The Covered Calls Advisor decided to close out the Covered Call position in Alibaba Group Holding Ltd. (ticker BABA). The stock has declined from $232.14 when this Covered Calls position was established on April 30th, 2021 to $201.21 this morning when the 100 BABA shares were sold. The fundamental value in Alibaba remains strong, but the Covered Calls Advisor did not anticipate the recent strict tightening of regulatory authority that China's government would place on its large tech companies. So, the Covered Calls Advisor decided to exit this position at a loss rather than continue with this position given the increased uncertainty regarding the extent to which central government's desire to control tech data will stifle the future potential of Alibaba.
As detailed below, the return-on-investment result was -5.4% absolute return in 66 days (equivalent to a -30.1% annualized return-on-investment).
Alibaba Group Holding Ltd. (BABA) -- Covered Call Position Closed
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.
07/08/2021 Closed BABA Covered Calls position with simultaneous Buy/Write unwind transaction at a net credit of $200.88 per share. Sold 1 BABA 7/16/2021 $225.00 Call option @ $.33 per share and sold 100 BABA shares @ $201.21 per share.
The overall performance results (including commissions) was as follows:
Covered Call Cost Basis: $22,191.34
= ($232.14 - $10.24) * 100 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$1,884.32
= ($10.24 - $.01 + $2.92 + $3.95 + $2.77 - $.33) * 100 shares - $3.35 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Alibaba stock sold at $201.21 per share): -$3,093.00
= ($201.21 -$232.14) * 100 shares\
Total Net Profit: -$1,208.68
= (+$1,884.32 Call option income +$0.00 dividend income -$3,093.00 capital appreciation)
Absolute Return-on-Investment: -5.4%
= -$1,208.68/$22,191.34
Equivalent Annualized Return-on-Investment: -30.1%
= (-$1,208.68/$22,191.34)* (365/66 days)
