Today, two new positions were established in Transocean Inc. (Ticker Symbol RIG). Both positions were established at the $48.00 strike price. Today's 2nd quarter earnings release was in-line for both revenue and earnings. These investments are made primarily because Transocean has an attractive valuation, but today's quarterly report also revealed this trifecta of encouraging guidance:
- Increasing demand for its services as demonstrated by a 19% increase in its year-over-year backlog.
- Prices Increasing. As also signaled in earlier earnings reports by RIG's competitors (Ensco and Noble Corp), recent contract extensions for its rigs have been signed at significant increases compared with current pricing.
- Strong internal cost controls. The new CEO is committed to improved operating margins, and implementation of his expense control process has begun.
08/08/2013 Sold 2 RIG Sep2013 $48.00 Call Options @ $1.65
08/21/2013 Ex-dividend of $.56 per share
If Dividend Capture: +2.8% absolute return (equivalent to +22.5% annualized return) if the stock is assigned at Sep 2013 expiration on September 20th
As is often the case, early assignment provides a higher annualized return, so this is the Covered Calls Advisor's preferred outcome; but either outcome would provide a very good return. These returns will be achieved as long as the stock stays above the $48.00 strike price at assignment (1.6% of downside protection). Alternatively, if the stock declines below the strike price, the breakeven price of $47.11 ($48.76-$1.65) provides 3.4% downside breakeven protection from the original $48.76 purchase price.
In summary, this covered calls investment provides the potential for nice absolute and annualized ROIs for a six week covered calls trade.
The Covered Calls Advisor has established a set of criteria to identify situations that are advantageous for establishing covered calls positions that might achieve good returns from either an early assignment or from assignment at options expiration. There are a very limited number of these "Early Assignment or Dividend Capture" covered call opportunites that meet the criteria below, but if/when we find them we should take full advantage.
As shown below, this Transocean position satisfies ALL of these criteria:
Stock Purchase Cost: $9,760.95
= ($48.76*200+$8.95 commission)
(a) Options Income: +$319.55
= ($1.65*200 shares) - $10.45 commissions
(b) Dividend Income (If option exercised early on day prior to Aug 21st ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Sep2013 expiration): +$112.00
= ($.56 dividend per share x 200 shares);