Covered Calls Position Established in Citigroup Inc.

With the funds available from the early assignment of Morgan Stanley, a new short-term Covered Calls position was established in another bank, Citigroup Inc. (ticker C), with an August 7th, 2020 options expiration date.  Four hundred shares of Citigroup Inc. were purchased at $50.20 and four Call options were sold at $1.94 per share at the $48.50 strike price. Given the Covered Calls Advisor's Bearish overall market outlook, a moderately in-the-money strike price was selected with a Delta (a good approximation of the probability of assignment at expiration) of 77.1.  Importantly, there is no intervening earnings prior to the options expiration date as Citi's 2nd quarter earnings were reported on July 14th.

There is an ex-dividend date tomorrow (7/31) of $.51 per share, so capturing this dividend is included in the potential return-on-investment results detailed below.  The time value obtained when this position was established was $.24 per share [$1.94 - ($50.20 stock price - $48.50 strike price].  In the unlikely event that the owner of these Call options exercises their option before market close today, the Covered Calls Advisor would make a $93.32 profit [($.24 x 400 shares) - $2.68 commission] in one day.      

A potential return-on-investment result if this position closes in-the-money at the August 7th options expiration date is +1.6% absolute return in 9 days (equivalent to a +63.0% annualized return-on-investment).  

Citigroup Inc.(C) -- New Covered Calls Position
The transactions were as follows:
07/30/2020 Bought 400 shares of Citigroup @ $50.20 per share 
07/30/2020 Sold 4 Citigroup August 7th, 2020 $48.50 Call options @ $1.94 per share
Note: the Implied Volatility of the Call option was 27.7
07/31/2020 Ex-dividend at $.51 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $19,306.68
= ($50.20 - $1.94) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$776.00
= ($1.94 * 400 shares)
(b) Dividend Income: +$204.00
= $.51 per share x 400 shares 
(c) Capital Appreciation (If Citigroup stock is above $48.50 strike price at the Aug 7th options expiration): -$680.00
= ($48.50 -$50.20) * 400 shares

Total Net Profit: +$300.00
= (+$776.00 options income +$204.00 dividend income -$680.00 capital appreciation)

Absolute Return: +1.6%
= +$300.00/$19,306.68
Equivalent Annualized Return: +63.0%
= (+$300.00/$19,306.68)*(365/9 days)

These returns will be achieved if the stock is above the $48.50 strike price at the market closing on the August 7th, 2020 options expiration date.  If the stock declines below the strike price, the breakeven price of $47.75 ($50.20 -$1.94 -$.51) provides 4.9% downside breakeven protection below today's purchase price.

Email me at partlow@cox.net if you have any questions related to Covered Calls investing.

Jeff Partlow