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Tuesday, July 24, 2018

Continuation of Covered Calls Position in U.S. Steel Corp.

At the July 20th, 2018 options expiration, the Covered Calls position in United States Steel Corp. (ticker X) expired with the stock price below the strike price.  So, the Call options expired and the stock shares were retained in the Covered Calls Advisor's Portfolio.  Today, the Covered Calls Advisor continued this Covered Calls positions by selling 4 Aug 17th, 2018 $39.00 Call options against the current long 400 shares held in U.S. Steel.

As detailed below, two potential return-on-investment results are:

  • +15.8% absolute return in 197 days (equivalent to a +29.3% annualized return-on-investment) if the price of U.S. Steel stock is unchanged upon the July 20th options expiration; OR
  • +18.1% absolute return in 197 days (equivalent to a +33.6% annualized return-on-investment) if the price of U.S. Steel increases above the $39.00 strike price on the expiration date 


  • United States Steel Corp. (X) -- Continuation of Covered Calls Position
    The transactions were:
    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 $20.00 = ($.05 per share ex-dividend x 400 shares)
    03/13/2018 Bought-to-Close 4 Mar 16th $36.00 Call options @ $5.99
    03/13/2018 Sold-to-Open 4 Apr 20th $40.00 Call options @ $3.57
    Note: this Calls debit spread transaction occurred when the stock was at $41.88
    04/20/2018 4 U.S. Steel April 20th Call options expired
    05/09/2018 $20.00 = ($.05 per share ex-dividend x 400 shares)
    05/10/2018 Sold 4 U.S. Steel June 15th, 2018 $40.00 Call options @ $.66 per share
    Note: the price of U.S. Steel stock was $36.04 when these Calls were sold
    06/15/2018 4 X Call options expired with stock price below strike price
    06/22/2018 Sold 4 U.S. Steel July 20, 2018 $37.50 Call options @ $1.35 to continue U.S. Steel Covered Calls position
    Note: the price of U.S. Steel stock was $36.79 when these Calls were sold
    07/20/2018 4 U.S. Steel July 20, 2018 $37.50 Call options expired with stock price of $37.13 below the $37.50 strike price
    07/24/2018 Sold 4 U.S. Steel Aug 17th, 2018 $39.00 Call options @ $1.64
    Note: the price of U.S. Steel stock was $38.21 when these Calls were sold
    08/09/2018 Expected Ex-Dividend of $20.00 ($.05 per share x 400 shares)

    Two possible overall performance results (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: +$1,509.48
    = ($2.62 - $5.99 + $3.57 + $.66 + $1.35 +$1.64) * 400 shares - $30.52 commissions 
    (b) Dividend Income: +$60.00
    = $.05 per share * 3 ex-dividends * 400 shares 
    (c) Capital Appreciation (If price of X stock is unchanged at $38.21 at Aug 17th expiration): +$591.05
    = ($38.21 -$36.72)* 400 shares - $4.95 commission; OR
    (c) Capital Appreciation (If X is above $39.00 strike price at Aug 17th expiration):
    +$907.05
    = ($39.00 -$36.72)* 400 shares - $4.95 commission

    1. Potential Total Net Profit (If stock price unchanged at expiration): +$2,160.53
    = (+$1,509.48 options income +$60.00 dividend income +$591.05 capital appreciation); OR
    2. Potential Total Net Profit (If assigned at expiration): +$2,476.53
    = (+$1,509.48 options income +$60.00 dividend income +$907.05 capital appreciation)
    Each of these outcomes demonstrate the 'trifecta' possibilities with Covered Calls investing (i.e. options income plus dividend income plus capital appreciation of the stock).

    1. Absolute Return (If stock price unchanged at $38.21 at options expiration): +15.8%
    = +$2,160.53/$13,647.63
    Equivalent Annualized Return: +29.3%
    = (+$2,160.53/$13,647.63)*(365/197 days); OR
    2. Absolute Return (If assigned at expiration): +18.1%
    = +$2,476.53/$13,647.63
    Equivalent Annualized Return: +33.6%
    = (+$2,476.53/$13,647.63)*(365/197 days)

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