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Wednesday, January 31, 2018

Covered Calls Established for Blackstone Group LP and Marathon Petroleum Corp.

Today, Covered Calls positions were established with Blackstone Group LP (ticker BX) for the February 16th, 2018 options expiration and Marathon Petroleum Corp. (ticker MPC) for the March 16th expiration.  Given the Covered Calls Advisor's current cautious overall market outlook, in-the-money Covered Calls positions were established for both positions.  Also, there are upcoming ex-dividends prior to the options expiration dates for both companies, which is taken into consideration in the details presented below.

As detailed below, some potential return-on-investment results are:
  • For Blackstone Group: A +0.7% absolute return (equivalent to +32.8% annualized return for the next 9 days) if the stock is assigned early (business day prior to the February 8th ex-div date); OR A +2.1% absolute return (equivalent to +44.5% annualized return over the next 17 days) if the stock is assigned on the Feb 16th, 2018 options expiration date.
  • For Marathon Petroleum Corp.: A +2.9% absolute return (equivalent to +53.6% annualized return for the next 21 days) if the stock is assigned early (business day prior to the February 20th ex-div date); OR A +3.6% absolute return (equivalent to +29.5% annualized return over the next 45 days) if the stock is assigned on the March 16th, 2018 options expiration date.
These results for both companies would well exceed the Covered Calls Advisor's target for a greater than +20% potential annualized return-on-investment.


As shown in the chart below, Covered Calls positions were established in both Blackstone Group and Marathon Petroleum since their potential returns are preferable in comparison to their synthetically equivalent short 100% Cash-Secured Put options positions:
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 "YES*" with an indication that "If 'YES' then consider avoiding position".  The next earnings report for both companies is tomorrow morning.  Needless to say, I am expecting both companies to exceed analysts' earnings expectations and decided to take advantage of the related implied volatility spike in the options for both companies.  Blackstone is currently the highest rated financial sector stock in Credit Suisse's coverage universe and they expect an earnings beat tomorrow.  For Marathon, the surprise announcement two days ago of a 15% increase in the quarterly dividend bodes well for both tomorrow's earnings report and for guidance for 2018; yet surprisingly, the stock has actually declined since MPC's announcement.  In addition, as presented by Raymond James, most domestic refiners (including MPC) will have a substantial benefit in 2018 from the tax reform legislation.       

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 both Blackstone Group and Marathon Petroleum will go ex-dividend prior to their options expiration dates and therefore the Covered Calls Advisor's Dividend Capture Strategy spreadsheet should be completed to determine if the pre-determined criteria are met to justify establishing these Covered Calls positions.

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, nine of eleven criteria are achieved for the Blackstone Covered Calls position and eight of eleven for Marathon Petroleum.

Tuesday, January 30, 2018

Established Covered Calls in Intel Corporation

Today, a Covered Calls position was established in Intel Corporation (ticker symbol INTC) with a February 16th, 2018 expiration and at the $47.50 strike price.  This position has an upcoming quarterly ex-dividend on Feb 6th of $.30 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 16th, 2018 options expiration date.  Quarterly earnings were just reported last week, so the next earnings report will not be until late April.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Neutral, a slightly in-the-money Covered Calls position was established. 

As detailed below, a potential return-on-investment result is +0.6% absolute return (equivalent to +32.1% annualized return for the next 7 days) if the stock is assigned early (business day prior to February 6th ex-date); OR +1.3% absolute return (equivalent to +25.4% annualized return over the next 18 days) if the stock is assigned on the February 16th options expiration date.


Intel Corporation (INTC) -- New Covered Calls Position
An ex-dividend occurs on February 6th for $.30 per share.  Although unlikely, if the current time value (i.e. extrinsic value) of $.31 [$2.04 option premium - ($49.23 stock price - $47.50 strike price)] remaining in the short call options decays substantially (down to about $.10 or less) by Feb 5th (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 400 Intel shares away to capture the dividend payment.

The transactions were:
01/30/2018 Bought 400 Intel shares @ $49.23
01/30/2018 Sold 4 Intel 02/16/2018 $47.50 Call options @ $2.04
Note: a simultaneous buy/write transaction was executed.
02/06/2018 Upcoming quarterly ex-dividend of $.30 per share

Two possible overall performance results (including commissions) for this Intel Covered Calls position are as follows:
Covered Calls Cost Basis: $18,880.95
= ($49.23 - $2.04) *400 + $4.95 commission

Net Profit Components:
(a) Options Income: +$813.32
= ($2.04*400 shares) - $2.68 commissions
(b) Dividend Income (If option exercised early on Feb 5th, the business day prior to Feb 6th ex-div date): +$0.00; or
(b) Dividend Income (If INTC assigned at Feb 16th, 2018 expiration): +$120.00
= ($.30 dividend per share x 400 shares)
(c) Capital Appreciation (If INTC assigned early on Feb 5th): -$696.95
+($47.50-$49.23)*400 shares - $4.95 commissions; or
(c) Capital Appreciation (If INTC assigned at $47.50 strike price at options expiration): -$696.95
+($47.50-$49.23)*400 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Feb 5th (business day prior to February 6th ex-dividend date)]: +$116.37
= (+$813.32 +$0.00 -$696.95); or
2. Total Net Profit (If Intel assigned at $47.50 at Feb 16, 2018 expiration): +$236.37
= (+$813.32 +$120.00 -$696.95)

1. Absolute Return [If option exercised on Feb 5th (business day prior to ex-dividend date)]: +0.6%
= +$116.37/$18,880.95
Annualized Return (If option exercised early): +32.1%
= (+$116.37/$18,880.95)*(365/7 days); or
2. Absolute Return (If Intel assigned at $47.50 at Feb 16, 2018 expiration): +1.3%
= +$236.37/$18,880.95
Annualized Return (If Intel assigned at $47.50 at Feb2018 expiration): +25.4%
= (+$236.37/$18,880.95)*(365/18 days)

Either outcome provides a good return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $47.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $46.89 ($49.23 -$2.04 -$.30) provides 4.8% 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 Intel position.

Monday, January 29, 2018

Established Covered Call in Caterpillar Inc.

Today, a new Covered Call position was established in Caterpillar Inc. (ticker CAT) with a February 16th, 2018 options expiration date.  One hundred shares of Caterpillar stock was purchased at $160.12 and one moderately in-the-money Feb 16th, 2018 $157.50 Call option was sold for $5.99 per share.   

There is no earnings report prior to the options expiration date.  The 4th quarter 2017 earnings were reported last week and they exceeded analysts' expectaions for the 7th consecutive quarter. 

Prior to this investment, consideration was given to CAT's ratings from five different services.  Schwab, Credit Suisse, Argus, and CFRA now give CAT their highest rating available.  Morningstar is on the polar opposite extreme, giving CAT their lowest possible rating, but I disregarded their analysis since they have had this rating for CAT in place for the entire past year and CAT's stock price has increased by over 150% for that time period.   

As detailed below, a potential return-on-investment result is +2.2% absolute return in 19 days (equivalent to a +41.4% annualized return-on-investment).  This attractive return is a direct result of the relatively high 31.4 implied volatility when this Call option was sold.

Today's transactions and a potential result are detailed below:

1. Caterpillar Inc. (CAT) -- New Covered Call Position
The transaction was as follows:
01/29/2018 Bought 100 shares of Caterpillar stock @ $160.12 per share 
01/29/2018 Sold 1 Caterpillar February 16th, 2018 $157.50 Call option @ $5.99 per share
Note: this was a simultaneous Buy/Write transaction

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $15,418.62
= ($160.12 - $5.99)* 100 shares + $5.62 commission

Net Profit Components:
(a) Options Income: +$599.00
= ($5.99* 100 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If CAT stock is above $157.50 strike price at Feb 16th expiration): -$266.95
= ($157.50 -$160.12)* 100 shares - $4.95 commission

Total Net Profit: +$332.05
= (+$599.00 options income +$0.00 dividend income -$266.95 capital appreciation)

Absolute Return: +2.2%
= +$332.05/$15,418.62
Equivalent Annualized Return: +41.4%
= (+$332.05/$15,418.62)*(365/19 days)

The downside 'breakeven price' at expiration is at $154.13 ($160.12 - $5.99), which is 3.7% below the current market price of $160.12.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the February 16th, 2018 options expiration) for this Caterpillar Inc. Covered Call position is 60.6%, so the expected value annualized ROI of this investment (if held until expiration) is +25.1% (+41.4% * 60.6%), a very nice result for this moderately in-the-money Covered Call position.

The 'crossover price' at expiration is $163.49 = $160.12 + [$5.99 - ($160.12 - $157.50)].
This is the price above which it would have been more profitable to simply buy-and-hold Caterpillar stock until the February 16th, 2018 options expiration date rather than establishing this Covered Call position.

Tuesday, January 23, 2018

Established Covered Calls in Delta Air Lines Inc.

Today, a Covered Calls position was established in Delta Air Lines (DAL) for the March 16th, 2018 options expiration date.  Given the Covered Calls Advisor's current neutral overall market outlook, a moderately in-the-money position was established. Also, although the next quarterly ex-dividend has not yet been declared, it is likely that a $.305 ex-dividend will be announced very soon with an ex-dividend date of February 21st likely, and this expectation is included in the calculations below.

Two potential return-on-investment results are (1) a +2.38% absolute return in 28 days (equivalent to a +30.0% annualized return-on-investment) if assigned early on the day prior to the ex-dividend date; or (2) a +2.92% absolute return in 53 days (equivalent to a +20.1% annualized return-on-investment) if assigned at expiration.
Details for the Delta Air Lines position are provided below to explain the position further for those readers interested in understanding the type of thought processes and calculations underlying establishing this Covered Calls position.
 
Delta Air Lines Inc. (DAL) -- New Covered Calls Position
First and foremost, is is essential to invest only in companies that you are bullish about.  Delta meets the Covered Calls Advisor's key quality, value, and growth metrics.  My bullish sentiment is shared by many respected analysts including their highest rating category by Argus, CFRA, and the Average Analysts' Ratings as reported by Reuters.  Delta is one of only 4 companies that have already reported quarterly earnings within the past month and is currently also rated 'Buy' by Reuters.  Of the 18 analysts following Delta and tracked by Reuters, all 18 currently have either a Buy or Outperform rating on Delta.   Also, as shown below, the potential rate-of-return meets the Covered Calls Advisor's desired threshold of +20% annualized return if assigned at expiration.  Also positive is Delta's industry-high annual dividend yield of 2.1%.

Because of Put/Call parity, Covered Calls and Cash-Secured Puts are synthetically equivalent strategies (when done at the same strike price for the same expiration date).  However, subtle and temporary differences often exist, so just prior to executing the transactions, a comparison is made to see which strategy provides a better potential return.  For Delta, the chart below shows that the potential annualized return of +20.1% at expiration for the Covered Calls position is preferable to the +17.6% for a comparable 100% Cash-Secured Puts position in this instance:
 

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".  The "NO" in this case means that Delta does not have a quarterly earnings report prior to the options expiration.

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 Delta will go ex-dividend sometime between today and the March 16th, 2018 options expiration date and the Covered Calls Advisor's Dividend Capture Strategy spreadsheet should be completed to assess whether the pre-determined criteria are met to justify establishing a covered calls position for Delta.  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 Delta Air Lines Inc. position.


The detailed transactions and calculations are as follows:
01/23/2018  Bought 400 Delta Air Lines Inc. shares @ $59.63
01/23/2018 Sold 4 DAL Mar 16, 2018 $57.50 Call options @ $3.48
The Call options Open Interest was 7,772 contracts when this position was established and their Implied Volatility was 25.5
Note: this was a simultaneous buy/write transaction.
02/21/2018 Expected $.305 ex-dividend

Two possible overall performance results (including commissions) would be as follows:
Cost Basis Purchase of 400 shares DAL: $22,067.63
= ($58.63 -$3.48)*400 shares + $7.63 commissions

Net Profit Components:
(a) Options Income: +$1,392.00
= ($3.48*400 shares)
(b) Dividend Income (If Delta shares assigned early on day prior to ex-div date): +0.00; OR
(b) Dividend Income (If Delta shares assigned on Mar 16th options expiration date): $122.00
= $.305 per share x 400 shares
(c) Capital Appreciation (If DAL Calls exercised early or if exercised at Mar 16th options expiration date): -$856.95
= ($57.50-$59.63)*400 shares - $4.95 commissions

Total Net Profit:
(a) If DAL Calls exercised early on day prior to ex-div date: +$535.05
= (+$1,392.00 options income +$0.00 dividends -$856.95 capital appreciation); OR
(b) If Delta shares assigned on Mar 16th options expiration date: +$657.05
= (+$1,392.00 options income +$122.00 dividends -$856.95 capital appreciation)

Potential Return-on-Investment Results:
(a) If Delta shares assigned early on day prior to ex-div date:
Absolute Return: +2.4%
= +$535.05/$22,067.63
Annualized Return: +30.0%
= (+$535.05/$22,067.63)*(365/28 days); OR

(b) If Delta shares assigned on Mar 16th options expiration date:
Absolute Return: +2.92%
= +$657.05/$22,067.63
Annualized Return: +20.1%
= (+$657.05/$22,067.63)*(365/53 days)

The downside 'breakeven price' at expiration is at $54.845 ($58.63 - $3.48 -$.305), which is 6.5% below the current market price of $58.63. 

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the Mar 16th, 2018 options expiration) for this Delta Air Lines covered calls position is 65.4%, so the expected value annualized ROI of this investment (if held until expiration) is +13.1% (+20.1% * 65.4%), a satisfactory result for this moderately in-the-money Covered Calls position.

Saturday, January 20, 2018

January 19th, 2018 Options Expiration Results

The Covered Calls Advisor Portfolio had eight positions with January 19th, 2018 options expirations.  All eight positions closed in-the-money, so the maximum potential return-on-investment result was achieved for every position: 
  • Alibaba Group Holding Ltd.:  +4.5% absolute return (+22.6% annualized return) in 72 days
  • Bristol-Myers Squibb Co.:  +1.3% absolute return (+26.6% annualized return) in 18 days
  • Gap Inc.: +2.2% absolute return (+34.1% annualized return) in 23 days
  • General Motors Co.:  +2.1% absolute return (+14.3% annualized return) in 54 days
  • iShares China Large-Cap ETF: +0.7% absolute return (+19.1% annualized return) in 13 days
  • JPMorgan Chase & Co.:  +1.2% absolute return (+17.9% annualized return) in 25 days
  • Las Vegas Sands Corp.:  +1.5% absolute return (+43.4% annualized return) in 13 days
  • Skyworks Solutions Inc.:  +2.6% absolute return (+21.5% annualized return) in 44 days
Two positions shown above (iShares China Large-Cap ETF and Las Vegas Sands) had early assignments (on the day prior to their ex-dividend date in each instance).  The remaining six Covered Calls positions expired in-the-money on their options expiration date yesterday.

The cash now available in the Covered Calls Advisor Portfolio from the closing of these positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  We have now entered earnings season and 4th quarter earnings reports have just begun.  Most companies will be reporting their results during the next three weeks, so we will be following these reports closely to identify Covered Calls positions to establish for next month's (Feb 16th, 2018) options expiration.  Given the stock market is at record highs and (1) overvalued by historic valuation metrics and (2) overbought by short-term metrics, the Covered Calls Advisor will be very cautious in investing the current mostly cash position in the Portfolio.  As always, any new position(s) established with this available cash will be posted on this site on the same day the transactions occur.  

To demonstrate how return-on-investment results for closed Covered Calls positions are calculated, the details for the first position listed above (Alibaba Group Holding Ltd.) is provided here:


Alibaba Group Holding Ltd. (BABA) -- Covered Calls Position Closed
The transactions were as follows:
11/09/2017 Bought 300 shares of Alibaba stock @ $182.08 per share 
11/09/2017 Sold 3 Alibaba December 15th, 2017 $175.00 Call options @ $11.28 per share
Note: this was a simultaneous Buy/Write transaction
12/15/2017 3 Dec 15th, 2017 Call options expired
12/18/2017 Sold 3 BABA Jan 19th, 2018 $170.00 Call options @ $8.45 per share
Note: the price of Alibaba was $174.15 when these Calls were sold
01/19/2018 3 BABA Jan 19th, 2018 $170.00 Call options expired in-the-money, so 300 shares of BABA owned were sold at the $170.00 strike price, thus closing out this Covered Calls position.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $51,246.96
= ($182.08 - $11.28)* 300 shares + $6.96 commission

Net Profit Components:
(a) Options Income: +$5,912.04
= ($11.28 + $8.45) * 300 shares - $6.96 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (BABA stock was sold at $170.00 strike price on Jan. 19th expiration date): -$3,628.95
= ($170.00 -$182.08)* 300 shares - $4.95 commission

Total Net Profit: +$2,283.09
= (+$5,912.04 options income +$0.00 dividend income -$3,628.95 capital appreciation)

Absolute Return: +4.5%
= +$2,283.09/$51,246.96
Equivalent Annualized Return: +22.6%
= (+$1,155.05/$51,246.96)*(365/72 days)

Your comments or questions related to this post or Covered Calls investing techniques are always welcomed.  To do so, click on the Comments link below.  Thank you.

Wednesday, January 17, 2018

Established Covered Calls Position in Alibaba Group Holding Ltd.

Today, a new Covered Calls positions was established in Alibaba Group Holding Ltd. with a February 16th, 2018 options expiration date.  This is the second Covered Calls position established for the Feb2018 expiration and a moderately conservative in-the-money position was established given the Covered Calls Advisor's current Overall Market Meter sentiment of Neutral and the uncertainty associated with an upcoming quarterly earnings report prior to the February expiration date.

The Covered Calls Advisor intended to continue the pattern of prior months by establishing Covered Calls positions in Alibaba.  There was no readily apparent reason for the $10 decline in the stock price during the past two days -- my best guess is that there is some institutional investors who (after the huge run-up in Alibaba in the past year) are paring back some of their holdings in Alibaba in order to re-balance their portfolios.  So, this advisor decided to take advantage of the current elevated implied volatility of 36.2 in these Call options when this position was established today and not to wait for the Alibaba Jan2018 options to expire before establishing this Feb2018 Covered Calls position.

As detailed below, a potential return-on-investment result is +2.2% absolute return in 31 days (equivalent to a +25.6% annualized return-on-investment).
Today's transactions and potential result are detailed below:

1. Alibaba Group Holding Ltd. (BABA) -- New Covered Calls Position
The transactions were as follows:
01/17/2017 Bought 300 shares of Alibaba stock @ $180.09 per share 
01/17/2017 Sold 3 Alibaba February 16th, 2017 $170.00 Call options @ $13.73 per share
Note: this was a simultaneous Buy/Write transaction

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $49,914.96
= ($180.09 - $13.73)* 300 shares + $6.96 commission

Net Profit Components:
(a) Options Income: +$4,119.00
= ($13.723* 300 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is above $170.00 strike price at Feb 16th expiration): -$3,031.95
= ($170.00 -$180.09)* 300 shares - $4.95 commission

Total Net Profit: +$1,087.05
= (+$4,119.00 options income +$0.00 dividend income -$3,031.95 capital appreciation)

Absolute Return: +2.2%
= +$1,087.05/$49,914.96
Equivalent Annualized Return: +25.6%
= (+$1,087.05/$49,914.96)*(365/31 days)

The downside 'breakeven price' at expiration is at $166.36 ($180.09 - $13.73), which is 7.6% below the current market price of $180.09.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the February 16th, 2017 options expiration) for this Alibaba Covered Calls position is 72.7%, so the expected value annualized ROI of this investment (if held until expiration) is +18.6% (+25.6% * 72.7%), a very nice result for this moderately in-the-money Covered Calls position.

The 'crossover price' at expiration is $183.73 = $180.09 + [$13.73 - ($180.09 - $170.00)]. 
This is the price above which it would have been more profitable to simply buy-and-hold Alibaba stock until the February 16th, 2017 options expiration date rather than establishing this Covered Calls position.

Thursday, January 11, 2018

Established Covered Calls Position in Micron Technology Inc.

Today, a Covered Calls position was established in Micron Technology Inc. (ticker MU) for the February 16th, 2018 expiration and at the $40.00 strike price when the stock price was $42.65. This is the first Covered Calls position established with a Feb2018 options expiration.   Micron's stock has declined since its earnings report on December 19th when it was trading at $44 per share just prior to its earnings release. 

One of the Screeners developed by the Covered Calls Advisor called the 'QVG Model' (note: 'QVG' stands for Quality, Value, and Growth and uses a combination of factors in these categories.  Micron is one of the stocks that was identified by this screen.  Schwab Equity Ratings, Credit Suisse Research, and Argus give Micron their highest rating. In addition, 28 of 31 analysts tracked by Reuters have Buy or Outperform ratings on Micron.

As detailed below, a potential return-on-investment result is +3.15% absolute return (equivalent to +31.1% annualized return for the next 37 days) if the stock is assigned on the February 16th, 2018 options expiration date.


Micron Technology Inc. (MU) -- New Covered Calls Position

Call options liquidity is very good with 13,395 open interest contracts for the Feb 16th $40.00 Calls.

As shown in the chart below, a Covered Calls positions was chosen instead of its synthetically equivalent short 100% Cash-Secured Put options position in this instance since the annualized ROI potential is higher for the Covered Calls:
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".  Micron's next quarterly earnings report is after the February 16, 2018 options expiration date.
Also in the chart above is a column called "Intervening Ex-Div" and "NO" with an indication that "If 'YES' then complete Dividend Capture Strategy spreadsheet".  Micron does not currently pay a dividend, so the potential for applying a Dividend Capture Strategy is not relevant in this instance.

For this position, the downside 'breakeven price' at expiration is at $38.77 ($42.65 - $3.88), which is 9.1% below the current market price of $42.65. 

The 'crossover price' at expiration is $46.53 ($42.65 + $3.88).  This is the price above which it would have been more profitable to simply buy-and-hold Micron Technology stock until Feb 16th (the February 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. 

Tuesday, January 2, 2018

Covered Calls Established in Bristol-Myers Squibb Co.

Today, a Covered Calls positions was established in Bristol-Myers Squibb Co. (ticker BMY) for the January 19th, 2018 expiration and at the $59.00 strike price when the stock was at $60.94.   Given the Covered Calls Advisor's current Overall Market Meter sentiment of Neutral, a relatively conservative in-the-money position was established.

The Implied Volatility of these options was 28.3 when this position was established and the open interest was 133 contracts.  There is an upcoming ex-dividend of $.40 this Thursday (January 4th) which is included in the analysis below.


As detailed below, a potential outcome for this investment is +1.3% absolute return-on-investment for the next 18 days (equivalent to +26.6% on an annualized return basis) if Bristol-Myers stock closes above the $59.00 strike price on the January 19th options expiration date.


Bristol-Myers Squibb Co. (BMY) -- New Covered Calls Position
The transactions were:
01/02/2018 Bought 500 shares of Bristol-Myers stock @ $60.94 per share 
01/02/2018 Sold 5 Bristol-Myers Jan 19th, 2018 $59.00 Call options @ $2.32 per share
Note: this was a simultaneous Buy/Write transaction
01/04/2018 Upcoming ex-dividend of $.40 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $29,318.30
= ($60.94 - $2.32)* 500 shares + $8.30 commission

Net Profit Components:
(a) Options Income: +$1,160.00
= ($2.32* 500 shares)
(b) Dividend Income: +$200.00
= $.40 per share * 500 shares 
(c) Capital Appreciation (If BMY is above $59.00 strike price at Jan 19th expiration): -$974.95
= ($59.00 -$60.94)* 500 shares - $4.95 commission

Potential Total Net Profit (If assigned at expiration): +$385.05
= (+$1,160.00 options income +$200.00 dividend income -$974.95 capital appreciation)

Absolute Return: +1.3%
= +$385.05/$29,318.30
Equivalent Annualized Return: +26.6%
= (+$385.05/$29,318.30)*(365/18 days)

The downside 'breakeven price' at expiration is at $58.22 ($60.94 - $2.32 - $.40), which is 4.5% below the current market price of $60.94.  This is good downside protection given the nice +26.6% potential annualized ROI for this investment.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the January 19th, 2018 options expiration) for this Bristol-Myers Covered Calls position is 70.3%, so the expected value annualized ROI of this investment (if held until expiration) is +18.7% (+26.6% * 70.3%), a nice expected value result for this moderately in-the-money Covered Calls position.  

Closed Postion in Financial Select Sector SPDR Fund

Last Friday, the December 29th, 2017 Covered Calls position in the Financial Select Sector SPDR Fund (ticker symbol XLF) expired with the stock price at $27.91, below the $28.00 strike price -- so the Call options expired and the 1,000 shares were retained in the Covered Calls Advisor's Portfolio.  The stock moved higher this morning at the market opening and the position was closed out by selling the 1,000 shares at $28.00.  As detailed below, this position achieved a return-on-investment result of +1.8% absolute return in 18 days (equivalent to a +36.7% annualized return-on-investment).

Financial Select Sector SPDR Fund (XLF) -- Covered Calls Position Closed
The transactions were as follows:
12/14/2017 Bought 1,000 shares of Financial Select Sector SPDR Fund shares @ $27.80 
12/14/2017 Sold 10 XLF Dec 29th, 2017 $28.00 Call options @ $.18 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of these Call options was 14.8 
12/15/2017 Ex-Distribution of $128.30 = $.1283 per share x 1,000 shares
12/29/2017 10 XLF Call options expired
Note: the price of XLF was $27.91 at expiration
01/02/2018 Sold 1,000 share of XLF @ $28.00 to close position

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $27,811.65
= ($27.80 - $.18)* 1,000 shares + $11.65 commission

Net Profit Components:
(a) Options Income: +$180.00
= ($.18* 1,000 shares)
(b) Distribution Income: +$128.30
= $.1283 per share * 1,000 shares 
(c) Capital Appreciation (XLF sold at $28.00 on 1/2/2018): +$195.05
= ($28.00 -$27.80)* 1,000 shares - $4.95 commission


Total Net Profit: +$503.35
= (+$180.00 options income +$128.30 distribution income +$195.05 capital appreciation)

Absolute Return: +1.8%= +$503.35/$27,811.65
Equivalent Annualized Return: +36.7%
= (+$503.35/$27,811.65)*(365/18 days)