.4% annualized return) for the 27 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, the transactions details of which will be posted on this blog site the same day they occur.


Caterpillar Inc. (CAT) -- New Covered Calls Position
The transactions were:
12/22/2018 Bought 100 Caterpillar shares @ $121.68
12/22/2018 Sold 1 CAT 2/15/2019 $115.00 Call option @ $11.82
Note: a simultaneous buy/write transaction was executed.
01/18/2019 Early assignment of 1 Call option, so 100 shares of CAT stock sold at $115.00 strike price

The overall performance result (including commissions) for this Caterpillar Covered Calls position was as follows:
Covered Calls Cost Basis: $10,990.95
= ($121.68 - $11.82) *100 + $4.95 commission

Net Profit Components:
(a) Options Income: +$1,179.99
= ($11.82*100 shares) - $2.01 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (CAT assigned at $115.00 strike price at options expiration): -$672.95
+($115.00-$121.68)*100 shares - $4.95 commissions

Total Net Profit: +$507.04
= (+$1,179.99 Call options income +$0.00 dividend income -$672.95 capital appreciation)

Absolute Return: +4.6%
= +$507.04/$10,990.95
Annualized Return: +62.4%
= (+$507.04/$10,990.95)*(365/27 days)

Thursday, January 17, 2019

Covered Calls Established in Lowes Companies Inc.

Today, a Covered Calls position was established in Lowes (ticker symbol LOW) with a Februrary 15, 2019 expiration and at the $90.00 strike price.  This position has an expected upcoming quarterly ex-dividend next Tuesday (Jan. 22nd) of $.48 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 Feb 15th, 2019 options expiration date.  Quarterly earnings will be reported after the Feb 15th options expiration date.  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 +1.7% absolute return (equivalent to +126.1% annualized return for the next 5 days) in the unlikely event that the stock is assigned early (business day prior to January 22nd ex-date); OR +2.3% absolute return (equivalent to +27.6% annualized return over the next 30 days) if the stock is assigned on the February 15th options expiration date.


Lowes Companies Inc. (LOW) -- New Covered Calls Position
Although very unlikely, if the current time value (i.e. extrinsic value) of $1.56 = [$3.36 options premium - ($91.80 stock price - $90.00 strike price)] remaining in the two short Call options decays substantially (down to about $.15 or less) by Jan 21st (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 200 Lowes shares away to capture the dividend payment.

The transactions were:
01/17/2019 Bought 200 Lowes shares @ $91.80
01/17/2019 Sold 2 LOW 2/15/2019 $90.00 Call options @ $3.36
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was 467 contracts and the Implied Volatility was 25.4 when this transaction was executed.
01/22/2019 Upcoming quarterly ex-dividend of $.48 per share

Two possible overall performance results (including commissions) for this Lowes Covered Calls position are as follows:
Covered Calls Cost Basis: $17,692.95
= ($91.80 - $3.36) *200 + $4.95 commission

Net Profit Components:
(a) Options Income: +$670.66
= ($3.36*200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on Jan 21st, the business day prior to Jan 22nd ex-div date): +$0.00; or
(b) Dividend Income (If Lowes shares assigned at Feb 15th, 2018 expiration): +$96.00
= ($.48 dividend per share x 200 shares)
(c) Capital Appreciation (If LOW assigned early on Jan 21st): -$364.95
+($90.00-$91.80)*200 shares - $4.95 commissions; or
(c) Capital Appreciation (If LOW assigned at $90.00 strike price at options expiration): -$364.95
+($90.00-$91.80)*200 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Jan 21st (business day prior to Jan 22nd ex-dividend date)]: +$305.71
= (+$670.66 +$0.00 -$364.95); or
2. Total Net Profit (If Lowes shares assigned at $90.00 at Feb 15, 2019 expiration): +$401.71
= (+$670.66 +$96.00 -$364.95)

1. Absolute Return [If LOW option exercised on Jan 21st (business day prior to ex-dividend date)]: +1.7%
= +$305.71/$17,692.95
Annualized Return (If option exercised early): +126.1%
= (+$305.71/$17,692.95)*(365/5 days); or
2. Absolute Return (If Lowes shares assigned at $90.00 at Feb 15, 2019 expiration): +2.3%
= +$401.71/$17,692.95
Annualized Return (If LOW stock assigned at $67.50 at Dec 21, 2018 expiration): +27.6%
= (+$401.71/$17,692.95)*(365/30 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $90.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $87.96 ($91.80 -$3.36 -$.48) provides 4.2% 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, all of the eleven criteria are achieved for this Lowes Covered Calls position.