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 July 1st, 2021 weekly options expiration date. Three hundred shares of the Energy Select Sector SPDR Fund were purchased at $78.62 and three Call options were sold at $4.71 per share at the $75.00 strike price.  The Implied Volatility of these Calls was 38.5 when this position was transacted which, as preferred by the Covered Calls Advisor, is above that of the S&P 500 Volatility Index (i.e. VIX) which is currently at 32.9.

The time value was $1.09 per share [$75.00 strike price - ($78.62 share price - $4.71 options premium)] when this buy/write limit order transaction was executed.  XLE also goes ex-distribution on June 21st, 2022.  The exact amount of the XLE distribution is not pre-announced, but based on prior quarterly distributions, I estimate it will be approximately $.71 per share.   

Given my current Bearish Overall Market Meter rating, the current strategy is to established Covered Calls between 4.0% and 7.0% in-the-money.  The Delta was 72.6 when this position was established, which is a good approximation of the probability that XLE will close in-the-money (and therefore be assigned at the strike price) on the July 1st options expiration date.  This corresponds to a 4.8% [($78.62 stock purchase price - $75.00 strike price)/$70.00 strike price] in-the-money position which is within the desired 4% to 7% in-the-money range given the current Bearish market viewpoint.

As detailed below, a potential return-on-investment result is +1.5% absolute return (equivalent to +107.0% annualized return for the next 5 days) if the stock is assigned early on June 20th (the last business day prior to the June 21st ex-date); OR +2.4% absolute return (equivalent to +55.3% annualized return over the next 16 days) if the stock is assigned on the July 1st, 2022 options expiration date.

Energy Select Sector SPDR Fund ETF (XLE) -- New Covered Calls Position
The buy/write transaction today was as follows:
6/16/2022 Bought 300 Energy Select Sector SPDR Fund ETF shares @ $78.62 per share
6/16/2022 Sold 3 XLE 7/01/2022 $75.00 Call option @ $4.71 per share
6/21/2022 Upcoming quarterly ex-distribution estimated at $.71 per share

Two possible overall performance results (including commissions) for this Energy Select Sector SPDR Fund ETF Covered Call position are as follows:
Covered Call Cost Basis: $22,175.01
= ($78.62 - $4.71) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$1,410.99
= ($4.71 * 300 shares) - $2.01 commissions
(b) Dividend Income (If option exercised early on the business day prior to the June 21st ex-div date): +$0.00; or
(b) Dividend Income (If XLE shares assigned at July 1st, 2022 options expiration): +$213.00
= ($.71 dividend per share x 300 shares)
(c) Capital Appreciation (If XLE shares assigned early on June 30th): -$1,086.00
+($75.00 - $78.62) * 300 shares ;or
(c) Capital Appreciation (If shares assigned at $75.00 strike price at options expiration): -$1,086.00
+($75.00 - $78.62) * 300 shares

1. Total Net Profit [If options exercised on June 30th (last business day prior to the July 1st ex-dividend date)]: +$324.99

= (+$1,410.99 options income +$0.00 dividend income - $1,086.00 capital appreciation); or

2. Total Net Profit (If XLE shares assigned at $75.00 strike price at July 1st, 2022 expiration): +$537.99

= (+$1,410.99 options income + $213.00 dividend income - $1,086.00 capital appreciation)

1. Absolute Return [If XLE Call options exercised on final business day prior to ex-dividend date]: +1.5%

= +$324.99/$22,175.01

Annualized Return (If options exercised early): +107.0%

= (+$324.99/$22,175.01) * (365/5 days); or

2. Absolute Return (If XLE shares assigned at $75.00 strike price on July 1st, 2022 expiration): +2.4%

= +$537.99/$22,175.01

Annualized Return (If XLE shares assigned at $75.00 at July 1st, 2022 expiration): +55.3%

= (+$537.99/$22,175.01) *(365/16 days)

These returns will be achieved as long as the XLE price is above the $75.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $73.20 ($78.62 -$4.71 -$.71) provides 6.9% 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 Energy Select Sector SPDR Fund ETF Covered Call position.