This afternoon my buy/write Covered Calls position was transacted in Netease Inc. ADR (ticker NTES) at a net debit limit order price of $82.18 per share. Two hundred shares were purchased at $85.61 and two December 6th, 2024 Call options were sold at the $83.00 strike price at $3.43 per share. This provides a time value profit potential of $.82 per share [$3.43 Call options premium - ($85.61 stock purchase price - $83.00 strike price)]. There was a 71.3% probability of closing in-the-money on the options expiration date when this position was established.
This position uses the Covered Calls Advisor's Dividend Capture Strategy. Netease has an upcoming quarterly ex-dividend of $.435 per share (a 2.0% annual dividend yield) that goes ex-dividend on November 29th, 2024 which is prior to the Dec. 6th options expiration date. This dividend is included in the detailed potential return-on-investment calculations below. Either an early assignment on the day prior to the ex-dividend date or on the December 6th, 2024 options expiration date would be desirable to the Covered Calls Advisor given the attractive potential annualized return-on-investment upon assignment for either outcome. As preferred, the next quarterly earnings report on February 22nd, 2025 is after the December 6th options expiration date.
Netease began as a Chinese internet portal in the late 1990s but has now become the second largest mobile gaming company in the world. It owns one of the most well-known massively multiplayer franchises in China -- Fantasy Westward Journey. The firm's other investments in music streaming, online education, and e-commerce also have long-term potential. Although primarily in China, they also offer services worldwide including in Japan, U.S., Europe, and SE Asia.
The fourteen analysts that cover Netease have an average target price of $111.70 (+30.5% above today's purchase price) and every analyst has either a Strong Buy or Buy rating on the company -- none have a Hold, Sell, or Strong Sell rating. Netease also appeared today in my "Ratings Versus Peers" stock screener (see chart below) where it met all 14 screener filters. I was also pleased to see that LSEG (Refinitiv) rates Netease as a 9 (out of 10) for both its Average Score and its Optimized Score, which puts it in the top 12% of companies monitored by Refinitiv.
As detailed below, two potential return-on-investment results are:
- +1.0% absolute return (equivalent to +90.3% annualized return-on-investment for the next 4 days) in the relatively unlikely event that the stock price moves substantially higher and is assigned early (the last business day prior to the November 29th ex-dividend date); OR
- +1.5% absolute return (equivalent to +50.4% annualized return-on-investment over the next 11 days) if the stock is assigned on the December 6th options expiration date.
Netease Inc. ADR (NTES) -- New Covered Calls Position
The Buy/Write transaction was as follows:
11/25/2024 Bought 200 shares of Netease Inc. @ $85.61 per share.
11/25/2024 Sold 2 NTES December 6th, 2024 $83.00 Call options @ $3.43 per share. The Implied Volatility of these Call options was 29.3 today when this transaction was executed.
Two possible overall performance results (including commissions) for this Netease Inc. ADR Covered Calls position is as follows:
Covered Calls Net Investment: $16,437.34
= ($85.61 - $3.43) * 200 shares + $1.34 commission
Net Profit:
(a) Options Income: +$684.66
= ($3.43 * 200 shares) - $1.34 commission
(b) Dividend Income (If assigned early): +$0.00; OR
(b) Dividend Income (If assigned on the 12/6/2024 options expiration date): +$87.00
= $.435 x 200 shares
(c) Capital Appreciation (If 200 Netease Inc. shares assigned at $83.00 strike price): -$522.00
+($83.00 strike price - $85.61 stock purchase price) * 200 shares
1. Total Net Profit Potential (If 200 Netease Inc. shares assigned early prior to the ex-dividend date on 11/29): +162.66
= (+$684.66 options income +$0.00 dividend income - $522.00 capital appreciation); OR
2. Total Net Profit Potential (If 200 Netease Inc. shares assigned at $83.00 strike price at the options expiration date): +$249.66
= (+$684.66 options income +$87.00 dividend income - $522.00 capital appreciation)
1. Potential Absolute Return-on-Investment (if early assignment): +1.0%
= +$162.66/$16,437.34
Potential Annualized Return-on-Investment (if early assignment): +90.3%
= (+$162.66/$16,437.34) * (365/4 days); OR
2. Potential Absolute Return-on-Investment (if assigned on the 12/6/2024 options expiration date: +1.5%
= +$249.66/$16,437.34
Potential Annualized Return-on-Investment (if assigned on the 12/6/2024 options expiration date): +50.4%
= (+$249.66/$16,437.34) * (365/11 days)
