Today, a Covered Calls positions was established in Valero Energy Corp. (ticker VLO) for the February 16th, 2018 expiration and at the $92.50 strike price when the stock was at $93.53. 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 27.8 when this
was established and the open interest was 1,300 contracts. There is an upcoming ex-dividend of $.80 on February 12th which is included in the analysis below.
As detailed below, a potential outcome for this investment is +2.4% absolute return-on-investment for the next 16 days (equivalent to +54.7% on an annualized return basis) if Valero Energy stock closes above the $92.50 strike price on the February 16th options expiration date.
Valero Energy Corp. (VLO) -- New Covered Calls Position
The transactions were:
02/01/2018 Bought 200 shares of Valero Energy stock @ $93.53 per share
02/01/2018 Sold 2 Valero Energy Feb 16th, 2018 $92.50 Call options @ $2.44 per share
02/12/2018 Upcoming ex-dividend of $.80 per share
A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $18,224.29
= ($93.53 - $2.44)* 200 shares + $6.29 commission
Net Profit Components:
(a) Options Income: +$488.00
= ($2.44* 200 shares)
(b) Dividend Income: +$160.00
= $.80 per share * 200 shares
(c) Capital Appreciation (If Valero stock is above $92.50 strike price at Feb 16th expiration): -$210.95
= ($92.50 -$93.53)* 200 shares - $4.95 commission
Potential Total Net Profit (If VLO stock assigned at expiration): +$437.05
= (+$488.00 options income +$160.00 dividend income -$210.95 capital appreciation)
Absolute Return: +2.4%
Equivalent Annualized Return: +54.7%
= (+$437.05/$18,224.29)*(365/16 days)
downside 'breakeven price' at expiration is at $90.29 ($93.53 - $2.44 - $.80),
which is 3.5% below the current market price of $93.53. This is good downside protection given the very attractive +54.7% potential annualized ROI for this investment.
Using the Black-Scholes Options Pricing Model, the probability of
making a profit (if held until the Feb 18th, 2018 options expiration) for
this Valero Covered Calls position is 58.9%, so the expected value annualized
ROI of this investment (if held until expiration) is +32.2% (+54.7% *
58.9%), a very nice expected value result for this conservative in-the-money Covered Calls position.