Established Covered Calls in Capital One Financial Corporation

This morning a Covered Calls net debit limit order was entered for 200 shares of Capital One Financial Corporation (ticker COF) with a November 19th, 2021 options expiration date at the $145.00 strike price and at a net debit price of $143.20 per share.   I didn't really expect that the Capital One stock would decline by enough today to execute the order, but at 1:48pm this afternoon the order was executed. 200 Capital One shares were purchased at $150.52 and two November 19th, 2021 Call options at the $145.00 strike price were sold at $7.32 per share.  The time value was $1.80 = [$7.32 Call options premium - ($150.52 stock price - $145.00 strike price)]. The Covered Calls Advisor expects a quarterly dividend of $.60 per share (1.6% annualized dividend yield) to be announced soon with an ex-dividend date no later than November 12th which would be prior to the November 19th options expiration date, so this dividend amount is included in the return-on-investment calculations below. The Implied Volatility of these Call options was 27.9 when this transaction was executed and the Delta was 71.4 which approximates a 71.4% probability of the Call options being in-the-money at the options expiration date. 

Q3 2021 earnings were reported earlier this week and the stock has declined substantially (by about 10%) since then despite beating analysts' estimates by 26.0% and also being 34.1% above the same quarter last year. A few analysts have changed their price targets since the earnings report earlier this week, but in each case the change was minor and more analysts raised their targets slightly rather than lowered them. The average target price is now $190.18 (+26.3% above today's purchase price).  The RSI(2) [Relative Strength Index (2 days)] is now deeply oversold since any rating below 30 is considered oversold and the current RSI(2) for Capital One is only 2.6.  So, hopefully the recent price reaction has been overdone and the stock price will soon rebound higher (or at least remain above the $145.00 strike price at options expiration). Indeed, if the current earnings estimates for this year and next are achieved, the Trailing Twelve-Month (TTM) P/E ratio will never exceed 10.0.  Additionally, the current 1.38 Price-to-Tangible Book Value ratio provides another attractive valuation metric. 

As detailed below, a potential return-on-investment result is +1.7% absolute return (equivalent to +27.7% annualized return for the next 22 days) if the stock price is in-the-money (i.e. above the $145.00 strike price) and therefore assigned on the November 19th options expiration date.

Capital One Financial Corporation (COF) -- New Covered Calls Position

The Buy/Write limit order transaction was as follows:
10/29/2021 Bought 200 shares of Capital One stock @ $150.52 per share 
10/29/2021 Sold 2 COF Nov. 19th, 2021 $145.00 Call options @ $7.32 per share

A possible overall performance result (including commissions) for this Capital One Covered Calls position is as follows:
Stock Purchase Cost: $28,641.34
= ($150.52 - $7.32) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,462.66
= ($7.32 * 200 shares) - $1.34 commission
(b) Dividend Income: +$120.00 = $.60 per share X 200 shares

(c) Capital Appreciation (If 200 COF shares assigned at $145.00 strike price at expiration): -$1,104.00
+($145.00 -$150.52) * 200 shares

Total Net Profit (If 200 Capital One shares assigned at $145.00 strike price at expiration): +$478.66

= (+$1,462.66 options income +$120.00 dividend income -$1,104.00 capital appreciation)

 

Absolute Return-on-Investment: +1.7%

= +$478.66/$28,641.34

Annualized Return-on-Investment: +27.7%

= (+$478.66/$28,641.34) * (365/22 days)