Search This Blog

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.

1 comment:

  1. MSFT dividend on Feb 14th. Am keeping an eye on it for March expiration.

    ReplyDelete