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Monday, June 28, 2021

Covered Calls Position Established in Prudential Financial Inc.

Today a Covered Calls position was established in Prudential Financial Inc. (ticker symbol PRU) when the Covered Calls Advisor's buy/write limit order was executed.  Two hundred shares were purchased at $102.49 and two July 16th, 2021 Call options were sold at $3.63 at the $100.00 strike price.  The time value when this Covered Call was established was $1.14 per share = [$3.63 Call option price - ($102.49 stock price - $100.00 strike price)].  Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Call position was established with the Delta at 67.0, which approximates a probability of 67.0% that the Call options will be in-the-money on the options expiration date.  Fortunately, the next quarterly earnings report on 8/3/2021 is after the upcoming 7/16/2021 options expiration date.  Prudential is attractive since it appeared in the top 2% of all Financial sector stocks in the Covered Calls Advisor's Financial sector screener.

As detailed below, a potential return-on-investment result for this Prudential Covered Calls position is +1.1% absolute return (equivalent to +22.0% annualized return over the next 19 days) if the stock is in-the-money and therefore assigned on the July 16th, 2021 options expiration date.

 

Prudential Financial Inc. (PRU) -- New Covered Calls Position

The buy/write transaction was as follows:
06/28/2021 Bought 200 shares of Prudential Financial stock @ $102.49 per share 
06/28/2021 Sold 2 Prudential July 16th, 2021 $100.00 Call options @ $3.63 per share
Note: The Implied Volatility of the Call options was 24.2 when this transaction was executed.  

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $19,773.34
= ($102.49 - $3.63) * 200 shares + $1.34 commission

Net Profit Components:
(a) Option Income: +$724.66
= ($3.63 * 200 shares) - $1.34 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If PRU stock is above $100.00 strike price at July 16th, 2021 expiration): -$498.00
= ($100.00 -$102.49) * 200 shares

Total Net Profit: +$226.66
= (+$724.66 Call option income +$0.00 dividend income -$498.00 capital appreciation)

Absolute Return-on-Investment: +1.1%
= +$226.66/$19,773.34
Equivalent Annualized Return-on-Investment: +22.0%
= (+$226.66/$19,773.34)*(365/19 days)

Saturday, June 26, 2021

June 25th, 2021 Option Expiration Result

Yesterday, the June 25th, 2021 100% Cash-Secured Put position in Twilio Inc. (ticker TWLO) expired out-of-the-money (stock price of $383.69 was above the $300.00 strike price), so the position was closed profitably. The return-on-investment result was +5.5% absolute return in 40 days (equivalent to a +50.0% annualized return-on-investment). 

As detailed below, the original Cash-Secured Put was sold at the $270.00 strike price and was subsequently rolled-up-and-out from the June 18th, 2021 monthly options expiration to the June 25th $300.00 strike price.  This was done since the stock price had moved substantially higher during the first several days after the original position was established.  By rolling up-and-out the original position, the +50.0% annualized roi result achieved exceeded the +41.8% annualized that would have been achieved if the original Cash-Secured Put position at the June 18th $270.00 strike price had not been rolled up to the $300.00 strike.  


Twilio Inc. (TWLO) -- 100% Cash-Secured Put Position Closed at Expiration
The original transaction was as follows:
05/17/2021  Sold 1 Twilio Inc. June 18th, 2021 $270.00 100% Cash-Secured Put options @ $9.85 per share.
Note: the Implied Volatility of this Put option was 52.3 when this position was transacted.

05/26/2021 Roll up transaction executed:
Bought-to-Close 1 TWLO 6/18/2021 $270.00 Put option @ $.98 per share and simultaneously Sold-to-Open 1 TWLO 6/25/2021 $300.00 Put option @ $5.40 per share
Note: The estimated probability that this $300.00 Put option closes out-of-the-money (stock price above the strike price) on the June 18th options expiration date was approximately 80% when this roll up transaction was executed.
06/25/2021 One TWLO 6/25/2021 $300.00 Cash-Secured Put option expired out-of-the-money, so the position was closed on the option expiration date.

The Covered Calls Advisor does not use margin, so the detailed information on this position and the potential result detailed below reflect that this position was established using 100% cash securitization for the one Put option sold.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Put Cost Basis: $26,015.67
= ($270.00 - $9.85) * 100 shares + $.67 commission

Net Profit:
(a) Option Income: +$1,424.99
= ($9.85 - $.98 + $5.40) * 100 shares - $2.01 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Twilio stock was above the $300.00 strike price at the June 25th option expiration date): +$0.00
= ($300.00 - $300.00) * 100 shares

Total Net Profit: +$1,424.99
= (+$1,424.99 option income +$0.00 dividend income + $0.00 capital appreciation)

Absolute Return: +5.5%
= +$1,424.99/$26,015.67
Annualized Return: +50.0%
= (
+$1,424.99/$26,015.67) * (365/40 days)

Thursday, June 24, 2021

Continuation of Covered Call Position in Alibaba Group Holdings Ltd.

Last Friday, the June 18th $225.00 BABA Call option expired out-of-the-money (the stock closed on Friday at $212.30 per share).  This morning, Alibaba's stock opened higher and when its stock price was $217.04, the Covered Calls Advisor continued the Covered Call position by selling one July 16th, 2021 $225.00 Call option for $2.77 per share against the 100 Alibaba shares owned. 

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

  •  +2.1% absolute return (equivalent to +10.4% annualized return for 75 days) if the stock price is unchanged from today's price of $217.04 on the July 16th, 2021 options expiration date; OR 
  • +5.7% absolute return (equivalent to +27.9% annualized return for 75 days) if the stock is assigned at the $225.00 strike price on the July 16th, 2021 options expiration date.

 

Alibaba Group Holdings Ltd. (BABA) -- Continuation of Covered Call Position

The original buy/write transaction was as follows:
05/03/2021 Bought 100 shares of Alibaba stock @ $232.14 per share 
05/03/2021 Sold 1 Alibaba May 14th, 2021 $225.00 Call option @ $10.24 per share
Note: The Implied Volatility of the Call option was 32.3 when this transaction was executed.
05/14/2021 Bought-to-Close 1 BABA May 14th, 2021 $225.00 Call Option @ $.01 per share and simultaneously Sold-to-Open 1 BABA May 28th, 2021 $215.00 Call @ $2.92 per share.
Note: the stock price was $209.08 when this $2.91 net credit spread transaction was executed.
05/28/2021 The BABA $215.00 Call option expired out-of-the-money and the 100 shares of BABA stock were retained in the Covered Calls Advisor Portfolio
06/01/2021 Continued BABA Covered Calls position by selling one June 18th, 2021 $225.00 Call option @ $3.95 per share
06/18/2021 One BABA Call option expired out-of-the-money and 100 shares remain in the Covered Calls Advisor Portfolio.
06/24/2021 Sold 1 Alibaba July 16th, 2021 $225.00 Call option @ $2.77 per share
Note: the price of BABA shares was $217.04 when this Call option was sold.

Two possible overall performance results (including commissions) would be as follows:
Covered Call Cost Basis: $22,191.34
= ($232.14 - $10.24) * 100 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,984.32
= ($10.24 - $.01 + $2.92 + $3.95 + $2.77) * 100 shares - $2.68 commissions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Alibaba stock price is unchanged at $217.04 on the July 16th, 2021 options expiration date): -$1,510.00
= ($217.04 -$232.14) * 100 shares; OR
(c) Capital Appreciation (If Alibaba stock price closes above the $225.00 strike price and is assigned at the July 16th, 2021 options expiration date): -$714.00
= ($225.00 -$232.14) * 100 shares

(a) Total Net Profit (If Alibaba stock price is unchanged at $217.04 at the July 16th, 2021 options expiration date): +$474.32
= (+$1,984.32 Call option income +$0.00 dividend income -$1,510.00 capital appreciation); OR
(b) Total Net Profit (If Alibaba stock price closes above the $225.00 strike price and is assigned at the July 16th, 2021 options expiration date): +$1,270.32
= (+$1,984.32 Call option income +$0.00 dividend income - $714.00 capital appreciation)

1. Absolute Return-on-Investment (If Alibaba stock price is unchanged at $217.04 at the July 16th, 2021 options expiration date): +2.1%
= +$474.32/$22,191.34
Equivalent Annualized Return-on-Investment: +10.4%
= (+$645.99/$22,191.34)* (365/75 days); OR
2. Absolute Return-on-Investment (If Alibaba stock price closes above the $225.00 strike price and is assigned at the June 18th, 2021 options expiration date): +5.7%
= +$1,270.32/$22,191.34
Equivalent Annualized Return-on-Investment: +27.9%
= (+$1,270.32/$22,191.34)*(365/75 days)

Tuesday, June 22, 2021

Established Covered Calls Position in Ralph Lauren Corporation

Today a Covered Calls position was established in Ralph Lauren Corporation (ticker symbol RL) when the Covered Calls Advisor's buy/write net debit limit order at $108.20 per share executed -- 300 shares were purchased at $113.66 and three July 16th, 2021 $110.00 Call options were sold at $5.46.  This is a moderately in-the-money (Delta of 66.4 when this position was established) Covered Calls position with the $113.66 stock purchase price being 3.3% above the $110.00 strike price. 

The potential return-on-investment result detailed below for this position includes a quarterly $.6875 per share ex-dividend (2.3% annual dividend yield) in two days on June 24th, 2021 (this Thursday).   An additional consideration for this position is that the next quarterly earnings report is on July 29th is after the July 16th options expiration date -- the Covered Calls Advisor's preferred circumstance. 

As detailed below, the potential return-on-investment result is +2.3% absolute return (equivalent to +33.5% annualized return-on-investment over the next 25 days) if the stock is assigned on the July 16th options expiration date.


Ralph Lauren Corporation (RL) -- New Covered Calls Position
The buy/write transaction was:
06/22/2021 Bought 300 Ralph Lauren shares @ $113.66
06/22/2021 Sold 3 Ralph Lauren 07/16/2021 $110.00 Call options @ $5.46.  As required by the Covered Calls Advisor for positions in individual stocks, the Implied Volatility of these Calls at 27.8 exceeded the current S&P 500 Volatility Index (VIX) of 17.2.
06/24/2021 Upcoming quarterly ex-dividend of $.6875 per share

The overall performance result (including commissions) if this Ralph Lauren Corporation Covered Calls position closes above the $110.00 strike price on the July 16th options expiration date would be as follows:

Stock Purchase Cost: $32,462.01
= ($113.66 - $5.46) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,635.99
= ($5.46 *300 shares) - $2.01 commission
(b) Dividend Income (If RL shares assigned at July 16th, 2021 expiration): +$206.25
= ($.6875 dividend per share x 300 shares)
(c) Capital Appreciation (If RL shares assigned at $110.00 strike price at expiration): -$1,098.00
+($110.00-$113.66) * 300 shares

Total Net Profit (If RL shares assigned at $110.00 at July 16th, 2021 expiration): +$744.24
= (+$1,635.99 options income +$206.25 dividend income - $1,098.00 capital appreciation)
 
Absolute Return (If RL shares assigned at $140.00 at July 16th, 2021 expiration date): +2.3%
= +$744.24/$32,462.01
Annualized Return (If RL shares assigned at $140.00 at July 16th 2021 options expiration): +33.5%
= (+$744.24/$32,462.01)*(365/25 days)

Roll Out Covered Calls Position in Hologic Inc.

Today, the Covered Calls position in Hologic Inc. (HOLX) was rolled out by selling two July 16th, 2021 $65.00 Call options for $1.05 per share when the stock was trading at $63.56 per share. The stock price has declined from the original purchase price of $72.92 per share, so the Covered Calls Advisor is now attempting to repair the position from a losing one back to a profitable annualized return-on-investment. 

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

  •  -2.0% absolute return (equivalent to -9.0% annualized return over a period of 81 days) if the stock price is unchanged from today's price of $63.56 on the July 16th, 2021 options expiration date; OR 
  • +0.1% absolute return (equivalent to +0.5% annualized return over 81 days) if the stock is assigned at the $65.00 strike price on the July 16th, 2021 options expiration date.

 

Hologic Inc. (HOLX) -- Continuation of Covered Calls Positon

The buy/write transaction was as follows:
04/27/2021 Bought 200 shares of Hologic stock @ $72.92 per share 
04/27/2021 Sold 2 Hologic May 21st, 2021 $70.00 Call options @ $4.48 per share
Note: The Implied Volatility of the Call options was 36.1 when this transaction was executed.
05/11/2021 Bought-to-Close 2 HOLX May 21st, 2021 $70.00 Call Options @ $.17 per share and simultaneously Sold-to-Open 2 HOLX $65.00 Calls @ $2.65 per share.
Note: the stock price was $64.58 when this credit spread transaction was executed.
05/22/2021 Sold 2 HOLX July 16th, 2021 $65.00 Call options @ $1.05 per share against the existing 200 long shares of HOLX in the Covered Calls Advisor Portfolio.

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $13,689.34
= ($72.92 - $4.48) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,598.65
= ($4.48 - $.17 + $2.65 + $1.05) * 200 shares - $3.35 commissions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Hologic stock price is unchanged at $63.56 at the July 16th, 2021 options expiration date): -$1,872.00
= ($63.56 - $72.92) * 200 shares; OR
(c) Capital Appreciation (If Hologic stock price closes above the $65.00 strike price and is assigned at the July 16th, 2021 options expiration date): -$1,584.00
= ($65.00 -$72.92) * 200 shares

(a) Total Net Profit (If Hologic stock price is unchanged at $63.56 at the July 16th, 2021 options expiration date): -$273.35
= (+$1,598.65 Call options income +$0.00 dividend income -$1,872.00 capital appreciation); OR
(b) Total Net Profit (If Hologic stock price closes above the $65.00 strike price and is assigned at the July 16th, 2021 options expiration date): +$14.65
= (+$1,598.65 Call options income +$0.00 dividend income -$1,584.00 capital appreciation)

1. Absolute Return-on-Investment (If Hologic stock price is unchanged at $63.56 at the July 16th, 2021 options expiration date): -2.0%
= -$273.35/$13,689.34
Equivalent Annualized Return-on-Investment: -9.0%
= (-$273.35/$13,689.34)*(365/81 days); OR
2. Absolute Return-on-Investment (If Hologic stock price closes above the $65.00 strike price and is assigned at the July 16th, 2021 options expiration date): +0.1%
= +$14.65/$13,689.34
Equivalent Annualized Return-on-Investment: +0.5%
= (+$14.65/$13,689.34)*(365/81 days)

Monday, June 21, 2021

Closed Covered Calls Position in Winnebago Industries, Inc.

At last Friday's (June 18th) options expiration, the Covered Calls position in Winnebago Industries expired with the stock price below the $65.00 strike price so the 400 shares remained in the Covered Calls Advisor Portfolio. This morning, the price of Winnebago Industries shares recovered along with the overall market and the Covered Calls Advisor decided to close out the position by selling the 400 shares at $64.82 per share.

As detailed below, the return-on-investment result for this Winnebago Industries Covered Calls position was +0.8% absolute return in 13 days (equivalent to a +21.9% annualized return-on-investment). 

Winnebago Industries Inc. (WGO) -- Covered Calls Position Closed
The transactions were as follows:
06/09/2021 Bought 400 shares of Winnebago stock @ $69.10 per share 
06/09/2021 Sold 4 Winnebago June 18th, 2021 $65.00 Call options @ $4.67 per share
Note: The Implied Volatility of the Call options was 33.7 this morning when this position was established.
06/15/2021 Ex-dividend of $.12 per share for 400 WGO shares
06/18/2021 Winnebago share closed below the $65.00 strike price so 4 Call options expired and 400 shares of WGO stock remained in the Covered Calls Advisor Portfolio
06/21/2021 Sold 400 Winnebago shares at $62.82 per share.

The overall performance results (including commissions) was as follows:
Covered Calls Cost Basis: $25,774.68
= ($69.10 - $4.67) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,865.32
= ($4.67 * 400 shares) - $2.68 commission
Dividend Income ($.12 ex-dividend on 6/15/2021 for 400 Winnebago shares held): $48.00
= $.12 dividend per share x 400 shares
(c) Capital Appreciation (400 Winnebago shares sold at $64.82 per share): -$1,712.00
= ($64.82 - $69.10) * 400 shares

Total Net Profit: +$201.32
= (+$1,865.32 options income +$48.00 dividend income -$1,712.00 capital appreciation)

Absolute Return-on-Investment: +0.8%
= +$201.32/$25,774.68
Equivalent Annualized Return: +21.9%
= (+$201.32/$25,774.68)*(365/13 days)

Closed Covered Calls Position in ViacomCBS Inc.

At last Friday's (June 18th) options expiration, the Covered Calls position in ViacomCBS Inc. expired with the stock price slightly below the $40.00 strike price so the 400 shares remained in the Covered Calls Advisor Portfolio. This morning, the price of ViacomCBS shares increased along with the overall market and the Covered Calls Advisor decided to close out the position by selling the 400 shares at $40.55 per share.

As detailed below, the return-on-investment result for this ViacomCBS Inc. Covered Calls position was +3.1% absolute return in 14 days (equivalent to a +80.6% annualized return-on-investment).  This result is a good example of the advantage that can accrue from selling in-the-money Covered Calls.  Despite the stock declining by 1.6% (from $41.19 purchase price to $40.55 sales price), a nice profit was achieved from this Covered Calls position.


ViacomCBS Inc. (VIAC) -- Covered Calls Position in VIAC Closed Out
The transactions were as follows:
06/08/2021 Bought 400 shares of ViacomCBS stock @ $41.19 per share 
06/08/2021 Sold 4 ViacomCBS June 18th, 2021 $40.00 Call options @ $1.63 per share
Note: the Open Interest in the Call options was 15,736 contracts, so the Bid/Ask spread was narrow at $1.60/$1.68 when this transaction was executed.  Also, the Implied Volatility of the Call options was 32.6.
06/14/2021 Ex-dividend of $.24 per share for 400 VIAC shares
06/18/2021 Stock closed below the $40.00 strike price, so 4 VIAC $40.00 Call options expired and 400 shares remained in the Covered Calls Advisor Portfolio
06/21/2021 Sold 400 shares @ $40.55 to close out this VIAC position.

The overall performance results (including commissions) was as follows:
Covered Calls Cost Basis: $15,826.68
= ($41.19 - $1.63) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$649.32
= ($1.63 * 400 shares) - $2.68 commission
(b) Dividend Income (ViacomCBS stock went ex-dividend on 6/14/2021 at $.24 per share): +$96.00
= $.24 dividend per share x 400 shares
(c) Capital Appreciation (ViacomCBS stock sold at $40.55 per share): -$256.00
= ($40.55 - $41.19) * 400 shares

Total Net Profit: +$489.32
= (+$649.32 options income +$96.00 dividend income -$256.00 capital appreciation)

Absolute Return-on-Investment: +3.1%
= +$489.32/$15,826.68
Equivalent Annualized Return: +80.6%
= (+$489.32/$15,826.68)*(365/14 days)

Covered Calls Position Established in Discovery Inc.

Today a Covered Calls position was established in Discovery Inc. (ticker symbol DISCA) when the Covered Calls Advisor's buy/write limit order was executed.  Four hundred shares were purchased at $29.18 and four July 16th, 2021 Call options were sold at $2.26 at the $27.50 strike price.  The time value when this Covered Call was established was $.58 per share = [$2.26 Call option price - ($29.18 stock price - $27.50 strike price)], so the downside breakeven price is $221.90 ($225.00 strike price - $3.10 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 72.8, which approximates a probability of 72.8% that the Call option will be in-the-money on the options expiration date. 

Discovery Inc. has agreed to merge with AT&T's Warner Media and will most likely be approved to become Warner Bros. Discovery in 2022 which will likely catapult them into third position (behind only Netflix and Disney) in the streaming entertainment media industry. The average target price of the 23 analysts covering Discovery is $43.26 (+48.3% above today's purchase price) and its forward year P/E ratio is only 9.2 based on currently forecasted earnings per share.  Fortunately, the next quarterly earnings report on 8/4/2021 is after the upcoming 7/16/2021 options expiration date.

As detailed below, a potential return-on-investment result for this Discovery Inc. position is +2.1% absolute return (equivalent to +29.9% annualized return over the next 26 days) if the stock is in-the-money and therefore assigned on the July 16th, 2021 options expiration date.

 

Discovery Inc. (DISCA) -- New Covered Calls Position

The buy/write transaction was as follows:
06/21/2021 Bought 400 shares of Discovery Inc. stock @ $29.18 per share 
06/21/2021 Sold 4 Discovery July 16th, 2021 $27.50 Call options @ $2.26 per share
Note: The Implied Volatility of the Call option was 37.6 when this transaction was executed.  

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $10,770.68
= ($29.18 - $2.26) * 400 shares + $2.68 commission

Net Profit Components:
(a) Option Income: +$901.32
= ($2.26 * 400 shares) - $2.68 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If DISCA stock is above $27.50 strike price at July 16th, 2021 expiration): -$672.00
= ($27.50 -$29.18) * 400 shares

Total Net Profit: +$229.32
= (+$901.32 Call option income +$0.00 dividend income -$672.00 capital appreciation)

Absolute Return-on-Investment: +2.1%
= +$229.32/$10,770.68
Equivalent Annualized Return-on-Investment: +29.9%
= (+$229.32/$10,770.68)*(365/26 days)

Saturday, June 19, 2021

June 18th, 2021 Monthly Options Expiration Results

The Covered Calls Advisor Portfolio had twelve positions since last month's (May 21st, 2021) monthly options expiration date.  During this past month, the Covered Calls Advisor Portfolio closed out seven of these twelve positions as detailed below.

The return-on-investment results achieved were as follows:   

  • One Covered Calls position expired in-the-money yesterday (on the June 18th, 2021 monthly options expiration date), so the options expired and the stocks were sold in Applied Materials Inc. (AMAT) with this result -- +1.7% absolute return in 29 days (equivalent to +21.0% annualized return-on-investment).  
  • One 100% Cash-Secured Put position expired out-of-the-money (stock price above the strike price) yesterday (on the June 18th, 2021 monthly options expiration date), so the Put option expired and the cash received when this Put was originally sold was retained as profit in the Covered Calls Advisor Portfolio.  The return-on-investment results were:  Regeneron Pharmaceuticals Inc. (REGN) -- +1.4% absolute return in 25 days (equivalent to +21.0% annualized return-on-investment).

  • Four Covered Calls positions were closed by early assignment on the last business day prior to their ex-dividend dates and the results of these positions were:

  1. Bank of America Corp. (BAC) -- +1.1% absolute return in 15 days (equivalent to +27.1% annualized return-on-investment).
  2. Devon Energy (DVN) -- +2.6% absolute return in 14 days (equivalent to +66.8% annualized return-on-investment).
  3. HP Inc. (HPQ) -- +0.9% absolute return in 11 days (equivalent to +31.1% annualized return-on-investment).
  4. Qualcomm Inc. (QCOM) -- +1.4% absolute return in 16 days (equivalent to +31.1% annualized return-on-investment).
  • One Covered Calls position in KBHome Inc. (KBH) was closed out early based on the decision by the Covered Calls Advisor and with the following result: -3.2% absolute return in 24 days (equivalent to -48.3% annualized return-on-investment).
  • Five Covered Call positions (Alibaba Group Holdings Ltd., Hologic Inc., LyondellBasel Industries Inc., ViacomCBS, and Winnebago Industries Inc.) closed out-of-the-money.  These shares now remain in the Covered Calls Advisor Portfolio (shown in the right sidebar of this blog) and decisions will be made early next week to either sell these shares or to continue with the Covered Calls positions by selling future Call options against the shares currently held.

During the past year (last 12 months) 124 of 125 positions were closed out at a profit.  The average annualized return-on-investment was +40.3% and their average holding period was 19.9 days.

Note: these results have been exceptional because of the persistent bull market during the past year, so these results should certainly not be considered as the norm for Covered Calls investing.  A reasonable expectation for a well-informed and disciplined Covered Calls investment portfolio during more normal market conditions is to be profitable on two-thirds (67%) or more of positions and to outperform the S&P 500 benchmark by approximately 3% to 5% on an annualized return-on-investment basis.  

As shown in the right sidebar, there are currently eight open positions in the Covered Calls Advisor Portfolio.  All future transactions and return-on-investment results for these positions will be posted on this blog site on the same day the transactions occur.  As always, I welcome receiving your emails whenever you have any comments or questions related to this post or anything related to Covered Calls investing.

Best Wishes,
Jeff Partlow
Covered Calls Advisor
partlow@cox.net


Friday, June 18, 2021

Established Covered Calls in Micron Technology Inc.

A Covered Calls position was established in Micron Technology Inc. (ticker MU) with a July 16th, 2021 options expiration date.   A buy/write transaction entered at a net debit of $73.72 was executed when 300 shares of Micron were purchased at $77.00 and three July 16th, 2021 Call options at the $77.50 strike price were sold at $3.28 per share. The Implied Volatility of these Calls was high at 40.3 today when this transaction was executed, a reflection of the increased uncertainty with the upcoming Q3 2021 earnings report of June 30th being prior to the July 16th, 2021 options expiration date.  However, the Covered Calls Advisor is confident these results will exceed projections -- and annual earnings are expected to more than double this fiscal year and continue to grow dramatically next year to well above $10 per share. 

Micron's finances are strong and they are also very highly rated by analysts.  Reuters Research indicates that currently 31 analysts have a Buy or Outperform rating on the stock, 4 have a Hold, and none have an Underperform or Strong Sell; and their current average target price is $118.62 (+53.1% above the $77.50 strike price).  Because of Micron's bullish outlook, a slightly out-of-the-money strike price was established (stock purchased at $77.00 and with a strike price at $77.50).  


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

  •  +3.8% absolute return (equivalent to +47.3% annualized return for the next 29 days) if the stock price is unchanged at options expiration at the $77.00 purchase price; OR 
  • +4.4% absolute return (equivalent to +55.9% annualized return over the next 29 days) if the stock price is in-the-money (i.e. above the $77.50 strike price) and therefore assigned on the July 16th options expiration date.


Micron Technology Inc. (MU) -- New Covered Calls Position

The Buy/Write transaction was as follows:
06/18/2021 Bought 300 shares of Micron Technology Inc. stock @ $77.00 per share 
06/18/2021 Sold 3 Micron July 16th, 2021 $77.50 Call options @ $3.28 per share

Two possible overall performance results (including commissions) for this Micron Technology Inc. Covered Calls position are as follows:
Stock Purchase Cost: $22,118.01
= ($77.00 - $3.28) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$981.99
= ($3.28 *300 shares) - $2.01 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Micron stock price unchanged at $77.00 at July 16th options expiration): -$150.00
=+($77.00 -$77.50) * 300 shares; or
(c) Capital Appreciation (If 300 Micron shares assigned at $77.50 strike price at expiration): +$0.00
+($77.50 -$77.50) * 300 shares


1. Total Net Profit (If Micron stock price unchanged at $77.00 at July 16th options expiration): +$831.99
= (+$981.99 options income +$0.00 dividend income -$150.00 capital appreciation); or
2. Total Net Profit (If 300 Micron shares assigned at $77.50 strike price at expiration): +$981.99
= (+$981.99 options income +$0.00 dividend income +$0.00) capital appreciation
 
1. Absolute Return (If Micron stock price unchanged at $77.00 at July 16th options expiration): +3.8%
= +$831.99/$22,118.01
Annualized Return (If Micron stock price unchanged at $77.00 at July 16th options expiration): +47.3%
= (+$831.99/$22,118.01)*(365/29 days); or
2. Absolute Return (If 300 Micron shares assigned at $77.50 strike price at expiration): +4.4%
= +$981.99/$22,118.01
Annualized Return (If MU shares assigned at $77.50 at July 16th 2021 expiration): +55.9%
= (+$981.99/$22,118.01)*(365/29 days)

Established Covered Calls Position in JPMorgan Chase & Co.

Today a Covered Calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) when the Covered Calls Advisor's buy/write limit order at $138.62 executed -- 300 shares were purchased at $147.77 and three July 16th, 2021 $140.00 Call options were sold at $9.15.  This is a conservative in-the-money position since the stock purchase price is 5.6% above the $140.00 strike price. 

Two potential return-on-investment results for this position are highlighted below and includes the possibility of early assignment since a quarterly $.90 per share ex-dividend on July 2nd is prior to the July 16th options expiration date.   An additional consideration in this position is that the next quarterly earnings report is on July 13th which is prior to the July 16th options expiration date.  Prior to the earnings report, the Covered Calls Advisor will be monitoring this position closely every day since closing out the position after the ex-dividend date but prior to the earnings date is a possibility.
  
As detailed below, two potential return-on-investment results are: 
  •  +1.0% absolute return (equivalent to +25.8% annualized return for the next 14 days) if the stock is assigned early (business day prior to the July 2nd ex-dividend date); OR 
  • +1.6% absolute return (equivalent to +20.6% annualized return over the next 29 days) if the stock is assigned on the July 16th options expiration date.


JPMorgan Chase & Co. (JPM) -- New Covered Calls Position
If the stock price increases to the point where the current time value (i.e. extrinsic value) of $1.38 = [$9.15 option premium - ($147.77 stock price - $140.00 strike price)] remaining in the short Call options decays substantially (down to about $.25 or less) by July 1st (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 300 JPM shares away to capture the dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be a desirable outcome since its +25.8% annualized return-on-investment (aroi) exceeds the +20.6% aroi if assigned on the 07/16/2021 options expiration date.

The buy/write transaction was:
06/18/2021 Bought 300 JPM shares @ $147.77
06/18/2021 Sold 3 JPM 07/16/2021 $140.00 Call options @ $9.15
07/02/2021 Upcoming quarterly ex-dividend of $.90 per share

Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost: $41,588.01
= ($147.77 - $9.15) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$2,742.99
= ($9.15 *300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on July 1st, the business day prior to the July 2nd ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at July 16th, 2021 expiration): +$270.00
= ($.90 dividend per share x 300 shares)
(c) Capital Appreciation (If JPM assigned early): -$2,331.00
+($140.00 -$147.77) * 300 shares; or
(c) Capital Appreciation (If JPM assigned at $140.00 strike price at expiration): -$2,331.00
+($140.00-$147.77) * 300 shares

1. Total Net Profit [If option exercised on July 1st (business day prior to July 2nd ex-dividend date)]: +$411.99
= (+$2,742.99 options income +$0.00 dividend income -$2,331.00 capital appreciation); or
2. Total Net Profit (If JPM assigned at $140.00 at July 16th, 2021 expiration): +$681.99
= (+$2,742.99 options income +$270.00 dividend income -$2,331.00 capital appreciation)

1. Absolute Return (If option exercised on business day prior to ex-dividend date): +1.0%
= +$411.99/$41,588.01
Annualized Return (If option exercised early): +25.8%
= (+$411.99/$41,588.01)*(365/14 days); or
2. Absolute Return (If JPM assigned at $140.00 at July 16th, 2021 expiration date): +1.6%
= +$681.99/$41,588.01
Annualized Return (If JPM assigned at $140.00 at July 16th 2021 options expiration): +20.6%
= (+$681.99/$41,588.01)*(365/29 days)

Either outcome provides a very good return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $140.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $137.72 ($147.77 -$9.15 -$.90) provides 6.8% downside protection below today's purchase price.

There is a 72.8% probability that the Calls will be above the $140.00 strike price at options expiration.  If so, the +20.6%  annualized roi profit detailed above would be achieved.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  Eight of the nine criteria are achieved in this JPMorgan position.



Wednesday, June 9, 2021

Established Covered Calls in Lowe's Companies Inc. Using Dividend Capture Strategy

Today, a buy/write limit order in Lowe's Companies Inc. (ticker LOW) was executed at the Covered Calls Advisors' net debit price of $185.32 per share.  Two hundred shares were purchased at $191.44 and two July 30th, 2021 Call options were sold for $6.12 at the $187.50 strike price, therefore a time value of $2.18 = [$6.12 options premium - ($191.44 stock price - $187.50 strike price)] per share.  

This position uses the Covered Calls Advisor's Dividend Capture Strategy since Lowe's has an upcoming quarterly ex-dividend of $.80 per share on July 20th, 2021 which is prior to the July 30th options expiration date.  This is equivalent to an absolute annualized dividend yield of 1.7% (at the $191.44 stock price) and an equivalent annualized dividend yield of 6.6% = [($.80/$191.44) x (365/23 days to expiration)].  This dividend is included in the detailed return-on-investment calculations below.  Either an early assignment on the day prior to the ex-dividend date or on the July 30th expiration date would be desirable to the Covered Calls Advisor given the potential annualized return on investments for either outcome.  Importantly to the Covered Calls Advisor, there is no quarterly earnings report prior to the options expiration date since Q2 earnings will be reported on August 18th, 2021.

Lowe's is in the top 4% of large-cap (>$10B market cap) companies based on the metrics in the Covered Calls Advisor's "Large-Cap Value, Profitability, and Growth" screener.  It is also highly rated by the 32 analysts' that cover it.  They have an average target price of $228.75 (+19.5% above the current price) with 25 of the 32 analysts rating it as 'Buy' or 'Market Outperform', 7 rate it a 'Hold', and no analyst rates it as a 'Market Underperform' or 'Sell'.   

As shown on the table at the bottom of this post, all nine criteria of the  Dividend Capture Strategy are met with this position.  The Covered Calls Advisor's current Overall Market Meter outlook remains cautious, so the appropriate Covered Calls strategy is to sell in-the-money strike prices.  Even if the stock market declines somewhat during the next 23 days, hopefully the decline will be a moderate one and the stock price of Lowe's will not decline below the $187.50 strike price at closing on the July 30th options expiration date.  The Delta for these Call options was 66.2 when this position was established which approximates the probability that the position will be in-the-money at market close on the options expiration date.  

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

  •  +1.2% absolute return (equivalent to +35.8% annualized return for the next 12 days) if the stock is assigned early (business day prior to the July 20th ex-dividend date). 
  • +1.6% absolute return (equivalent to +25.5% annualized return over the next 23 days) if the stock is assigned on the July 30th, 2021 options expiration date.


Lowe's Companies Inc. (LOW) -- New Covered Calls Position
The buy/write transaction was:
07/08/2021 Bought 200 Lowes Companies Inc. shares @ $191.44
07/08/2021 Sold 2 Lowes 07/30/2021 $187.50 Call options @ $6.12
Note: Implied Volatility (IV) of the Call options was at 20.5 when this position was transacted.   
07/20/2021 Upcoming quarterly ex-dividend of $.80 per share

Two possible overall performance results (including commissions) for this Lowes Companies Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $37,065.34
= ($191.44 - $6.12) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,224.00
= ($6.12 * 200 shares)
(b) Dividend Income (If option exercised early on July 19th, 2021, the business day prior to the July 20th ex-div date): +$0.00; or
(b) Dividend Income (If Lowe's stock assigned at July 30th, 2021 options expiration): +$160.00
= ($.80 dividend per share x 200 shares)
(c) Capital Appreciation (If Lowe's Call options assigned early on July 19th): -$788.00
+($187.50 - $191.44) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $187.50 strike price at options expiration): -$788.00
+($187.50 - $191.44) * 200 shares

1. Total Net Profit [If option exercised on July 19th (business day prior to the July 20th ex-dividend date)]: +$436.00
= (+$1,224.00 options income +$0.00 dividend income -$788.00 capital appreciation); or
2. Total Net Profit (If Lowe's shares assigned at $187.50 at July 30th, 2021 expiration): +$596.00
= (+$1,224.00 +$160.00 -$788.00)

1. Absolute Return [If option exercised on business day prior to ex-dividend date]: +1.2%
= +$436.00/$37,065.34
Annualized Return (If option exercised early): +35.8%
= (+$436.00/$37,065.34)*(365/12 days); or
2. Absolute Return (If Lowe's shares assigned on July 30th options expiration date): +1.6%
= +$596.00/$37,065.34
Annualized Return (If Lowe's shares assigned at $187.50 at July 30th, 2021 expiration): +25.5%
= (+$596.00/$37,065.34)*(365/23 days)

Either outcome provides an attractive return-on-investment result for this Lowe's Companies Inc. investment.  These returns will be achieved as long as the stock is above the $187.50 strike price at assignment.  However, if the stock declines below the strike price, the breakeven price of $184.52 ($191.44 -$6.12 -$.80) provides 3.6% downside protection below today's stock purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  As shown below, all nine criteria are achieved for this Lowe's Companies Inc. Covered Calls position.



Tuesday, June 8, 2021

Established Covered Calls in ViacomCBS Inc. Using Dividend Capture Strategy

Today, a Covered Calls position was established in ViacomCBS Inc. (ticker VIAC) with the purchase of 400 shares at $41.19 per share and four June 18th, 2021 Call options were sold for $1.63 per share at the $40.00 strike price.  This transaction occurred when the Covered Calls Advisor's buy/write net debit limit order at $39.56 was executed.  The corresponding time value (aka extrinsic value) in the Call options was $.44 per share = [$1.63 Call options premium received - ($41.19 stock purchase price - $40.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at approximately 69.7 when this buy/write transaction was executed, which approximates the probability of assignment on the June 18th, 2021 options expiration date. 

ViacomCBS goes ex-dividend at $.24 per share (2.3% annualized dividend yield at the current stock price) on June 14th which is prior to the June 18th options expiration date, so this dividend is included in the potential return-on-investment results shown below.  Also shown below, eight of the nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and important to the Covered Calls Advisor's analysis, the next quarterly earnings report on August 5th, 2021 is after the June 18th options expiration date. 

As shown below, two potential return-on-investment result are: (1) +1.1% absolute return in 6 days (equivalent to a +66.6% annualized return-on-investment if VIAC stock is assigned at $40.00 on the day prior to the June 14th ex-dividend date; OR (2) +1.7% absolute return in 11 days (equivalent to a +56.5% annualized return-on-investment if assigned at the June 18th expiration.


ViacomCBS Inc. (VIAC) -- New Covered Calls Position
The transactions were as follows:
06/08/2021 Bought 400 shares of ViacomCBS stock @ $41.19 per share 
06/08/2021 Sold 4 ViacomCBS June 18th, 2021 $40.00 Call options @ $1.63 per share
Note: the Open Interest in the Call options was 15,736 contracts, so the Bid/Ask spread was narrow at $1.60/$1.68 when this transaction was executed.  Also, the Implied Volatility of the Call options was 32.6.
06/14/2021 Upcoming ex-dividend of $.24 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $15,826.68
= ($41.19 - $1.63) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$649.32
= ($1.63 * 400 shares) - $2.68 commission
(b) Dividend Income (If ViacomCBS stock assigned on day prior to June 14th ex-dividend date): +$0.00; OR
(b) Dividend Income (If ViacomCBS stock assigned on June 18th options expiration date): $96.00
= $.24 dividend per share x 400 shares
(c) Capital Appreciation (If ViacomCBS stock is assigned at $40.00 on the day prior to the June 14th ex-dividend date): -$476.00
= ($40.00 - $41.19) * 400 shares; OR
(c) Capital Appreciation (If ViacomCBS stock is above $40.00 strike price at the June 18th expiration): -$476.00
= ($40.00 - $41.19) * 400 shares

1.  Total Net Profit (If ViacomCBS stock assigned on day prior to June 14th ex-dividend date): +$173.32
= (+$649.32 options income +$0.00 dividend income -$476.00 capital appreciation): OR
2.  Total Net Profit (If stock assigned on June 18th options expiration date): +$269.32
= (+$649.32 options income +$96.00 dividend income -$476.00 capital appreciation)

1.  Absolute Return (If ViacomCBS stock assigned on day prior to June 14th ex-dividend date): +1.1%
= +$173.32/$15,826.68
Equivalent Annualized Return: +66.6%
= (+$322.66/$15,826.68) * (365/6 days); OR
2.  Absolute Return (If ViacomCBS stock assigned on June 18th options expiration date): +1.7%
= +$269.32/$15,826.68
Equivalent Annualized Return: +56.5%
= (+$269.32/$15,826.68)*(365/11 days)


Either outcome would provide a very good return-on-investment result.  These returns will be achieved as long as the stock is above the $40.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $39.32 ($41.19 -$1.63 -$.24) provides 4.5% downside protection below today's purchase price.

Using the Cox-Ross-Rubinstein Options Pricing Model, the probability of making a profit (if held until the June 18th options expiration) for this ViacomCBS Covered Calls position is 69.7%, so the approximate expected value annualized ROI of this investment (if held until expiration) is +39.4% (+56.5% * 69.7%), an attractive result for this in-the-money Covered Calls position.

The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a Dividend Capture Strategy.  The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved which is the case for this ViacomCBS Inc. position, and eight criteria were met in this case (as shown in the chart below).

Early Assignment of HP Inc. Covered Calls

Three HP Inc. (formerly Hewlett-Packard Corp.) June 18th, 2021 $28.00 Call options were exercised early on the day prior to today's (June 8th) ex-dividend date. This early exercise by the Call owners was somewhat surprising to the Covered Calls Advisor since they decided to immediately forgo the remaining $.19 time value in the Calls [$2.55 midpoint value of the Call options' $2.51/$2.58 Bid/Ask price - ($30.36 current stock price - $28.00 strike price)], and only 11 days remaining until the options expiration date, to buy the stock and therefore also capture today's $.1938 ex-dividend. 

This is a good outcome for the Covered Calls Advisor since the resulting +31.1% annualized return-on-investment (aroi) achieved is slightly better than the +27.1% maximum possible aroi that might have been achieved later at the options expiration date if the stock was above the $28.00 strike price on the expiration date.  The transactions and detailed results for this position are as follows:

HP Inc. (HPQ) -- Covered Calls Position Closed by Early Assignment

The original buy/write transaction was:
05/28/2021 Bought 300 HP Inc. HP Inc. shares @ $29.26
05/28/2021 Sold 3 HP Inc. 6/18/2021 $28.00 Call options @ $1.52
Note 1: the Implied Volatility of the Calls was 26.4 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.26 per share = [$1.52 Call options premium - ($29.26 stock price - $28.00 strike price)]
06/07/2021 Three Call options exercised early, so Call options expired and 300 shares of HPQ stock were sold at the $28.00 strike price.

The overall performance result (including commissions) for this HP Inc. Covered Calls position was as follows:
Covered Calls Cost Basis: $8,324.01
= ($29.26 - $1.52) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$456.00
= ($1.52 * 300 shares)
(b) Dividend Income (Three Call options exercised early on June 7th, the business day prior to the June 8th ex-div date): +$0.00
(c) Capital Appreciation: (HP Inc. Call options assigned early): -$378.00
+($28.00 - $29.26) * 300 shares

 Total Net Profit: +$78.00
= (+$456.00 options income +$0.00 dividend income -$378.00 capital appreciation)
 
 Absolute Return: +0.9%
= +$78.00/$8,324.01
Equivalent Annualized Return: +31.1%
= (+$78.00/$8,324.01)*(365/11 days)

Thursday, June 3, 2021

Early Assignment of Bank of America Corp. Covered Calls

Somewhat surprisingly, the three Bank of America Corp. June 18th, 2021 $39.00 Call options were exercised early on the day prior to today's (June 3rd) ex-dividend date. The reason this was a surprise to the Covered Calls Advisor was that the owner of these Call options decided to immediately forgo the remaining $.22 time value in the Calls to buy the stock and therefore also capture today's $.18 ex-dividend. 

This is a good outcome for the Covered Calls Advisor since the resulting +27.1% annualized return-on-investment (aroi) achieved is better than the +18.6% maximum possible aroi that might have been achieved later at the options expiration date if the stock was above the $39.00 strike price on the expiration date.  As detailed below, a net profit of $129.00 was achieved in 15 days since the full $882.00 income (profit) received from selling the options exceeded the $753.00 loss in the stock price value.  For any Covered Calls position where there is an ex-dividend date prior to the options expiration date, the Covered Calls Advisor usually prefers to have the stock called away (assigned) early, normally the day prior to the ex-div date.  The reason is that the Covered Calls Advisor's Dividend Capture Strategy spreadsheet was designed to identify positions where the annualized-return-on-investment from early assignment is most often greater than what might be achieved if the stock is instead assigned at the options expiration date.  The transactions and detailed results for this position are as follows:

Bank of America Corp. (BAC) -- Covered Calls Position Closed by Early Assignment

The buy/write transaction was as follows:
05/19/2021 Bought 300 shares of Bank of America Corp. stock @ $41.51 per share 
05/19/2021 Sold 3 BAC June 18th, 2021 $39.00 Call options @ $2.94 per share
Note: The Open Interest in these Calls was 10,779 contracts and their Implied Volatility was 29.1
06/02/2021 Three Call options exercised early, so Call options expired and 300 shares of BAC stock were sold at the $39.00 strike price.

The overall performance results (including commissions) were as follows:
Covered Calls Cost Basis: $11,573.01
= ($41.51 - $2.94) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$882.00
= ($2.94 * 300 shares)
(b) Dividend Income (BAC shares assigned on 6/2/2021, the business day prior to the 6/3/2021 ex-dividend date): = +$0.00
(c) Capital Appreciation (BAC shares assigned early on 6/2/2021): -$753.00
= ($39.00 -$41.51) * 300 shares

Net Profit (Bank of America shares assigned on 6/2/2021, the day prior to the June 3rd ex-dividend date): +$129.00
= (+$882.00 options income +$0.00 dividend income - $753.00 capital appreciation)

 Absolute Return (BAC shares assigned on 6/2/2021, the day prior to the June 3rd ex-dividend date): +1.1%
= +$129.00/$11,573.01
Equivalent Annualized Return: +27.1%
= (+$129.00/$11,573.01)*(365/15 days)

Wednesday, June 2, 2021

Early Assignment of Devon Energy Corp. and Qualcomm Inc. Covered Calls

Early this morning, the Covered Calls Advisor received email notifications from my broker (Schwab) that two Covered Calls positions [Devon Energy Corp. (DVN) and Qualcomm Inc. (QCOM)] were exercised early by the Call option owners.  The Covered Calls Advisor was pleased because the annualized return-on-investment (aroi) for early assignment is greater than the aroi if the Covered Calls would instead have remained in-the-money for both positions and therefore assigned at their June 18th, 2021 options expiration date.

As detailed below, the return-on-investment results were as follows:
  • Devon Energy Corp. -- +2.6% absolute return (equivalent to +66.8% annualized return-on-investment for the 14 days this position was held).  This result exceeds the +48.8% that would have been achieved if this position had instead not been assigned until the June 18th, 2021 options expiration date.
  • Qualcomm Inc. --  +1.4% absolute return (equivalent to +31.1% annualized roi for the 16 days this position was held).  This result exceeds the +21.4% that would have been achieved if this position had instead not been assigned until the June 18th, 2021 options expiration date.

1.  Devon Energy Corp. (DVN) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction was:
05/19/2021 Bought 400 Devon Energy Corp. shares @ $24.75
05/19/2021 Sold 4 DVN 6/18/2021 $22.00 Call options @ $3.30
Note 1: the Implied Volatility of the Calls was 51.2 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.55 per share = [$3.30 Call options premium - ($24.75 stock price - $22.00 strike price)].
06/01/2021 Early exercise of 4 DVN June 18th, 2021 $22.00 Call options, so 400 DVN shares were assigned (i.e. sold) at the $22.00 strike price.

The overall performance results (including commissions) for this Devon Energy Corp. Covered Calls position were as follows:
Covered Calls Cost Basis: $8,582.68
= ($24.75 - $3.30) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,320.00
= ($3.30 * 400 shares)
(b) Dividend Income (4 Call options exercised early on June 1st which was prior to the June 11th ex-div date): +$0.00
(c) Capital Appreciation: -$1,100.00
+($22.00 - $24.75) * 400 shares

Total Net Profit [DVN Call options exercised on June 1st (10 days prior to the June 11th ex-dividend date)]: +$220.00
= (+$1,320.00 options income +$0.00 dividend income -$1,100.00 capital appreciation)
 
Absolute Return (Four DVN Call options exercised early on June 1st, 2021): +2.6%
= +$220.00/$8,582.68
Annualized Return: +66.8%
= (+$220.00/$8,582.68)*(365/14 days)



2.  Qualcomm Inc. (QCOM) -- Covered Calls Position Closed by Early Assignment
The Covered Calls Advisor's original buy/write limit order at a net debit of $49.62 was transacted as follows:
05/17/2021 Bought 200 shares of Qualcomm stock @ $128.09 per share 
05/17/2021 Sold 2 Qualcomm June 18th, 2021 $120.00 Call options @ $9.71 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of the Call options was 32.0.
06/01/2021 Early exercise of 2 QCOM June 18th, 2021 $120.00 Call options, so 200 QCOM shares were assigned (i.e. sold) at the $120.00 strike price.

The overall performance results (including commissions) were as follows:
Covered Calls Cost Basis: $23,677.34
= ($128.09 - $9.71) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,940.66
= ($9.71 * 200 shares) - $1.34 commission
(b) Dividend Income (Qualcomm stock assigned on day prior to June 2nd ex-dividend date): +$0.00
(c) Capital Appreciation: -$1,618.00
= ($120.00 - $128.09) * 200 shares

Total Net Profit (Qualcomm stock assigned on day prior to June 2nd ex-dividend date): +$322.66
= (+$1,940.66 options income +$0.00 dividend income -$1,618.00 capital appreciation)

 Absolute Return (QCOM stock assigned on day prior to June 2nd ex-dividend date): +1.4%
= +$322.66/$23,677.34
Equivalent Annualized Return: +31.1%
= (+$322.66/$23,677.34) * (365/16 days)

Tuesday, June 1, 2021

Continuation of Covered Call Position in Alibaba Group Holdings Ltd.

Last Friday, the May 28th $215.00 BABA Call option expired out-of-the-money (the stock closed on Friday at $213.86 per share).  This morning, Alibaba's stock opened much higher and when its stock price was $221.52, the Covered Calls Advisor continued the Covered Call position by selling one June 18th, 2021 $225.00 Call option for $3.95 per share against the 100 Alibaba shares. 

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

  •  +2.9% absolute return (equivalent to +22.6% annualized return for 47 days) if the stock price is unchanged from today's price of $221.68 on the June 18th, 2021 options expiration date; OR 
  • +4.5% absolute return (equivalent to +34.8% annualized return for 47 days) if the stock is assigned at the $225.00 strike price on the June 18th, 2021 options expiration date.

 

Alibaba Group Holdings Ltd. (BABA) -- Continuation of Covered Call Position

The original buy/write transaction was as follows:
05/03/2021 Bought 100 shares of Alibaba stock @ $232.14 per share 
05/03/2021 Sold 1 Alibaba May 14th, 2021 $225.00 Call option @ $10.24 per share
Note: The Implied Volatility of the Call option was 32.3 when this transaction was executed.
05/14/2021 Bought-to-Close 1 BABA May 14th, 2021 $225.00 Call Option @ $.01 per share and simultaneously Sold-to-Open 1 BABA May 28th, 2021 $215.00 Call @ $2.92 per share.
Note: the stock price was $209.08 when this $2.91 net credit spread transaction was executed.
05/28/2021 The BABA $215.00 Call option expired out-of-the-money and the 100 shares of BABA stock were retained in the Covered Calls Advisor Portfolio
06/01/2021 Continued BABA Covered Calls position by selling one June 18th, 2021 $225.00 Call option @ $3.95 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Call Cost Basis: $22,191.34
= ($232.14 - $10.24) * 100 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,707.99
= ($10.24 - $.01 + $2.92 + $3.95) * 100 shares - $2.01 commissions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Alibaba stock price is unchanged at $221.52 on the June 18th, 2021 options expiration date): -$1,062.00
= ($221.52 -$232.14) * 100 shares; OR
(c) Capital Appreciation (If Alibaba stock price closes above the $225.00 strike price and is assigned at the June 18th, 2021 options expiration date): -$714.00
= ($225.00 -$232.14) * 100 shares

(a) Total Net Profit (If Alibaba stock price is unchanged at $221.52 at the June 18th, 2021 options expiration date): +$645.99
= (+$1,707.99 Call option income +$0.00 dividend income -$1,062.00 capital appreciation); OR
(b) Total Net Profit (If Alibaba stock price closes above the $225.00 strike price and is assigned at the June 18th, 2021 options expiration date): +$993.99
= (+$1,707.99 Call option income +$0.00 dividend income - $714.00 capital appreciation)

1. Absolute Return-on-Investment (If Alibaba stock price is unchanged at $221.52 at the June 18th, 2021 options expiration date): +2.9%
= +$645.99/$22,191.34
Equivalent Annualized Return-on-Investment: +22.6%
= (+$645.99/$22,191.34)* (365/47 days); OR
2. Absolute Return-on-Investment (If Alibaba stock price closes above the $225.00 strike price and is assigned at the June 18th, 2021 options expiration date): +4.5%
= +$993.99/$22,191.34
Equivalent Annualized Return-on-Investment: +34.8%
= (+$993.99/$22,191.34)*(365/47 days)