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Wednesday, December 6, 2017

Established Covered Calls Position in Las Vegas Sands Corp.

Today, a Covered Calls position was established in Las Vegas Sands Corp. (ticker LVS) for the January 19th, 2018 expiration and at the $67.50 strike price.   Given the Covered Calls Advisor's current Overall Market Meter sentiment of Neutral, a slightly in-the-money position was established.

The Implied Volatility of the Jan 19th $67.50 Call options was 21.9 and the Open Interest was 2,141 contracts today when this position was established.  In addition, there is an upcoming ex-dividend of $.73 on December 20th which is included in the detailed analysis below.

This morning, the Covered Calls Advisor ran screens using my six favorite customized screeners [Earnings Surprise, Jeff #1, Base Hit, Reinvestment Moats, QVG (Quality, Value, and Growth), and Margin of Safety] via the Old School Value site.  There are 10 companies that appeared on more than one screen result and that also (1) have good options liquidity for January 19th near-the-money strike prices, and (2) are either Buy or Outperform rated on average by Analysts surveyed by Reuters:

Of these 10 stocks, the Covered Calls Advisor chose to invest today in Las Vegas Sands because:
  1. LVS is also buy-rated by Schwab Equity Ratings, Argus, and CFRA(i.e. S&P's Global Market Intelligence); and 
  2. It has a very attractive annualized return-on-investment potential, namely:
  • A +1.48% absolute return (equivalent to +38.7% annualized return for the next 14 days) if the stock is assigned early (business day prior to the December 20th ex-div date); OR  
  • A +2.58% absolute return (equivalent to +20.9% annualized return over the next 45 days) if the stock is assigned on the January 19th, 2017 options expiration date.


Las Vegas Sands Corp (LVS) -- New Covered Calls Position
As shown in the chart below, a Covered Calls positions was established since the potential return-on-investment results are preferable in comparison to its synthetically equivalent short Cash-Secured Put options position in this instance:
You will notice in the chart above (click on chart to view a larger and more legible version) that there is a column titled "Intervening Earnings" and "NO*" with an indication that "If 'YES' then consider avoiding position".  Las Vegas Sands next quarterly earnings report is after the January 19, 2018 options expiration date.
Also in the chart above is a column called "Intervening Ex-Div" and "YES" with an indication that "If 'YES' then complete Dividend Capture Strategy spreadsheet".  This means that LVS will go ex-dividend sometime between today and the options expiration date and the Covered Calls Advisor's Dividend Capture Strategy spreadsheet should be completed to determine if the pre-determined criteria are met to justify establishing a Covered Calls position for Las Vegas Sands.

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 eleven criteria are achieved for this Las Vegas Sands position.

For this position, the downside 'breakeven price' at expiration is at $65.77 ($68.91 - $2.41 -$.73), which is 4.6% below the current market price of $68.91. 

The 'crossover price' at expiration is $70.59 ($68.91 + $2.41 -$.73).  This is the price above which it would have been more profitable to simply buy-and-hold LVS stock until January 19th (the January monthly options expiration date) rather than establishing this Covered Calls position.

If you have any questions or comments to share, please click on the Comments link below.  Thank you.

2 comments:

  1. For your CSP numbers, how do you get $0.39 for the time value? I believe the CSP is OTM, not ITM, as the strike is below the current price. Therefore there is no intrinsic value.

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  2. Good catch Mark. I've now corrected the chart. Thank you.

    ReplyDelete