Today, a Covered Calls positions was established in United States Steel Corp. (ticker X) for the March 16th, 2018 expiration and at the $36.00 strike price when the stock was at $36.72. Given the Covered Calls Advisor's current Overall Market Meter sentiment of Neutral, an in-the-money position was established.
The Implied Volatility of these options was 43.7 when this
was established and the open interest was 458 contracts. There is a likely upcoming ex-dividend of $.05 on February 8th which is included in the analysis below and there is no quarterly earnings report prior to expiration..
As detailed below, a potential outcome for this investment is a +5.7% absolute return-on-investment for the next 44 days (equivalent to +47.1% on an annualized return basis) if U.S. Steel stock closes above the $36.00 strike price on the options expiration date.
United States Steel Corp. (X) -- New Covered Calls Position
02/01/2018 Bought 400 shares of U.S. Steel stock @ $36.72 per share
02/01/2018 Sold 4 U.S. Steel Mar 16th, 2018 $36.00 Call options @ $2.62 per share
Note: this was a simultaneous Buy/Write transaction
02/08/2018 Upcoming ex-dividend of $.05 per share
A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $13,647.63
= ($36.72 - $2.62)* 400 shares + $7.63 commission
Net Profit Components:
(a) Options Income: +$1,048.00
= ($2.62* 400 shares)
(b) Dividend Income: +$20.00
= $.05 per share * 400 shares
(c) Capital Appreciation (If X is above $36.00 strike price at Mar 16th expiration): -$292.95
= ($36.00 -$36.72)* 400 shares - $4.95 commission
Potential Total Net Profit (If assigned at expiration): +$775.05
= (+$1,048.00 options income +$20.00 dividend income -$292.95 capital appreciation)
Absolute Return: +5.7%
Equivalent Annualized Return: +47.1%
= (+$775.05/$13,647.63)*(365/44 days)
downside 'breakeven price' at expiration is at $34.05 ($36.72 - $2.62 - $.05),
which is 7.3% below the current market price of $36.72. This is good downside protection given the very attractive +47.1% potential annualized ROI for this investment.
Using the Black-Scholes Options Pricing Model, the probability of
making a profit (if held until the March 16th, 2018 options expiration) for
this U.S. Steel Covered Calls position is 59.8%, so the expected value annualized
ROI of this investment (if held until expiration) is +28.2% (+47.1% *
59.8%), a nice expected value result for this slightly in-the-money Covered Calls position.