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)
