Yesterday, I closed out two losing Covered Calls positions in Kohl's Corporation (ticker KSS) and Suncor Energy Inc. (SU). Both positions closed well out-of-the-money at their options expirations last Friday and both positions were closed out by selling the 400 Kohl's shares at $25.96 and the 400 Suncor shares at $30.135.
Based primarily on declines for four consecutive months in the leading economic indicators and the recent inverted 10 year/3 month yield curve, it is increasingly likely the U.S. will go into recession in early 2023. Although the stock market decline in 2022 has been substantial, it is also likely that an upcoming recession is not fully priced into the market at its current S&P 500 level of about 3800 and my current belief is that stocks in the Consumer Discretionary sector (such as Kohl's) will continue to underperform in the months ahead. Regarding my sale of Suncor, I will continue to establish positions in the Energy sector using my Dividend Capture Strategy as I believe the present demand/supply imbalance in energy markets will persist. As detailed below, since I've already captured the Suncor quarterly dividend, I am now completing the process of simply exchanging my Suncor position for a new Dividend Capture position in the Energy sector that I recently established in the Energy Select Sector SPDR Fund ETF (ticker XLE)--see details of that position here.
Details of the completed Kohl's and Suncor Covered Calls positions are as follows:
1. Kohl's Corporation (KSS) -- Covered Calls Position Closed Out
The simultaneous buy/write transactions was as follows:
11/25/2022 Bought 400 shares of Kohl's Corporation stock @ $31.98 per share
11/25/2022 Sold 4 Kohl's Dec. 16th, 2022 $30.00 Call options @ $2.58 per share
12/6/2022 Ex-dividend at $.50 per share
12/16/2022 4 KSS $30.00 Call options expired out-of-the-money and 400 shares remain in the Covered Calls Advisor Portfolio
12/19/2022 Sold 400 Kohl's shares @ $25.96 per share to close out this Covered Calls position
The overall performance results (including commissions) were as follows:
Covered Calls Net Investment: $11,761.34
= ($31.98 - $2.58) * 400 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$1,030.66
= ($2.58 * 400 shares) - $1.34 commission
(b) Dividend Income: +$200.00
= $.50 dividend per share x 400 shares
(c) Capital Appreciation: -$2,408.00
= ($25.96 - $31.98) * 400 shares
Net Profit: -$1,177.34
= (+$1,030.66 options income +$200.00 dividend income - $2,408.00 capital appreciation)
Absolute Return-on-Investment: -10.0%
= -$1,177.34/$11,761.34
Equivalent Annualized Return-on-Investment: -152.2%
= (-$1,177.34/$11,761.34) * (365/24 days)
2. Suncor Energy Inc. (SU) -- Covered Calls Position Closed Out
The buy/write transaction was:
11/16/2022 Bought 400 Suncor Energy shares @ $36.38 each
11/16/2022 Sold 4 SU 12/16/2022 $34.00 Call options @ $3.12 per share
12/1/2022 Upcoming quarterly ex-dividend of $.39 per share
12/16/2022 4 SU $34.00 Call options expired out-of-the-money and 400 shares remain in the Covered Calls Advisor Portfolio
12/19/2022 Sold 400 Suncor shares @ $30.135 per share to close out this Covered Calls position
The overall performance results (including commissions) for this Suncor Covered Calls position were as follows:
Covered Calls Net Investment: $13,306.68
= ($36.38 - $3.12) * 400 shares + $2.68 commission
Net Profit:
(a) Options Income: +$1,245.32
= ($3.12 * 400 shares) - $2.68 commission
(b) Dividend Income: +$156.00
= ($.39 dividend per share x 400 shares)
(c) Capital Appreciation: -$2,498.00
+($30.135 - $36.38) * 400 shares
