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.
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
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.
