Rolled-Up-and-Out Covered Calls Position in American Eagle Outfitters Inc.

Today, the Covered Calls position in American Eagle Outfitters Inc. (ticker AEO) was continued by rolling out one week from the December 31st $24.00 strike to the January 7th, 2022 $26.00 strike price via a Call spread transaction at a net debit of $1.15 per share.  The original American Eagle Covered Calls position was established on November 24th, 2021 when 500 shares were purchased at $27.43 per share.  The stock declined to $23.05 at the original December 17th, 2021 options expiration date, so the Covered Calls Advisor began a Covered Calls repair strategy to attempt to repair this losing position back toward profitability.  The stock has rebounded along with the Santa Claus rally during the past week back to $25.90 today when a roll-up-and-out Call spread transaction was executed: Bought-to-Close the 12/31/2021 $24.00 Calls for $1.92 and simultaneously Sold-to-Open the 1/7/2022 $26.00 Calls at $.77.  My current plan is to continue rolling out AEO Calls each week so that another decision about continuing or closing this American Eagle Covered Calls position can be made each week at each Friday's expiration. 

As detailed below, two potential return-on-investment results are:  (a) -0.8% absolute return (equivalent to -6.1% annualized return over the 45 days this position is held) if the stock price is unchanged at $25.90 on the January 7th, 2022 options expiration date; and (b) -0.4% absolute return (equivalent to -2.9% annualized return over the 45 days this position is held) if AEO stock is in-the-money and therefore assigned on the January 7th, 2022 options expiration date.

American Eagle Outfitters Inc. (AEO) -- Continuation of Covered Calls Position
The transaction today was as follows:
11/24/2021 Bought 500 American Eagle Outfitters Inc. shares @ $27.43
11/24/2021 Sold 5 AEO 12/17/2021 $26.00 Call options @ $2.11
12/09/2021 Upcoming quarterly ex-dividend of $.18 per share
12/17/2021 5 Call options expired out-of-the-money and 500 shares of AEO retained in the Covered Calls Advisor Portfolio.
12/23/2021 Sold 5 AEO 12/31/2021 $24.00 Call options @ $.22 per share when the stock price was $23.23 per share.
12/30/2021 Rolled-Up-and-Out: Bought-to-Close the 12/31/2021 $24.00 Calls for $1.92 and simultaneously Sold-to-Open the 1/7/2022 $26.00 Calls at $.77.  The AEO stock price was $25.90 when this debit spread transaction was executed.

Two possible overall performance results (including commissions) for this American Eagle Outfitters Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $12,663.35
= ($27.43 - $2.11) * 500 shares + $3.35 commissions

Net Profit Components:
(a) Options Income: +$579.95
= ($2.11 + $.22 - $1.92 +$.77) * 500 shares - $10.05 commissions
(b) Dividend Income: +$90.00
= $.18 per share x 500 shares
(c) Capital Appreciation (If American Eagle share price unchanged at $25.90 at Jan. 7th, 2022 expiration): -$765.00
= +($25.90 - $27.43) * 500 shares ;or
(c) Capital Appreciation (If AEO shares assigned at $26.00 strike price at 1/7/2022 options expiration): -$715.00
= +($26.00 - $27.43) * 500 shares

1. Total Net Profit (If American Eagle share price unchanged at $25.90 at Jan. 7th, 2022 expiration): -$95.05

= (+$579.95 options income +$90.00 dividend income - $765.00 capital appreciation); or

2. Total Net Profit (If AEO shares assigned at $26.00 strike price at Jan. 7th, 2022 expiration): -$45.05

= (+$579.95 + $90.00 - $715.00)

1. Absolute Return-on-Investment (If American Eagle share price unchanged at $25.90 at Jan. 7th, 2022 expiration): -0.8%

= -$95.05/$12,663.35

Annualized Return-on-Investment: -6.1%

= (-$95.05/$12,663.35) * (365/45 days); or

2. Absolute Return-on-Investment (If AEO shares assigned at $26.00 strike price at the January 7th, 2022 options expiration date): -0.4%

= -$45.05/$12,663.35

Annualized Return-on-Investment (If AEO stock assigned at $26.00 at Jan. 7th, 2022 expiration): -2.9%

= (-$45.05/$12,663.35) *(365/45 days)

Closed Covered Calls in JPMorgan Chase & Co.

On December 20th, 2021, a Covered Calls position was established in JPMorgan Chase & Co. (JPM) with a January 21st, 2022 options expiration date.  Two hundred shares of JPMorgan stock were purchased at $152.37 and two January 21st, 2022 Call options were sold at $9.53 per share.  JPM's price had risen to $159.54 today when the Covered Calls Advisor's net credit limit order to unwind (i.e. close out) this Covered Calls position at $144.76 was executed.  The original time value in this Covered Calls position was $2.16 per share [$9.53 options premium - ($152.37 stock price - $145.00 strike price)].   Along with the stock price increase, the accompanying remaining time value in the Calls had declined from their original $2.16 to only $.24 per share ($145.00 strike price - $144.76 net credit Covered Calls unwind price).  

Since the stock has been on a price uptrend since this position was established and with only $.24 time value remaining in the Call options this morning, I decided to close out the position and secure an annualized return-on-investment (aroi) of +60.9% since this outcome exceeded: (1) the potential +34.4% aroi that might have been achieved from early assignment on the day prior to the $1.00 ex-dividend next Wednesday; or (2) the +24.4% aroi if not assigned early on the day prior to next week's ex-dividend but instead assigned at the January 21st, 2022 options expiration date.  

JPMorgan Chase & Co. (JPM) -- Covered Calls Position Closed Out

The simultaneous buy/write transaction was:
12/20/2021 Bought 200 JPM shares @ $152.37
12/20/2021 Sold 2 JPM 1/21/2022 $145.00 Call options @ $9.53 per share
12/28/2021 Unwound JPM Covered Calls position by simultaneously Selling-to-Close 200 JPM shares at $159.54 and Buying-to-Close the 2 JPM January 21st, 2022 $145.00 Call options at a net credit of $144.76 per share.

The overall performance results (including commissions) for this JPM Covered Calls position were as follows:
Stock Purchase Cost: $28,569.34
= ($152.37 - $9.53) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: -$1,052.68
= ($9.53 -$14.78) *200 shares - $2.68 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (JPM shares sold at $159.54): +$1,434.00
+($159.54 -$152.37) * 200 shares

Total Net Profit: +$381.32

= (-$1,052.68 options income +$0.00 dividend income +$1,434.00 capital appreciation)

 

Absolute Return-on-Investment: +1.3%

= +$381.32/$28,569.34

Annualized Return-on-Investment (If option exercised early): +60.9%

= (+$381.32/$28,569.34)*(365/8 days)

Roll-Out Covered Calls Position in Devon Energy Corporation

The Covered Calls Advisor Portfolio had a Covered Calls position in Devon Energy Corp. (DVN) that had an expiration date today at the $43.00 strike price.  Today with less than ten minutes remaining before the market close, the Covered Calls position was out-of-the-money and I decided to roll-out the position one week to December 31st, 2021 at the same $43.00 strike price.  A credit spread transaction was executed by simultaneously buying-to-close 3 Dec. 23rd, 2021 $43.00 Calls @ $.01 per share and selling-to-open 3 Dec. 31st, 2021 $43.00 Calls @ $.71 per share--a net credit of $.70 per share when the stock was trading at $42.31 per share.   

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

•  +4.4% absolute return (equivalent to +36.2% annualized return over a period of 44 days) if the Devon Energy stock price is unchanged from today's price of $42.31 on the December 31st, 2021 options expiration date; OR 

• +6.2% absolute return (equivalent to +51.1% annualized return over 44 days) if the stock is in-the-money and therefore assigned at the $43.00 strike price on the Dec. 31st options expiration date.
  

Devon Energy Corp. (DVN) -- Covered Calls Position Rolled-Out
The net debit limit order buy/write transaction was as follows:
11/18/2021 Bought 300 Devon Energy shares @ $42.08
11/18/2021 Sold 3 Devon 12/17/2021 $39.00 Call options @ $3.80   Note: the Implied Volatility of these Call options was 45.6 when this position was established and their Bid/Ask spread was $3.75/$3.90.
12/08/2021 Rolled-Up-and-Out: Bought-to-Close the 12/17 $39.00 Calls for $6.29 and simultaneously Sold-to-Open the 12/23 $43.00 Calls at $2.59.
12/09/2021 Quarterly ex-dividends totaling $.84 per share
12/23/2021 Bought-to-Close 3 DVN Dec. 23rd, 2021 $43.00 Call Options @ $.01 per share and simultaneously Sold-to-Open 3 DVN Dec. 31st, 2021 $43.00 Calls @ $.71 per share.

Two potential overall performance results (including commissions) for this Devon Energy Covered Calls position is as follows:
Covered Calls Cost Basis: $11,486.01
= ($42.08 - $3.80) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$179.70
= ($3.80 - $6.29 + $2.59 -$.01 +$.71) * 300 shares - $6.03 commissions
(b) Dividend Income (If Devon share price is unchanged at $42.31 at the Dec.31st, 2021 options expiration): +$252.00
= ($.84 total in dividends per share x 300 shares)
(c) Capital Appreciation (If Devon share price unchanged at $42.31 strike price at 12/31/2021 options expiration): +$69.00
+($42.31 - $42.08) * 300 shares; OR
(c) Capital Appreciation (If Devon shares are in-the-money and therefore assigned at the $43.00 strike price in the 12/31/2021 options expiration): +$276.00
+($43.00 - $42.08) * 300 shares

(a) Total Net Profit (If Devon Energy stock price is unchanged at $42.31at the Dec. 31st, 2021 options expiration date): +$500.70
= (+$179.70 Call options income +$252.00 dividend income +$69.00 capital appreciation); OR
(b) Total Net Profit (If Devon stock price closes above the $43.00 strike price and is assigned at the Dec. 31st, 2021 options expiration date): +$707.70
= (+$179.70 Call options income +$252.00 dividend income +$276.00 capital appreciation)

1. Absolute Return-on-Investment (If Devon Energy stock price is unchanged at $42.31 at the 12/31/2021 options expiration date): +4.4%
= +$500.70/$11,486.01
Equivalent Annualized Return-on-Investment: +36.2%
= (+$500.70/$11,486.01)*(365/44 days); OR
2. Absolute Return-on-Investment (If DVN stock price closes above the $43.00 strike price and is assigned at the Dec. 31st, 2021 options expiration date): +6.2%
= +$707.70/$11,486.01
Equivalent Annualized Return-on-Investment: +51.1%
= (+$707.70/$11,486.01)*(365/44 days)

Continuation of Covered Calls Position in American Eagle Outfitters Inc.

Today, the Covered Calls positions in American Eagle Outfitters Inc. (ticker AEO) was continued by selling Call options against the shares held in the Covered Calls Advisor Portfolio.  Last Friday, AEO's $26.00 strike price Calls expired with the stock price substantially out-of-the-money at $23.05.  With the recent concerns regarding the extent of disruption that the Omicron variant might have for mall-based retailers, American Eagle's stock price suffered.  I believe the extent of the actual impact on mall traffic and sales will not be as significant as feared and there is a strong likelihood of a price rebound, so I decided to continue to sell Calls against the 500 AEO shares owned.  My current plan is to attempt to repair the damage done by continuing to sell short-term Calls against the 500 AEO shares owned.  Today 5 December 31st, 2021 $24.00 Calls were sold at $.22 per share when the stock price was $23.23--so this provides only one week until the next options expiration date at which time another decision will be made. 

As detailed below, two potential return-on-investment results are:  (a) -6.7% absolute return (equivalent to -64.6% annualized return over the 38 days this position is held) if the stock price is unchanged at $23.23 on the December 31st, 2021 options expiration date; and (b) -3.7% absolute return (equivalent to -35.4% annualized return over the 38 days this position is held) if AEO stock is in-the-money and therefore assigned on the December 31st, 2021 options expiration date.

American Eagle Outfitters Inc. (AEO) -- Continuation of Covered Calls Position
The transaction today was as follows:
11/24/2021 Bought 500 American Eagle Outfitters Inc. shares @ $27.43
11/24/2021 Sold 5 AEO 12/17/2021 $26.00 Call options @ $2.11
12/09/2021 Upcoming quarterly ex-dividend of $.18 per share
12/17/2021 5 Call options expired out-of-the-money and 500 shares of AEO retained in the Covered Calls Advisor Portfolio.
12/23/2021 Sold 5 AEO 12/31/2021 $24.00 Call options @ $.22 per share when the stock price was $23.23 per share. 

Two possible overall performance results (including commissions) for this American Eagle Outfitters Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $12,663.35
= ($27.43 - $2.11) * 500 shares + $3.35 commissions

Net Profit Components:
(a) Options Income: +$1,158.30
= ($2.11 + $.22) * 500 shares - $6.70 commissions
(b) Dividend Income: +$90.00
= $.18 per share x 500 shares
(c) Capital Appreciation (If American Eagle share price unchanged at $23.23 at Dec. 31st, 2021 expiration): -$2,100.00
= +($23.23 - $27.43) * 500 shares ;or
(c) Capital Appreciation (If AEO shares assigned at $24.00 strike price at 12/31/2021 options expiration): -$1,715.00
= +($24.00 - $27.43) * 500 shares

1. Total Net Profit (If American Eagle share price unchanged at $23.23 at Dec. 31st, 2021 expiration): -$851.70

= (+$1,158.30 options income +$90.00 dividend income - $2,100.00 capital appreciation); or

2. Total Net Profit (If AEO shares assigned at $24.00 strike price at Dec. 31st, 2021 expiration): -$466.70

= (+$1,158.30 + $90.00 - $1,715.00)

1. Absolute Return (If American Eagle share price unchanged at $23.23 at Dec. 31st, 2021 expiration): -6.7%

= -$851.70/$12,663.35

Annualized Return-on-Investment: -64.6%

= (-$851.70/$12,663.35) * (365/38 days); or

2. Absolute Return (If AEO shares assigned at $24.00 strike price at Dec. 31st, 2021 expiration): -3.7%

= -$466.70/$12,663.35

Annualized Return-on-Investment (If AEO stock assigned at $24.00 at Dec. 31st, 2021 expiration): -35.4%

= (-$466.70/$12,663.35) *(365/38 days)

Closed Out the Covered Calls Position in Bank of America Corp.

At last Friday's options expiration date, five December 17th, 2021 Covered Calls in Bank of America Corp. (BAC) expired with the stock price below the $44.00 strike price.  Since then, Bank of America's shares have increased along with the overall market, so I decided to close out the position by selling the 500 BAC shares at $44.79. 

As detailed below, the return-on-investment results for this Bank of America position is: +3.5% absolute return in 23 days (equivalent to a +56.2% annualized return-on-investment).

 

Bank of America Corp. (BAC) -- Covered Calls Position Closed Out

The buy/write transaction was as follows:
11/29/2021 Bought 500 shares of Bank of America Corp. stock @ $45.50 per share 
11/29/2021 Sold 5 BAC Dec. 17th, 2021 $44.00 Call options @ $2.04 per share
Note: The Open Interest in these Calls was 16,908 contracts and their Implied Volatility was 28.3
12/02/2021 Ex-dividend of $.21 per share
12/17/2021 5 BAC $44.00 strike price Calls expired slightly out-of-the-money with the stock closing at $43.88, so 500 BAC shares remained in the Covered Calls Advisor Portfolio.
12/23/2021 Closed out the Bank of America position by selling 500 BAC shares @ $44.79 per share.

The overall performance results (including commissions) was as follows:
Covered Calls Cost Basis: $21,733.35
= ($45.50 - $2.04) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$1,020.00
= ($2.04 * 500 shares)
(b) Dividend Income: +$105.00
= $.21 per share x 500 shares
(c) Capital Appreciation (500 BAC shares sold at $44.79): -$355.00
= ($44.79 -$45.50) * 500 shares

Net Profit: +$770.00
= (+$1,020.00 options income +$105.00 dividend income - $355.00 capital appreciation)

Absolute Return-on-Investment: +3.5%
= +$770.00/$21,733.35
Equivalent Annualized Return-on-Investment: +56.2%
= (+$770.00/$21,733.35)*(365/23 days)

Covered Calls Position Established in Nucor Corporation

Early in today's trading, the buy/write limit order in Nucor Corporation (ticker symbol NUE) was transacted when three hundred Nucor shares were purchased at $112.69 and three January 7th, 2022 Call options were sold for $7.03 per share at the $107.00 strike price.  The  buy/write net debit limit order at $105.66 was executed, so the time value was $1.34 per share [$7.03 Call options premium - ($112.69 stock purchase price - $107.00 strike price)].  There is an upcoming quarterly ex-dividend of $.50 per share (annual dividend yield of 1.8%) on December 30th, 2021 (next Thursday), so the potential return-on-investment results for this position detailed below include the possibility of early assignment because the ex-dividend is prior to the January 7th, 2022 options expiration date.  

As preferred by the Covered Calls Advisor, Nucor's next (Q4 2021) earnings report on January 27th, 2022 will be after the January 7th options expiration date.  Given the Covered Calls Advisor's current cautious market outlook, an in-the-money Covered Calls position was established with a Delta of 75.5 (a 75.5% probability of assignment) when the buy/write limit order was executed.

Nucor appeared in the Covered Calls Advisor's 'Acquirers Multiple' screener which combines two valuation factors: EV/EBITDA and P/E Ratio in addition to several other factors.  It has an especially attractive valuation since its P/E Ratio based on the average estimates for FY2021 (which ends upon its next quarterly earnings report on 1/27/2022) is only 4.8.  

As detailed below, a potential return-on-investment result is +1.3% absolute return (equivalent to +65.8% annualized return for the next 7 days) if the stock is assigned early (business day prior to the December 30th ex-dividend date); OR +1.7% absolute return (equivalent to +39.6% annualized return over the next 16 days) if the stock is assigned on the January 7th, 2022 options expiration date.

Nucor Corporation (NUE) -- New Covered Calls Position
The simultaneous buy/write transaction today was as follows:
12/23/2021 Bought 300 Nucor shares @ $112.69
12/23/2021 Sold 3 Nucor 1/07/2022 $107.00 Call options @ $7.03
Note: the Implied Volatility of the Calls was 36.0 when this transaction was executed, well above the S&P 500 Volatility Index (VIX) of 18.3.
12/30/2021 Upcoming quarterly ex-dividend of $.50 per share

Two possible overall performance results (including commissions) for this Nucor Covered Calls position are as follows:
Covered Calls Cost Basis: $31,700.01
= ($112.69 - $7.03) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$2,106.99
= ($7.03 * 300 shares) - $2.01 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Dec. 30th ex-div date): +$0.00; or
(b) Dividend Income (If Nucor shares assigned at the Jan. 7th, 2022 options expiration): +$150.00
= ($.50 dividend per share x 300 shares)
(c) Capital Appreciation (If Nucor shares assigned early on Dec. 29th): -$1,707.00
+($107.00 - $112.69) * 300 shares ;or
(c) Capital Appreciation (If Nucor shares assigned at $107.00 strike price at options expiration): -$1,707.00
+($107.00 - $112.69) * 300 shares

1. Total Net Profit [If options exercised on December 29th (last business day prior to the Dec. 30th ex-dividend date)]: +$399.99

= (+$2,106.99 +$0.00 - $1,707.00); or

2. Total Net Profit (If Nucor shares assigned at $107.00 strike price at the Jan. 7th, 2022 expiration): +$549.99

= (+$2,106.99 + $150.00 - $1,707.00)

1. Absolute Return-on-Investment [If Nucor Call options exercised on business day prior to ex-dividend date]: +1.3%

= +$399.99/$31,700.01

Annualized Return-on-Investment (If options exercised early): +65.8%

= (+$399.99/$31,700.01) * (365/7 days); or

2. Absolute Return-on-Investment (If Nucor shares assigned at $107.00 strike price on January 7th, 2022 expiration): +1.7%

= +$549.99/$31,700.01

Annualized Return-on-Investment (If Nucor stock assigned at $107.00 at Jan. 7th, 2022 expiration): +39.6%

= (+$549.99/$31,700.01) *(365/16 days)

These returns will be achieved as long as the Nucor stock is above the $107.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $105.16 ($112.69 -$7.03 -$.50) provides 6.7% 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, all nine criteria are met for this Nucor Corporation Covered Calls position.

Closed Covered Calls Position in The Buckle, Inc.

On December 6th, 2021, a Covered Calls position was established in The Buckle, Inc. (BKE) with a March 18th, 2022 options expiration date.  Three hundred BKE shares were purchased @ $48.1869 and 3 March 18th, 2022 $37.50 Call options were sold @ $11.94 per share, hence the time value per share in the position was $1.2531 [$11.94 - ($48.1869 - $37.50)].  

On December 17th, BKE went ex-dividend at a total of $6.00 per share ($.35 per share regular quarterly dividend and a $5.65 "special dividend").   At that time, I neglected to recognize the "special" dividend and the fact that it reduces the strike price of the Call options by the $5.65 amount)--this adjustment is reflected in the detailed results below.  Although "special dividends" that effect options strike prices on their ex-dividend date are relatively rare, going forward I will be more diligent about taking that into consideration in my return-on-investment calculations prior to entering the position.  

Yesterday, I placed a Covered Calls unwind limit order at a net credit of $31.10 per share to Sell-to-Close the 300 BKE shares and simultaneously Buy-to-Close the 3 BKE Call options.  At $31.10, this would provide a net profit in the Covered Calls position of $.5031 per share ($1.2531 time value when position originally bought - $.75 time value remaining when the position was sold (i.e. unwound).  This limit order was executed about 3 hours later at 1:25pm at a BKE stock price of $41.48 per share and the Calls at $10.38 per share.  In addition, the $.35 dividend was captured on Dec. 17th and this is included in the annualized-return-on-investment results and the $5.65 special dividend captured was offset by the $5.65 decline in the Call options' strike price.

As detailed below, the return-on-investment results for this Covered Calls position in The Buckle, Inc. was +2.3% absolute return in 16 days (equivalent to a +52.8% annualized return-on-investment). 

The Buckle, Inc. (BKE) -- Covered Calls Position Closed Out
The buy/write transaction today was as follows:
12/06/2021 Bought 300 The Buckle, Inc. shares @ $48.1869
12/06/2021 Sold 3 BKE 3/18/2022 $37.50 Call options @ $11.94 per share.  The Implied Volatility of these Call options was approximately 55 when this position was established.
12/17/2021 Regular quarterly ex-dividend of $.35 per share
12/17/2021 Special ex-dividend of $5.65 per share. The strike price is also adjusted by $5.65 from its original $37.50 to $31.85.
12/22/2021 Unwound and therefore closed out the Covered Calls position: Sold-to-Close the 300 BKE shares at $41.48 per share and simultaneously Bought-to-Close the 3 BKE $31.85 Call options at $10.38 per share.

The overall performance results (including commissions) for this The Buckle, Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $10,876.08
= ($48.1869 - $11.94) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$463.98
= ($11.94 - $10.38) * 300 shares) - $4.02 commissions
(b) Dividend Income: +$1,800.00
= ($.35 regular dividend per share + $5.65 per share special dividend) x 300 shares
(c) Capital Appreciation: -$2,012.07
+($41.48 - $48.1869) * 300 shares

Total Net Profit (BKE Covered Calls position closed out on 12/22/2021): +$251.91

= (+$463.98 options income + $1,800.00 dividend income - $2,012.07 capital appreciation)
 

Absolute Return-on-Investment: +2.3%

= +$251.91/$10,876.08

Annualized Return-on-Investment: +52.8%

= (+$251.91/$10,876.08) *(365/16 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 $142.84 executed.  At 10:48am, with the Dow Jones down 645 points, 200 shares were purchased at $152.37 and two January 21st, 2022 $145.00 Call options were sold at $9.53 per share.  This is the first position established in the Covered Calls Advisor Portfolio with a January 2022 options expiration date.  This is a moderately in-the-money position since the stock purchase price is 5.1% above the $145.00 strike price.  This corresponds to a Delta of 71.7 which provides a good approximation of 71.7% for the probability of assignment on the options expiration date.  

Most companies in the Financial Sector provide only modest growth prospects, but they often provide good annual dividend yields.  Consequently, the Covered Calls Advisor targets opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions.  This new January 21st, 2022 JPMorgan Chase Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of five very large U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, and Morgan Stanley) for each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup and/or Morgan Stanley for Feb, May, Aug, and Nov options expirations; and
Bank of America and/or Goldman Sachs for Mar, Jun, Sep, and Dec options expirations).

The goal of these monthly Covered Calls in these banks is to both provide an opportunity to either: (1) potentially capture the quarterly dividend payment and if the stock price remains above the strike price at options expiration, the maximum possible return-on-investment result on the options expiration date for the position would be achieved; or (2) have the stock assigned early on the day prior to the ex-dividend date in which case the Covered Calls Advisor is usually very pleased since the Dividend Capture Strategy criteria are designed such that most often the annualized return-on-investment for early assignment is greater than that would be achieved if the stock was instead assigned on the options expiration date.  So far, applying this approach has provided attractive annualized return results -- much better than would be achieved if Covered Calls positions for these bank stocks were held in the Covered Calls Advisor Portfolio during the other two non-dividend paying months each quarter.  

JPMorgan's upcoming dividend is $1.00 per share (a 2.6% annualized dividend yield) and it goes ex-dividend on January 5th, 2022.  Two potential return-on-investment results for this position are:  (1) early assignment on the day prior to a January 5th ex-dividend date; and (2) assignment (if the stock price is in-the-money) on the January 21st, 2022 options expiration date.  An additional consideration for this position is that the next quarterly earnings report is on January 14th which is prior to the January 21st options expiration date.  Prior to the earnings report, the Covered Calls Advisor will be monitoring this position closely each day since closing out the position on or after the ex-dividend date but prior to the earnings date is a likely possibility.
  
As detailed below, two potential return-on-investment results are: 

•  +1.5% absolute return (equivalent to +34.4% annualized return for the next 16 days) if the stock is assigned early (business day prior to a January 5th, 2022 ex-dividend date); OR 

• +2.2% absolute return (equivalent to +24.4% annualized return over the next 33 days) if the stock is assigned on the January 21st, 2022 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 $2.16 = [$9.53 options premium - ($152.37 stock price - $145.00 strike price)] remaining in the short Call options decays substantially (down to about $.25 or less) by January 4th, 2022 (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 200 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 +34.4% annualized return-on-investment (aroi) exceeds the +24.4% aroi if it is instead assigned on the January 21st, 2022 options expiration date.

The simultaneous buy/write transaction was:
12/20/2021 Bought 200 JPM shares @ $152.37
12/20/2021 Sold 2 JPM 1/21/2022 $145.00 Call options @ $9.53 per share
1/05/2022 Upcoming quarterly ex-dividend at $1.00 per share

Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost: $28,569.34
= ($152.37 - $9.53) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,904.66
= ($9.53 *200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Jan.4th, the business day prior to the Jan. 5th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at the January 21st, 2022 expiration): +$200.00
= ($1.00 dividend per share x 200 shares)

(c) Capital Appreciation (If JPM assigned early): -$1,474.00
+($145.00 -$152.37) * 200 shares; or
(c) Capital Appreciation (If JPM assigned at $145.00 strike price at expiration): -$1,474.00
+($145.00-$152.37) * 200 shares

1. Total Net Profit [If option exercised on the last business day prior to the Jan. 5th ex-dividend date)]: +$430.66

= (+$1,904.66 options income +$0.00 dividend income -$1,474.00 capital appreciation); or

2. Total Net Profit (If JPM assigned at $145.00 at Jan. 21st, 2022 expiration): +$630.66

= (+$1,904.66 options income +$200.00 dividend income -$1,474.00 capital appreciation)

1. Absolute Return (If option exercised on business day prior to ex-dividend date): +1.5%

= +$430.66/$28,569.34

Annualized Return (If option exercised early): +34.4%

= (+$430.66/$28,569.34/$28,569.34)*(365/16 days); or

2. Absolute Return (If JPM assigned at $145.00 at Jan. 21st, 2022 expiration date): +2.2%

= +$630.66/$28,569.34

Annualized Return (If JPM assigned at $145.00 at Jan. 21st, 2022 options expiration): +24.4%

= (+$630.66/$28,569.34)*(365/33 days)

Either outcome provides a good annualized-return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $145.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $141.84 ($152.37 -$9.53 -$1.00) provides 6.9% downside protection below today's 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.  Eight of the nine criteria are achieved in this JPMorgan position.

Monthly Options Expiration Results through December 17th, 2021

The Covered Calls Advisor Portfolio had fourteen positions since last month's (November 19th, 2021) monthly options expiration date.  During this past month, the Covered Calls Advisor Portfolio closed out eleven of these fourteen positions.   All eleven positions were closed out at a profit and three were Covered Calls positions that expired out-of-the-money on yesterday's options expiration date.  A summary of results (for all fourteen positions) since the last monthly options expiration date on Nov. 19th, 2021 through yesterday's monthly options expiration date of December 17th are summarized below:

• Eight Covered Calls positions expired in-the-money (stock price above the strike price) on the December 17th monthly options expiration date, so the options expired and the stocks were sold at their respective strike prices with the following results: 

1. Alcoa Corporation (AA) -- +2.6% absolute return in 22 days (equivalent to +43.5% annualized return-on-investment).  
2. Boeing Company (BA) -- +2.9% absolute return in 22 days (equivalent to +47.8% annualized return-on-investment). 
3. Cigna Corporation (CI) -- +1.7% absolute return in 25 days (equivalent to +24.2% annualized return-on-investment).  
4. Cleveland-Cliffs Inc. (CLF) -- +2.4% absolute return in 17 days (equivalent to +51.7% annualized return-on-investment).
5. Discover Financial Services (DFS) -- +2.6% absolute return in 32 days (equivalent to +29.2% annualized return-on-investment).  
6. Pioneer Natural Resources Company (PXD) -- +3.5% absolute return in 38 days (equivalent to +34.0% annualized return-on-investment). 
7. Uber Technologies Inc. (UBER) -- +1.2% absolute return in 16 days (equivalent to +28.4% annualized return-on-investment).  
8. Zimmer Integrated Shipping Services Ltd. (ZIM) -- +7.7% absolute return in 17 days (equivalent to +165.6% annualized return-on-investment).

 

• Three Covered Calls positions were closed out prior to their options expiration dates based on decisions made by the Covered Calls Advisor to unwind these positions prior to their options expiration dates with the following results:
  

1. Diamondback Energy Inc. (FANG) -- +1.8% absolute return in 20 days (equivalent to +33.3% annualized return-on-investment).
2. Goodyear Tire & Rubber Co. (GT) -- +2.3% absolute return in 13 days (equivalent to +63.9% annualized return-on-investment).
3. EOG Resources Inc. (EOG) -- +2.0% absolute return in 12 days (equivalent to +62.1% annualized return-on-investment). 
   

 

• Three Covered Calls positions expired out-of-the-money on yesterday's November 19th, 2021 options expiration date.  Five hundred shares of American Eagle Outfitters Inc., five hundred shares of Bank of America Corp., and two hundred shares of Signet Jewelers Ltd. now remain in the Covered Calls Advisor Portfolio (shown in the right sidebar of this blog).  Decisions will be made soon to either sell these shares or to continue with their Covered Calls positions by selling future Call options against the shares currently held.

 

During the past year (last 12 months) 128 of 135 positions (94.8%) in the Covered Calls Advisor Portfolio (CCAP) were closed out at a profit.  The Covered Calls Advisor's objective is that at least two-thirds (66.7%) of positions be closed profitably.  The bullish market during the past year aided the CCAP to exceed this objective by a wide margin.  The CCAP average annualized-return-on-investment was +39.6% during the past year and the average holding period of the 135 positions was 22.2 days.  In comparison, the benchmark S&P 500 index (SPY) returned +27.6% during the same prior one-year period.  Cautionary note to readers: This twelve percentage points (39.6% minus 27.6%) outperformance during the past year by the Covered Calls Advisor Portfolio exceeds that which can normally be expected using the Covered Calls investing strategy.  As indicated in this post made earlier this year on this blog site (Link) -- by exploiting our Covered Calls investing "edges", we can expect to achieve (over a period of several years) an average annualized-return-on-investment above the S&P 500 benchmark index of approximately 3 to 5 percentage points annually.

As shown in the right sidebar, there are currently seven open positions in the Covered Calls Advisor Portfolio.  Future transactions and return-on-investment results for these positions and the details of all other newly established positions will be posted on this blog site on the same day the transactions occur.  

Covered Calls investing has been very good to me, and therefore also for my family, over the past four decades.  So the information presented in this Covered Calls Advisor blog is available freely to anyone interested in learning to become a more effective Covered Calls investor.  As always, I also welcome your emails whenever you have any comments or questions related to anything related to Covered Calls investing.

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

Covered Calls Established in Energy Select Sector SPDR Fund ETF

A Covered Calls position was established in the Energy Select Sector SPDR Fund ETF (ticker XLE), with a December 31st, 2021 options expiration date. Three hundred shares of the Energy Select Sector SPDR Fund were purchased at $54.81 and three Call options were sold at $1.72 per share at the $53.50 strike price.  

The time value was $.41 per share [$53.50 strike price - ($54.81 share price - $1.72 options premium)] when this buy/write limit order transaction was executed.  XLE also goes ex-distribution on December 20th, 2021with a regular quarterly dividend of $.695 per share which is included in the potential return-on-investment result which is: +2.1% absolute return (equivalent to +50.9% annualized return-on-investment over the next 15 days) if the stock is assigned on the December 31st, 2021 options expiration date.  

The Delta was 70.1 when this position was established, which is the approximate probability that it will close in-the-money on the options expiration date.

Energy Select Sector SPDR Fund ETF (XLE) -- New Covered Calls Position
The buy/write transaction was as follows:
12/17/2021 Bought 300 shares of the Energy Select Sector SPDR Fund @ $54.81 per share 
9/17/2021 Sold 3 XLE Dec. 31st, 2021 $53.50 Call options @ $1.72 per share
Note: the Implied Volatility of these Call options was 21.8 when this position was established.
12/20/2021 Ex-distribution of $.695 per share
 

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $15,929.01 = ($54.81 - $1.72) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$518.01
= ($1.72 * 300 shares) - $2.01 commissions
(b) Dividend Income (If XLE shares assigned at Dec. 31st, 2021 options expiration): +$208.50
= ($.695 dividend per share x 300 shares)
(c) Capital Appreciation (If XLE shares assigned at $53.50.00 strike price at options expiration): -$393.00
= +($53.50 - $54.81) * 300 shares

Total Net Profit (If XLE shares assigned at $53.50 strike price at Dec. 31st, 2021 expiration): +$333.51

= (+$518.01 + $208.50 - $393.00)
 

Absolute Return-on-Investment (If XLE shares assigned at $53.50 strike price on Dec. 31st, 2021 options expiration date): +2.1%

= +$333.51/$15,929.01

Annualized Return-on-Investment (If XLE shares assigned at $53.50 strike at Dec. 31st, 2021 options expiration): +50.9%

= (+$333.51/$15,929.01) *(365/15 days)

These returns will be achieved as long as the stock is above the $53.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $52.395 ($54.81 -$1.72 -$.695) provides 4.4% downside protection below today's purchase price.

Covered Call Position Established in Meta Platforms Inc.

A new Covered Call position was established early this afternoon in Meta Platforms Inc. (formerly Facebook--ticker FB) by purchasing 100 shares at $327.95 per share and selling one Call option at the $310.00 strike price with a December 31st, 2021 options expiration date for $21.71 per share.  The time value was $3.76 per share [$21.71 Call option premium - ($327.95 stock purchase price - $310.00 strike price)]. The Call option premium received was attractive since the Implied Volatility (IV) of the Call was 36.5 when this position was established.  A primary reason for this abnormally high IV for Facebook is because of the elevated uncertainty since the whistleblower testimony along with concerns about the impact of Apple's anti-tracking initiative which has caused a stock price decline of 14% since the beginning of September.  But analysts continue to be bullish on Meta's stock (43 of 48 analysts rate it as either a strong buy or outperform), and their average price target remains slightly above $400.  In addition, the P/E ratio based on this year's estimated earnings is 23--so Meta continues to retain its position as the megacap tech stock with the most attractive valuation.  Given the Covered Calls Advisor's cautious market outlook, a moderately in-the-money Covered Call position was established with a Delta of 77.1 (which approximates the probability of assignment at its Dec. 31st options expiration). 

As detailed below, a potential return-on-investment result for this Facebook position is:
+1.2% absolute return in 17 days (equivalent to a +26.3% annualized return-on-investment) if the stock closes above the $310.00 strike price at the December 31st, 2021 options expiration date.
  

Meta Platforms Inc. (FB) -- New Covered Call Position

The Covered Calls Advisor's buy/write limit order was transacted as follows:
12/15/2021 Bought 100 Facebook shares @ $327.95
12/15/2021 Sold 1 Facebook 12/31/2021 $310.00 Call option @ $21.71. 

A possible overall performance result (including commissions) for this Meta Platforms Covered Call position is as follows:
Covered Call Cost Basis: $30,624.67
= ($327.95 - $21.71) * 100 shares + $.67 commission

Net Profit Components:
(a) Option Income: +$2,170.33
= ($21.71 * 100 shares) - $.67 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If FB shares assigned at $310.00 strike price at options expiration): -$1,795.00
+($310.00 - $327.95) * 100 shares

Total Net Profit (If Meta Platforms shares assigned at $310.00 strike price at December 31st, 2021 expiration): +$375.33

= (+$2,170.33 option income +$0.00 dividend income -$1,795.00 capital appreciation)

Absolute Return  (If Meta shares assigned at $310.00 on the Dec. 31st, 2021 expiration date): +1.2%

= +$375.33/$30,624.67

Annualized Return-on-Investment: +26.3%

= (+$375.33/$30,624.67) * (365/17 days)

Closed Covered Calls in EOG Resources Inc.

On December 2nd, 2021, a Covered Calls position was established in EOG Resources Inc.(EOG) with a December 23rd,2021 options expiration date.  EOG Resources stock has been on a price uptrend since this position was established and with only $.50 time value remaining in the Call options this morning, I decided to close out the position and secure an annualized return-on-investment (aroi) of +62.1% rather than waiting 10 more days for a potential maximum aroi of +44.7% if the position were to instead be assigned on its December 23rd options expiration date.    

As detailed below, the return-on-investment results for this EOG Resources Inc. Covered Calls position was +2.0% absolute return in 12 days (equivalent to a +62.1% annualized return-on-investment). 

EOG Resources Inc. (EOG) -- Covered Calls Position Closed
The original buy/write transaction was as follows:
12/02/2021 Bought 200 EOG Resources Inc. shares @ $84.9553
12/02/2021 Sold 2 EOG 12/23/2021 $80.00 Call options @ $7.06 per share.  The Implied Volatility of these Call options was 48.7 when this position was established and their Bid/Ask spread was $6.80/$7.40.
12/14/2021 Special ex-dividend of $2.00 per share
12/14/2021 Unwound EOG Covered Calls position: Sold-to-Close 200 EOG shares @ $85.83 and Bought-to-Close 2 Dec. 23rd, 2021 $78.00 Call options @ $8.33 per share.

The overall performance results (including commissions) for this EOG Resources Covered Calls position are as follows:
Covered Calls Cost Basis: $15,580.40
= ($84.9553 - $7.06) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: -$256.68
= ($7.06 -$8.33) * 200 shares - $2.68 commissions
(b) Dividend Income: (Special Dividend of $2.00 per share): +$400.00
= ($2.00 dividend per share x 200 shares)
(c) Capital Appreciation (Sold-to-Close 200 EOG shares assigned at $85.83): +$174.94
+($85.83 - $84.9553) * 200 shares

Total Net Profit: +$318.26

= (-$256.68 options income + $400.00 dividend income + $174.94 capital appreciation)
 

Absolute Return-on-Investment: +2.0%

= +$318.26/$15,580.40

Annualized Return-on-Investment: +62.1%

= (+$318.26/$15,580.40 * (365/12 days)

Roll-Up-and-Out Devon Energy Corp. Covered Calls

Devon Energy Corp. (ticker symbol DVN) goes ex-dividend tomorrow at $.84 per share (an $.11 regular dividend + a $.73 special dividend).  With the stock trading today at $45.35, the existing Covered Calls position at the December 17th, 2021 $39.00 strike price had $0.00 remaining time value.  Rather than have these Calls exercised later today and the stock assigned (i.e. sold) at the $39.00 strike price, I decided to roll-up-and-out to the December 23rd, 2021 $43.00 strike price at a net debit of $.30 per share -- Bought-to-Close the 12/17 $39.00 Calls for $6.29 and simultaneously Sold-to-Open the 12/23 $43.00 Calls at $2.59. 

This remains a conservative in-the-money Covered Calls position since the Delta for these new Calls when this rollout transaction was executed was 77.9 which closely approximates the probability of assignment at options expiration (i.e. 77.9% probability).  Also as preferred by the Covered Calls Advisor, there is no quarterly earnings report for Devon prior to the new December 23rd, 2021 options expiration date.

As detailed below, a potential return-on-investment result for this Devon Energy position is +4.8% absolute return in 36 days (equivalent to a +48.9% annualized return-on-investment) if the stock closes above the $43.00 strike price at the December 23rd, 2021 options expiration.  This potential +48.9% exceeds the +32.4% annualized return that would have been achieved if the original Devon Energy Covered Calls position had instead been assigned early later today.

Devon Energy Corp. (DVN) -- Covered Calls Position Rolled Up-and-Out
The net debit limit order buy/write transaction was as follows:
11/18/2021 Bought 300 Devon Energy shares @ $42.08
11/18/2021 Sold 3 Devon 12/17/2021 $39.00 Call options @ $3.80   Note: the Implied Volatility of these Call options was 45.6 when this position was established and their Bid/Ask spread was $3.75/$3.90.
12/08/2021 Rolled-Up-and-Out: Bought-to-Close the 12/17 $39.00 Calls for $6.29 and simultaneously Sold-to-Open the 12/23 $43.00 Calls at $2.59.
12/09/2021 Upcoming quarterly ex-dividends of $.84 per share

An overall performance result (including commissions) for this Devon Energy Covered Calls position if assigned at the Dec. 23rd options expiration date is as follows:
Covered Calls Cost Basis: $11,486.01
= ($42.08 - $3.80) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$25.98
= ($3.80 - $6.29 + $2.59) * 300 shares - $4.02 commissions
(b) Dividend Income (If Devon shares assigned at Dec.23rd, 2021 options expiration): +$252.00
= ($.84 dividend per share x 300 shares)
(c) Capital Appreciation (If Devon shares assigned at $43.00 strike price at 12/23/2021 options expiration): +$276.00
+($43.00 - $42.08) * 300 shares

Total Net Profit: $553.98

= ($25.98 options income + $252.00 dividend income + $276.00 capital appreciation)

 

Absolute Return-on-Investment (If Devon shares assigned at $43.00 strike price on Dec. 23rd, 2021 expiration): +4.8%

= +$553.98/$11,486.01

Annualized Return-on-Investment (If Devon stock assigned at $43.00 strike at Dec. 23rd, 2021 expiration): +48.9%

= (+$553.98/$11,486.01) *(365/36 days)

Covered Calls Established in The Buckle, Inc. Using the Covered Calls Advisor's Dividend Capture Strategy

Today, a new Covered Calls position was established in The Buckle, Inc.(ticker BKE) when 300 shares were purchased at $48.1869 and three March 18th, 2022 Call options were sold at $11.94 per share at the $37.50 strike price.  The time value was $1.2531 per share [$11.94 Call options premium - ($48.1869 stock purchase price - $37.50 strike price)]. This morning, the company announced an upcoming ex-dividend of $.35 per share and a "special" ex-dividend of $5.65 per share, both of which will go ex-dividend on December 17th, 2021. As is normally the case with generous "special dividends", it demonstrates not only the rapidly growing profitability of the company, but also shows management's willingness to share a substantial portion of their profits with their shareholders. Two potential return-on-investment results for this position are detailed below--which in addition to a possible assignment next year on the estimated tentative February 18th, 2022 options expiration date, also includes the possibility of early exercise on the day prior to the December 17th ex-dividend date.  So, this position is consistent with the Covered Calls Advisor's Dividend Capture Strategy used on some positions, with the associated 9 criteria shown in the chart at the bottom of this post. This moderately in-the-money position was established when the Delta of the Call options was about 81.2, which approximates a probability of 81.2% that the Call options will be in-the-money on the options expiration date.

The Buckle, Inc. is small-capitalization company since their current market cap is $2.3 billion. They offer casual apparel (they are considered a denim destination), footwear, and accessories that appeals to young men and women located in their 441 stores in 42 states. Including their Q4 2022 earnings report tentatively on February 18th, 2022, they are estimated to attain $4.81 per share in current fiscal year earnings -- a P/E Ratio of 10.0 based on today's $48.1869 stock purchase price.    

As detailed below, a potential return-on-investment result is +3.4% absolute return (equivalent to +114.1% annualized return for the next 11 days) if the stock is assigned early (business day prior to the December 17th ex-date); OR +20.0% absolute return (equivalent to +70.8% annualized return-on-investment over the next 103 days) if the stock is assigned on the March 18th, 2022 options expiration date.  These very high potential annualized return-on-investment results demonstrates the very attractive benefit that can accrue by establishing Covered Calls with intervening one-time "special dividends" with quality companies.

The Buckle, Inc. (BKE) -- New Covered Calls Position
The buy/write transaction today was as follows:
12/06/2021 Bought 300 The Buckle, Inc. shares @ $48.1869
12/06/2021 Sold 3 BKE 3/18/2022 $37.50 Call options @ $11.94 per share.  The Implied Volatility of these Call options was approximately 55 when this position was established.
12/17/2021 Upcoming regular quarterly ex-dividend of $.35 per share plus a "special" ex-dividend of $5.65 per share.

Two possible overall performance results (including commissions) for this The Buckle, Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $10,876.08
= ($48.1869 - $11.94) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$3,579.99
= ($11.94 * 300 shares) - $2.01 commissions
(b) Dividend Income (If option exercised early on the day prior to the Dec. 17th, 2021 ex-div date): +$0.00; or
(b) Dividend Income (If BKE shares assigned at March 18th, 2022 options expiration): +$1,800.00
= [$6.00 dividends per share ($.35 quarterly dividend + $5.65 special dividend) x 300 shares]
(c) Capital Appreciation (If BKE shares assigned early on Dec. 16th): -$3,206.07
+($37.50 - $48.1869) * 300 shares ;or
(c) Capital Appreciation (If Buckle shares assigned at $37.50 strike price at options expiration): -$3,206.07
+($37.50 - $48.1869) * 300 shares

1. Total Net Profit [If options exercised on Dec. 16th (last day prior to the Dec. 17th ex-dividend date)]: +$373.92

= (+$3,579.99 options income +$0.00 dividend income - $3,2096.07 capital appreciation); or

2. Total Net Profit (If BKE shares assigned at $37.50 strike price at March 18th, 2022 expiration): +$2,173.92

= (+$3,579.99 options income + $1,800.00 dividend income - $3,206.07 capital appreciation)

1. Absolute Return-on-Investment [If BKE Call options exercised on business day prior to ex-dividend date]: +3.4%

= +$373.92/$10,876.08

Annualized Return-on-Investment (If options exercised early): +114.1%

= (+$373.92/$10,876.08) * (365/11 days); or

2. Absolute Return-on-Investment (If BKE shares assigned at $37.50 strike price on March 18th, 2022 options expiration date): +20.0%

= +$2,173.92/$10,876.08

Annualized Return-on-Investment (If Buckle stock assigned at $37.50 strike price at the March 18th, 2022 options expiration date): +70.8%

= (+$2,173.92/$10,876.08) *(365/103 days)

These returns will be achieved as long as the stock is above the $37.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $30.2469 ($48.1869 -$11.94 -$6.00) provides 37.2% 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 of the nine criteria are met for this The Buckle, Inc. Covered Calls position.

Roll Down-and-Out to Continue Covered Calls Position in Discover Financial Services

Today, the Covered Calls position containing 200 shares of Discover Financial Services (DFS) stock was rolled down-and-out from the December 3rd, 2021 $114.00 strike price to the December 17th, 2021 $112.00 strike price.  The stock price had declined from the original purchase price of $118.03 per share to $108.67 at last Friday's market close, so the two Dec. 3rd $114.00 Call options expired out-of-the-money.  The Covered Calls Advisor attributes the stock price decline primarily to the decline of the 10-to-2-Year Treasury Yield Spread from about 1.0% to .75% currently.  I believe this Yield Spread is near a bottom and will soon rebound and the stock price will bounce back in response as well.  So, I decided to continue this Covered Calls position shortly after market open this morning by selling two December 17th, 2021 Calls at the $112.00 strike price against the 200 Discover shares owned.  The stock price was higher this morning at about $110.84 when the two DFS Call options were sold at $3.06 per share.

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

•  +1.3% absolute return (equivalent to +15.2% annualized return for the 32 days from the November 15th, 2021 date of origin until the Dec. 17th, 2021 options expiration) if the stock price is unchanged from today's price of $110.84; OR 

• +2.6% absolute return (equivalent to +29.2% annualized return over the 32 days period of this Covered Calls investment) if Discover stock is assigned at the $112.00 strike price on the December 17th, 2021 options expiration date.

Discover Financial Services (DFS) -- Rolled Down and Out Covered Calls Position
The buy/write transaction was as follows:
11/15/2021 Bought 200 shares of Discover Financial Services @ $118.03 per share 
11/15/2021 Sold 2 DFS Dec. 3rd, 2021 $114.00 Call options @ $5.37 per share
11/23/2021 Ex-dividend of $.50 per share
12/03/2021 Two DFS $114.00 Call options expired out-of-the-money, so 200 Discover shares remain in the Covered Calls Advisor Portfolio.
12/06/2021 Sold-to-Open 2 DFS $112.00 Calls @ $3.06 per share.
Note: the stock price was $110.84 at market close last Friday and approximately $110.84 shortly after the market open today when the two 12/17/2021 $112.00 Call options were sold to continue the Covered Calls position.

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $22,533.34
= ($118.03 - $5.37) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,683.32
= ($5.37 + $3.06) * 200 shares - $2.68 commissions
(b) Dividend Income: +$100.00 = ($.50 per share dividend x 200 shares) 
(c) Capital Appreciation (If Discover stock price is unchanged at $110.84 at the December 17th, 2021 options expiration date): -$1,438.00
= ($110.84 -$118.03) * 200 shares; OR
(c) Capital Appreciation (If Discover stock price closes above the $112.00 strike price and is assigned at the December 17th, 2021 options expiration date): -$1,206.00
= ($112.00 -$118.03) * 200 shares

(a) Total Net Profit (If Discover stock price is unchanged at $110.84 at the December 17th, 2021 options expiration date): +300.32
= (+$1,683.32 Call options income +$100.00 dividend income -$1,438.00 capital appreciation); OR
(b) Total Net Profit (If DFS stock price closes above the $112.00 strike price and is assigned at the December 17th, 2021 options expiration date): +$577.32
= (+$1,683.32 Call options income +$100.00 dividend income -$1,206.00 capital appreciation)

1. Absolute Return-on-Investment (If Discover Financial stock price is unchanged at $110.84 at the Dec. 17th, 2021 options expiration date): +1.3%
= +$300.32/$22,533.34
Equivalent Annualized Return-on-Investment: +15.2%
= (+$300.32/$22,533.34)*(365/32 days); OR
2. Absolute Return-on-Investment (If Discover stock price closes above the $112.00 strike price and is assigned at the December 17th, 2021 options expiration date): +2.6%
= +$577.32/$22,533.34
Equivalent Annualized Return-on-Investment: +29.2%
= (+$577.32/$22,533.34)*(365/32 days)

Covered Calls Established in EOG Resources Inc.

This morning, a new Covered Calls position was established in EOG Resources Inc. (ticker EOG) when 200 shares were purchased at $84.9553 and two December 23rd, 2021 Call options were sold at $7.06 per share at the $80.00 strike price.  The time value was $2.1047 per share [$7.06 Call options premium - ($84.9553 stock purchase price - $80.00 strike price)]. There is an upcoming "special" ex-dividend of $2.00 per share, so two potential return-on-investment results for this position are detailed below -- which in addition to assignment on the December 23rd, 2021 options expiration date, also includes the possibility of early exercise on the day prior to the December 14th ex-dividend date.  So, this position is consistent with the Covered Calls Advisor's Dividend Capture Strategy used on some positions, with the associated 9 criteria shown in the chart at the bottom of this post. 

Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, an in-the-money Covered Calls position was established -- the Delta was 70.3 when this position was established, which approximates a probability of 70.3% that the Call options will be in-the-money on the options expiration date. According to Reuters Research, EOG is covered by 33 analysts and their average target price is $111.27 which is +31.0% above today's purchase price.  As with the special dividends in the other two Energy Sector companies that the Covered Calls Advisor currently holds (Devon Energy and Pioneer Natural Resources), EOG's $2.00 special dividend is testimony to the growing profitability of the company and also their commitment to share a substantial portion of their profits with their shareholders.   

As detailed below, a potential return-on-investment result is +2.7% absolute return (equivalent to +81.9% annualized return for the next 12 days) if the stock is assigned early (business day prior to the December 14th ex-date); OR +5.3% absolute return (equivalent to +87.3% annualized return-on-investment over the next 22 days) if the stock is assigned on the December 23rd, 2021 options expiration date.  These very high potential annualized return-on-investment results demonstrates the very attractive benefit that can accrue by establishing Covered Calls with intervening one-time "special dividends" with quality companies.

EOG Resources Inc. (DVN) -- New Covered Calls Position
The buy/write transaction today was as follows:
12/02/2021 Bought 200 EOG Resources Inc. shares @ $84.9553
12/02/2021 Sold 2 EOG 12/23/2021 $80.00 Call options @ $7.06 per share.  The Implied Volatility of these Call options was 48.7 when this position was established and their Bid/Ask spread was $6.80/$7.40.
12/14/2021 Upcoming special ex-dividend of $2.00 per share

Two possible overall performance results (including commissions) for this EOG Resources Covered Calls position are as follows:
Covered Calls Cost Basis: $15,580.40
= ($84.9553 - $7.06) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$1,410.66
= ($7.06 * 200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Dec. 14th ex-div date): +$0.00; or
(b) Dividend Income (If EOG shares assigned at Dec. 23rd, 2021 options expiration): +$400.00
= ($2.00 dividend per share x 200 shares)
(c) Capital Appreciation (If EOG shares assigned early on Dec. 13th): -$991.06
+($80.00 - $84.9553) * 200 shares ;or
(c) Capital Appreciation (If EOG shares assigned at $80.00 strike price at options expiration): -$991.06
+($80.00 - $84.9553) * 200 shares

1. Total Net Profit [If options exercised on Dec. 13th (last business day prior to the Dec. 14th ex-dividend date)]: +$419.60

= (+$1,410.66 +$0.00 - $991.06); or

2. Total Net Profit (If EOG shares assigned at $80.00 strike price at Dec. 23rd, 2021 expiration): +$819.60

= (+$1,410.66 + $400.00 - $991.06)

1. Absolute Return-on-Investment [If EOG Call options exercised on business day prior to ex-dividend date]: +2.7%

= +$419.60/$15,580.40

Annualized Return-on-Investment (If options exercised early): +81.9%

= (+$419.60/$15,580.40) * (365/12 days); or

2. Absolute Return-on-Investment (If EOG shares assigned at $80.00 strike price on Dec. 23rd, 2021 options expiration date): +5.3%

= +$819.60/$15,580.40

Annualized Return-on-Investment (If EOG stock assigned at $80.00 strike at Dec. 23rd, 2021 options expiration): +87.3%

= (+$819.60/$15,580.40) *(365/22 days)

These returns will be achieved as long as the stock is above the $80.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $75.8953 ($84.9553 -$7.06 -$2.00) provides 10.7% 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, all nine criteria are met for this EOG Resources Inc. Covered Calls position.

Established Covered Calls in Cleveland-Cliffs Inc.

A December 17th, 2021 Covered Calls buy/write limit order was placed in Cleveland-Cliffs Inc. (ticker CLF) at a net debit price of $17.57 per share. At 3:05pm this afternoon the order was executed by purchasing 500 shares at $19.96 and simultaneously selling five December 17th, 2021 Call options at the $18.00 strike price for $2.39 per share.  When this in-the-money position was established today it had a probability of assignment on the options expiration date of 77.1%.

With acquisitions completed of ArcelorMittal USA and AK Steel, Cleveland-Cliffs is now the largest flat-rolled steel producer in North America and is also now vertically integrated from mining through production.  They also recently announced the acquisition of Ferrous Processing and Trading Co. which further enhances their vertical integration by establishing a significant foothold in the prime scrap metal market.  Earnings this fiscal year are expected to approximate $6.00 per share which implies a very attractive valuation with a P/E Ratio of 3.3.  Furthermore, the average analysts' target price is $30.62 (+53.4% above today's purchase price).

The Implied Volatility of the Call options was very high at 70.4 when this Covered Calls position was established.  As shown below, this results in a very attractive maximum potential annualized return-on-investment of +53.4%.  Their Q4 2021 earnings will be reported on February 24th, 2022, well after the Dec.17th, 2021 options expiration date for this Covered Calls position.  

As detailed below for this Cleveland-Cliffs Inc. Covered Calls position, the maximum potential return-on-investment result is +2.4% absolute return in 17 days (equivalent to a +51.7% annualized return-on-investment) if the stock price is above the $18.00 strike price on the December 17th, 2021 options expiration date.   

Cleveland-Cliffs Inc. (CLF) -- New Covered Calls Position Established
The Buy/Write limit order was executed as follows:
12/01/2021 Bought 500 shares of Cleveland-Cliffs Inc. stock @ $19.96 per share 
12/01/2021 Sold 5 CLF December 17th, 2021 $18.00 Call options @ $2.39 per share

A possible overall performance result (including commissions) for this Cleveland-Cliffs Covered Calls position is as follows:
Stock Purchase Cost: $8,788.35
= ($19.96 - $2.39) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$1,191.65
= ($2.39 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 500 CLF shares assigned at $18.00 strike price at options expiration): -$980.00
+($18.00 -$19.96) * 500 shares

Total Net Profit (If 500 Cleveland-Cliffs shares assigned at $18.00 strike price at expiration): +$211.65

= (+$1,191.65 options income +$0.00 dividend income -$980.00) capital appreciation

 

Absolute Return-on-Investment: +2.4%

= +$211.65/$8,788.35

Annualized Return-on-Investment: +51.7%

= (+$211.65/$8,788.35) * (365/17 days)

Covered Calls Position Established in Zimmer Integrated Shipping Services Ltd.

This afternoon, a Covered Calls position was established in Zimmer Integrated Shipping Services Ltd. (ticker symbol ZIM) when two hundred Zimmer Shipping Services shares were purchased at $53.85 and two December 17th, 2021 Call options were sold for $5.11 per share at the $50.00 strike price.  The  buy/write net debit limit order at $48.74 was executed, so the time value was $1.26 per share [$5.11 Call options premium - ($53.85 stock purchase price - $50.00 strike price)].  There is an upcoming special ex-dividend of $2.50 on December 15th, 2021 -- 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 December 17th, 2021 options expiration date.  

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 approximately 69.8 and an Implied Volatility of the Calls was approximately 70.4 when the buy/write limit order was executed.   

Zimmer Integrated Shipping Services Ltd. reported their Q3 2021 earnings about two weeks ago and they beat analysts estimates for Q3 2021 earnings by +31.4% while setting a company record for quarterly revenue of $3.1 billion.  The average target price for the five analysts currently following the company's stock is $73.33 which is +36.2% above today's purchase price.  ZIM's valuation is incredibly low since its current full fiscal year P/E ratio is now estimated at 2.0.  

As detailed below, a potential return-on-investment result is +2.6% absolute return (equivalent to +67.4% annualized return for the next 14 days) if the stock is assigned early on December 14th (the last business day prior to the December 15th ex-date); OR +7.7% absolute return (equivalent to +165.6% annualized return over the next 17 days) if the stock is assigned on the December 17th, 2021 options expiration date.

Zimmer Integrated Shipping Services Ltd. (ZIM) -- New Covered Calls Position
The transaction today was as follows:
12/01/2021 Bought 200 Zimmer Integrated Shipping Services Ltd. shares @ $53.85
12/01/2021 Sold 2 Zimmer 12/17/2021 $50.00 Call options @ $5.11
12/15/2021 Upcoming special ex-dividend of $2.50 per share

Two possible overall performance results (including commissions) for this Zimmer Covered Calls position are as follows:
Covered Calls Cost Basis: $9,749.34
= ($53.85 - $5.11) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$1,022.00
= ($5.11 * 200 shares) - $3.35 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Dec. 15th ex-div date): +$0.00; or
(b) Dividend Income (If Zimmer shares assigned at Dec. 17th, 2021 options expiration): +$500.00
= ($2.50 dividend per share x 200 shares)
(c) Capital Appreciation (If Zimmer Shipping Services shares assigned early on Dec. 14th): -$770.00
+($50.00 - $53.85) * 200 shares ;or
(c) Capital Appreciation (If ZIM shares assigned at $50.00 strike price at options expiration): -$770.00
+($50.00 - $53.85) * 200 shares

1. Total Net Profit [If options exercised on Dec. 14th (business day prior to the Dec. 15th ex-dividend date)]: +$252.00

= (+$1,022.00 options income +$0.00 dividend income - $770.00 capital appreciation); or

2. Total Net Profit (If Zimmer Shipping shares assigned at $50.00 strike price at Dec. 17th, 2021 expiration): +$752.00

= (+$1,022.00 + $500.00 - $770.00)

1. Absolute Return [If Zimmer Call options exercised on final business day prior to ex-dividend date]: +2.6%

= +$252.00/$9,749.34

Annualized Return (If options exercised early): +67.4%

= (+$252.00/$9,749.34) * (365/14 days); or

2. Absolute Return (If ZIM shares assigned at $50.00 strike price on Dec. 17th, 2021 expiration): +7.7%

= +$752.00/$9,749.34

Annualized Return (If ZIM stock assigned at $50.00 at Dec. 17th, 2021 expiration): +165.6%

= (+$752.00/$9,749.34) *(365/17 days)

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 of the nine criteria are met for this Zimmer Integrated Shipping Services Ltd. Covered Calls position.