In addition to the potential time value profit of $1.63 per share, there is an upcoming quarterly ex-dividend prior to the June 16th options expiration date of $.25 per share (1.0% annual dividend yield) on June 14th. The Implied Volatility of these Call options was 27.1 when this position was established. Establishing positions in companies when the Implied Volatility of their options is greater than that
of the S&P 500 Volatility Index (i.e. VIX), which is currently at 13.8, is strongly preferred by the
Covered Calls Advisor. This preference is the fifth of the twelve investing "edges" (see here) utilized that contributes to our achieving outperformance in comparison with that of the benchmark S&P 500 Index.
Global Payments is an information technology company (in the Financials Sector). They provide payment technology and software solutions
for card, electronic, check, and digital-based payments in the Americas,
Europe, and the Asia-Pacific and they operate through three segments:
Merchant Solutions, Issuer Solutions, and Business and Consumer Solutions. Their valuation is attractive since their FY2022 P/E was only 10.7 which is 5 turns below their prior 5-year average, and their EPS are expected to continue growing another 11.3% in FY2023. They have beat analysts' quarterly estimates in each of the last 4 quarters and analysts' current target price of $136.84 is +36.9% above today's purchase price.
The very high potential annualized-return-on-investments detailed below are primarily because of two factors: (1) establishing a very short-term position (see #7 in the "edges" article referenced above); and (2) choosing an at-the-money strike price (the stock purchase price closest to the strike price) provides the greatest potential time value profit when selling options.
Also important to me, there is no earnings report prior to the June 16th, 2023 options expiration date.
The probability that Global Payments stock is above the strike price on the June 16th options expiration date (in which case the Calls expire worthless and the maximum potential profit is achieved) was 49.8% when this position was established. Just prior to establishing this position, a comparison was made to determine whether establishing a Covered Calls position or a comparable Cash-Secured Puts position would provide a better annualized roi potential. The Covered Calls position was preferable in this case.
The buy/write transaction was as follows:
6/9/2023 Bought 200 Global Payments Inc. shares at $99.94.
6/9/2023 Bought 200 Global Payments Inc. shares at $99.94.
6/9/2023 Sold 2 GPN June 16th, 2023 $100.00 Call options @ $1.57 per share.
6/14/2023 Upcoming ex-dividend of $.25 per share.
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Net Investment: $19,675.34
= ($99.94 - $1.57) * 200 shares + $1.34 commission
Net Profit:
(a) Options Income: +$312.66
= ($1.57 * 200 shares) - $1.34 commission
(b) Dividend Income (If GPN stock price is unchanged at $99.94 on the options expiration date): +$0.00; OR
(b) Dividend Income [If GPN stock price is in-the-money (i.e. above the $100.00 strike price) and the position is assigned (i.e. closed out) at options expiration on June 16th]: +$50.00
6/14/2023 Upcoming ex-dividend of $.25 per share.
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Net Investment: $19,675.34
= ($99.94 - $1.57) * 200 shares + $1.34 commission
Net Profit:
(a) Options Income: +$312.66
= ($1.57 * 200 shares) - $1.34 commission
(b) Dividend Income (If GPN stock price is unchanged at $99.94 on the options expiration date): +$0.00; OR
(b) Dividend Income [If GPN stock price is in-the-money (i.e. above the $100.00 strike price) and the position is assigned (i.e. closed out) at options expiration on June 16th]: +$50.00
= $.25 dividend x 200 shares
(c) Capital Appreciation (If Global Payments stock price is unchanged at $99.94 on the options expiration date): +$0.00
= ($99.94 stock price at the options expiration date - $99.94 stock purchase price) * 200 shares; OR
(c) Capital Appreciation (If Global Payments stock is above the $100.00 strike price at the June 16th, 2023 options expiration date): +$12.00
= ($100.00 strike price - $99.94 stock purchase price) * 200 shares
(c) Capital Appreciation (If Global Payments stock is above the $100.00 strike price at the June 16th, 2023 options expiration date): +$12.00
= ($100.00 strike price - $99.94 stock purchase price) * 200 shares
1. Total Net Profit [If Global Payments stock price is unchanged at $99.94 at options expiration]: +$312.66
= (+$312.66 options income +$0.00 dividend income +$0.00 capital appreciation); OR
2. Total Net Profit [If Global Payments stock price is in-of-the-money (i.e. above $100.00 strike price) at options expiration]: +$374.66
= (+$312.66 options income +$50.00 dividend income +$12.00 capital appreciation)
1. Absolute Return-on-Investment: (If stock is unchanged at $99.94 on the options expiration date) : +1.6%
= +$312.66/$19,675.34
Annualized Return-on-Investment: +116.0%
= (+$312.66/$19,675.34) * (365/5 days); OR
Annualized Return-on-Investment: +116.0%
= (+$312.66/$19,675.34) * (365/5 days); OR
2. Absolute Return-on-Investment: (If stock is above $100.00 strike price at the June 16th, 2023 options expiration) : +1.9%
= +$374.66/$19,675.34
Annualized Return-on-Investment: +86.9%
= (+$374.66/$19,675.34) * (365/8 days)
= +$374.66/$19,675.34
Annualized Return-on-Investment: +86.9%
= (+$374.66/$19,675.34) * (365/8 days)
Regards and Godspeed,
Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net
Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net
