Halliburton's FY2023 estimated P/E Ratio is 10.7 which is very attractive based on their ongoing growth potential and their discounted P/E relative to the S&P 500 and also compared with their historical P/E valuation. Halliburton has also beat earnings estimates for each of the last 4 quarters and their projected continuing earnings growth every quarter this year are projected to exceed that of the prior year for all comparable quarters. The twenty-six Wall Street analysts that now cover Halliburton Co. also believe that the stock is currently undervalued since their average target price is $47.19 which has +44.5% upside potential above today's purchase price. As preferred, the Implied Volatility of these Call options was 44.8 which is well above that of the S&P 500 Implied Volatility (i.e.VIX) which is currently only 16.5. The Delta was 73.2 when this position was established, which approximates a 73.2% probability that the Calls will expire in-the-money on the July 21st options expiration date.
Sociedad Quimica Y Minera de Chile SA is a Chilean commodities producer that includes substantial production of lithium (used in EV batteries and energy storage systems), potassium fertilizers, and iodine (used primarily in x-ray contrasts). This position was established using my Dividend Capture Strategy. The buy/write net debit limit order was entered at $69.40 per share with a 300 shares position. The time value was $.60 per share = [$70.00 strike price - ($73.75 stock purchase price - $4.35 Call options price)] when this position was established. SQM goes ex-dividend one week from today on July 13th at $.7876 per share (4.3% annual dividend yield) which is 8 days prior prior to the July 21st options expiration date. So, the potential for capturing this dividend is included in the potential return-on-investment results detailed below. The Implied Volatility of these Calls was 35.6 and the Delta was approximately 70.2 when this SQM Covered Calls position was established.
There is no intervening earnings report for either Halliburton or SQM prior to their July 21st options expirations.
As detailed below, the potential return-on-investment results for these Covered Calls positions are:
- For Halliburton: +1.8% absolute return-on-investment (equivalent to +39.9% annualized return-on-investment for the next 16 days) if the stock is assigned on its July 21st options expiration date.
- Sociedad Quimica Y Minera de Chile SA: +0.9% absolute return-on-investment (equivalent to + 44.6% annualized return-on-investment for the next 7 days) if the stock is assigned early (last trading day prior to the July 13th ex-dividend date); OR (2) +2.0% absolute return-on-investment (equivalent to +45.4% annualized return-on-investment over the next 16 days) if the stock is assigned on its July 21st options expiration date.
1. Halliburton Company (HAL) -- New Covered Calls Position
The buy/write transaction was:
7/6/2023 Sold 4 Halliburton 7/21/2023 $31.00 Call options @ $2.20 per share.
A possible overall performance result (including commissions) if this position is assigned on its July 21st options expiration date is follows:
Covered Calls Net Investment: $12,186.68
= ($32.66 - $2.20) * 400 shares + $2.68 commission
Net Profit Components:
(a) Options Income: +$877.32
= ($2.20 * 400 shares) - $2.68 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HAL stock is above the $31.00 strike price and therefore assigned at the 7/21/2023 options expiration): -$664.00
= ($31.00 - $32.66) * 400 shares
Potential Total Net Profit (If assigned at expiration): +$213.32
= (+$877.32 options income +$0.00 dividend income -$664.00 capital appreciation)
Potential Absolute Return-on-Investment: +1.8%
= +$213.32/$12,186.68
Potential Equivalent Annualized-Return-on-Investment: +39.9%
= (+$213.32/$12,186.68) * (365/16 days)
2. Sociedad Quimica Y Minera de Chile SA (SQM) -- New Covered Calls Position
7/6/2023 Sold 3 SQM 7/21/2023 $70.00 Call options @ $4.35 per share.
7/13/2023 Ex-dividend of $.7876 per share.
Two possible overall performance results (including commissions) for this Sociedad Quimica Y Minera de Chile SA Covered Calls position are as follows:
Covered Calls Cost Basis: $20,822.01
= ($73.75 - $4.35) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$1,302.99
= ($4.35 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on July 12th, the last business day prior to the July 13th ex-div date): +$0.00; or
(b) Dividend Income (If SQM stock assigned at the 7/21/2023 options expiration date): $236.28 = ($.7876 dividend per share x 300 shares)
+($70.00 - $73.75) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $70.00 strike price at the 7/21/2023 options expiration): -$1,125.00
+($70.00 - $73.75) * 300 shares
Either outcome would provide an attractive return-on-investment result for this Sociedad Quimica Y Minera de Chile SA investment. These returns will be achieved as long as the stock is above the $70.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $68.6124 ($73.75 - $4.35 - $.7876) provides 7.0% downside protection below today's stock purchase price.
