Today, a Covered Calls position was established in Cabot Oil and Gas Corporation (ticker symbol COG) when the Covered Calls Advisor's buy/write limit order at $15.25 was executed. Six hundred COG shares were purchased at $15.86 and six August 20th, 2021 Call
options were sold for $.61 per share at the $15.50 strike price. The
net debit limit order at $15.25 was executed, so the time value was $.25
per share [$.61 Call options premium - ($15.86 stock purchase price -
$15.50 strike price)]. There is an upcoming quarterly ex-dividend of $.11 (annual dividend yield of 2.8%) on August 11th, so potential return-on-investment results for this position, as detailed below, include the possibility of early assignment because the ex-dividend is prior to the August 20th, 2021 options expiration date. As preferred by the Covered Calls Advisor, the next quarterly earnings report will be after the options expiration date since 2Q 2021 earnings were reported just two weeks ago. Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Calls position was established with a Delta of 63.8 when the buy/write limit order was executed.
As detailed below, a potential return-on-investment result is +1.6% absolute return (equivalent to +97.0% annualized
return for the next 6 days) if the stock is assigned early (business day
prior to the August 11th ex-date); OR +2.3%
absolute return (equivalent to +52.8% annualized return over the next 16
days) if the stock is assigned on the August 20th, 2021 options expiration date.
Cabot is an Exploration and Production (E&P) company currently focused on natural gas in the Marcellus Shale in Northeast Pennsylvania. Its wells mainly yield dry gas which provides high gas flow rates and at below industry production average prices. They will acquire Cimarex Energy in Q4 this year in a "merger of equals" which will diversify its geographic assets to include the Mid-Continent (in Oklahoma) and the Permian Basin (West Texas and New Mexico). Expected cash flow per share is $2.67 this year with expected further growth to $3.76 in fiscal 2022. Cabot ranks in the top 10% of all large-cap companies in the Covered Calls Advisor's Energy Sector screener and has the best valuation based on its current Enterprise Value to EBITDA ratio of the six large-cap U.S.-based companies identified by this screener. In addition, the current average target price of the 26 analysts covering Cabot is $21.37 (+34.7% above its current price).
Cabot Oil and Gas Corporation(COG) -- New Covered Calls Position
In the unlikely event that the
current time value (i.e. extrinsic value) of $.25 per share remaining in the six short Call
options decays substantially (to below about $.10 per share) by August 10th (the last business day prior to the ex-dividend date), there is
a possibility that the Call options owner would exercise early and
therefore call the 600 Cabot Oil and Gas shares away to capture the dividend payment.
The transactions were:
08/05/2021 Bought 600 Cabot shares @ $15.86
08/05/2021 Sold 6 COG 8/20/2021 $15.50 Call options @ $.61
Note: A simultaneous buy/write transaction was executed. The Implied Volatility of the Call options was 30.5 when this Covered Calls position was established.
08/11/2021 Upcoming quarterly ex-dividend of $.11 per share
Two possible overall performance results (including commissions) for this Cabot Oil and Gas Covered Calls position are as follows:
Covered Calls Cost Basis: $9,154.02
= ($15.86 - $.61) * 600 shares + $4.02 commissions
Net Profit Components:
(a) Options Income: +$361.98
= ($.61 * 600 shares) - $4.02 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Aug 11th ex-div date): +$0.00; or
(b) Dividend Income (If Cabot shares assigned at August 20th, 2021 options expiration): +$66.00
= ($.11 dividend per share x 600 shares)
(c) Capital Appreciation (If COG assigned early on August 10th): -$216.00
+($15.50 -$15.86) * 600 shares ;or
(c) Capital Appreciation (If COG shares assigned at $15.50 strike price at options expiration): -$216.00
+($15.50 -$15.86) * 600 shares
Either outcome would provide an excellent return-on-investment result. These returns will be achieved as long as the stock is above the $15.50 strike price at assignment. If the stock declines below the strike price, the breakeven price of $15.14 ($15.86 -$.61 -$.11) provides 4.5% downside protection below today's purchase price.
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. As shown in the table below, eight criteria are achieved for this Cabot Oil and Gas Corp. Covered Calls position.
