This morning a new Covered Calls position was established in Micron Technology Inc. (ticker MU) with a February 19th, 2021 options expiration date. A buy/write transaction entered at a net debit of $70.46 was executed at 10:00 a.m. by purchasing 200 shares of Micron at $76.0865 and simultaneously selling two February 19th, 2021 Call options at the $72.50 strike price at $5.63 per share. The time value when this Covered Calls position was established was $2.0435 per share = [$5.63 Call options price - ($76.0865 stock price - $72.50 strike price)]. Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Calls position was
established. The Delta was 69.6 which approximates a probability of 69.6% that the Call options will be in-the-money and therefore the stock assigned (i.e. sold) on the options expiration date. The Implied Volatility of these Calls was 44.3 today when this transaction was executed.
Micron's Q1 2021 earnings report was 3 weeks ago. Despite the excellent results, Micron's stock price is now slightly below where it was after that announcement. Their future is bright since they are strong in key growth areas of SSDs, Cloud, Smartphones, Graphics/Game, and 5G with their mix of 2/3 DRAM and 1/3 NAND chips. Their 3-year CEO, Sanjay Mehrotra, is a brilliant chips engineer who has over 70 patents and co-founded SanDisk. On the earnings conference call, he was confident and visionary in describing Micron's future diversification projects and the company's focus on developing "higher margin" products. The semiconductor industry is constantly changing and highly competitive. Micron's commitment to a Research and Development-to-Revenue ratio of 13% will help them to advance in their objective of improving their technological designs for new, cutting-edge semiconductor chips.
Micron's finances are strong and they are also very highly rated by analysts. Reuters Research indicates that currently 30 analysts have a Buy or Outperform rating on the stock, 5 have a Hold, and none have an Underperform or Strong Sell; and their average target price is $95.18 (+23.8% above the current price).
As detailed below, the potential return-on-investment result is +2.9% absolute
return in 24 days (equivalent to a +44.1% annualized
return-on-investment).
Micron Technology Inc. (MU) -- New Covered Calls Position
The Buy/Write transaction was as follows:01/27/2021 Bought 200 shares of Micron Technology Inc. stock @ $76.0865 per share
01/27/2021 Sold 2 Micron Feb. 19th, 2021 $72.50 Call options @ $5.63 per share
A possible overall performance result (including commissions) if the stock price is above the $72.50 strike price at expiration would be as follows:
Covered Call Cost Basis: $14,092.64
= ($76.0865 - $5.63) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$1,126.00
= ($5.63 * 200 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Micron stock is above $72.50 strike price at the February 19th, 2021 options expiration): -$717.30
= ($72.50 - $76.0865) * 200 shares
Total Net Profit: +$408.70
= (+$1,126.00 options income +$0.00 dividend income -$717.30 capital appreciation)
Absolute Return: +2.9%
= +$408.70/$14,092.64
Equivalent Annualized Return: +44.1%
= (+$408.70/$14,092.64)*(365/24 days)
The downside 'breakeven price' at expiration is at $70.4565 ($76.0865 - $5.63), which is 8.0% below the current market price of $76.0865.
