With about one hour remaining in today's trading, a Covered Call position was established in Alibaba Group Holdings Ltd. (ticker symbol BABA) when the Covered Calls Advisor's buy/write limit order was executed. One hundred shares were purchased at $229.44 and one April 30th, 2021 Call option was sold at $7.30 at the $225.00 strike price. The time value when this Covered Call was established was $2.86 per share = [$7.30 Call options price - ($229.44 stock price - $225.00 strike price)], so the downside breakeven price is $222.14 ($225.00 strike price - $2.86 time value). Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Call position was established with the Delta at 65.7, which approximates a probability of 65.7% that the Call option will be in-the-money on the options expiration date.
The Covered Calls Advisor prefers not to hold positions when there is an upcoming earnings report prior to any company's options expiration date, and there is no quarterly earnings report from Alibaba prior to its April 30th options expiration date. But we have now entered the prime quarterly earnings reporting period for most companies during the next six weeks, so I will be following earnings reports for many companies to determine good companies and industries for current investments. I am finding it more difficult than normal to find good value opportunities at the present time, but Alibaba remains a core holding and with the stock down substantially today, this Alibaba Covered Call position was established.
As detailed below, a potential return-on-investment result for this Alibaba position is +1.3%
absolute return (equivalent to +42.7% annualized return over the next 11
days) if the stock is in-the-money and therefore assigned on the April 30th, 2021 options expiration date.
Alibaba Group Holdings Ltd. (BABA) -- New Covered Call Position
The buy/write transaction was as follows:
04/20/2021 Bought 100 shares of Alibaba stock @ $229.44 per share
04/20/2021 Sold 1 Alibaba April 30th, 2021 $225.00 Call option @ $7.30 per share
Note: The Implied Volatility of the Call option was 29.2 when this transaction was executed.
A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $22,214.67
= ($229.44 - $7.30) * 100 shares + $.67 commission
Net Profit Components:
(a) Option Income: +$730.00
= ($7.30 * 100 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BABA stock is above $225.00 strike price at April 30th, 2021 expiration): -$444.00
= ($225.00 -$229.44) * 100 shares
Total Net Profit: +$286.00
= (+$730.00 Call option income +$0.00 dividend income -$444.00 capital appreciation)
Absolute Return-on-Investment: +1.3%
= +$286.00/$22,214.67
Equivalent Annualized Return-on-Investment: +42.7%
= (+$286.00/$22,214.67)*(365/11 days)
