This morning Covered Calls were established in Bank of America Corp. (ticker BAC), Fedex Corporation (FDX), and SLB (formerly known as Schlumberger Ltd.). Short-term positions were selected for each position at the December 13th, 2024 weekly options expiration date. This strike price was preferable since the potential annualized return-on-investment in each case is higher for this 11-day duration than for the monthly 12/20/2024 monthly options expiration date. Also, in each case before establishing these positions, I had established a net buy/write limit price slightly below the midpoint of the buy/write price that existed when I entered my limit order. In each case, my limit price was executed within several minutes after I entered the orders.
For Bank of America, 200 shares were purchased at $47.44 and 2 Dec. 13th, 2024 Call options were sold at $1.18 at the $46.50 strike price. For Fedex Corp., 100 shares were purchased at $296.04 and 1 December 13th, 2024 Call option was sold at $7.94 at the $290.00 strike price. For SLB, 400 shares were purchased at $43.22 and 4 Dec. 13th, 2024 Call options were sold at $1.48 at the $42.00 strike price.
Given the Covered Calls Advisor's current "Neutral" Overall Market Meter outlook, moderately in-the-money Covered Calls positions were established. The probability that the stock will be in-the-money on the options expiration dates was 75.0% for the Bank of America position, 72.9% for the Fedex, and 77.3% for the SLB position.
All three positions have an intervening ex-dividend date prior to Dec. 13th, so the potential results detailed below includes the possibility of early exercise since the ex-dividends are prior to their respective options expiration dates. A positive fundamental factor is that analysts currently estimate that the earnings per share for each of these 3 companies is expected to increase over the next 12 months. Also of importance, none of the companies have a quarterly earnings report prior to their 12/13/2024 options expiration date.
Potential results for each position are detailed below.
The buy/write transaction was:
12/2/2024 Bought 200 Bank of America Corp. shares @ $47.44
12/2/2024 Sold 2 BAC 12/13/2024 $46.50 Call options @ $1.18 per share
. The Implied Volatility of these Calls was 15.8 when this position was established.
12/6/2024 Upcoming quarterly ex-dividend of $.26 per share.
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Net Investment: $9,253.34
= ($47.44 - $1.18) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$234.66
= ($1.18 * 200 shares) - $1.34 commission
(b) Dividend Income (If Bank of America shares assigned on the business day prior to the Dec. 6th ex-dividend date): = +$0.00; or
(b) Dividend Income (If BAC shares assigned at the 12/13/2024 options expiration date): +$52.00
= $.26 per share x 200 shares
(c) Capital Appreciation (If BAC shares assigned early): -$188.00
= ($46.50 strike price - $47.44 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If BAC shares assigned with stock above the $46.50 strike price at the December 13th, 2024 options expiration date): -$188.00
= ($46.50 -$46.44) * 200 shares
1. Potential Net Profit (If Bank of America shares assigned on 12/5/2024, the day prior to the Dec. 6th ex-dividend date): +$46.66
= (+$234.66 options income +$0.00 dividend income - $188.00 capital appreciation)
2. Potential Net Profit (If BAC price is above $46.50 strike price at the Dec. 13th options expiration): +$98.66
= (+$234.66 options income +$52.00 dividend income - $188.00 capital appreciation)
1. Absolute Return-on-Investment (If BofA shares assigned early on 12/5/2024, the day prior to the ex-dividend date): +0.5%
= +$46.66/$9,253.34
Equivalent Annualized Return-on-Investment (If assigned early on day prior to ex-div date): +46.0%
= (+$46.66/$9,253.34) * (365/4 days)
2. Absolute Return-on-Investment (If BAC price is above the $46.50 strike price at the Dec. 13th options expiration date): +1.1%
= +$98.66/$9,253.34
Equivalent Annualized Return-on-Investment (If assigned on the 12/13/2024 options expiration date): +35.4%
= (+$98.66/$9,253.34) * (365/11 days)
2. Fedex Corporation (FDX) -- New Covered Call Position
The buy/write transaction was:
12/2/2024 Bought 100 Fedex shares @ $296.04.
12/2/2024 Sold 1 FDX 12/13/2024 $290.00 Call option @ $7.94 per share.
Note: Implied Volatility (IV) of the Call options was at 14.7 when this position was transacted which, as I prefer, is above the current VIX of 13.4.
12/9/2024 Upcoming quarterly ex-dividend of $1.38 per share.
Two possible overall performance results (including commissions) for this Fedex Corp. Covered Calls position are as follows:
Covered Calls Net Investment: $28,810.67
= ($296.04 - $7.94) * 100 shares + $.67 commission
Net Profit Components:
(a) Options Income: +$793.33
= ($7.94 * 100 shares) - $.67 commission
(b) Dividend Income (If Fedex Call option is exercised early this Friday which is the last business day prior to next Monday's Dec. 9th ex-div date): +$0.00; or
(b) Dividend Income (If Fedex stock assigned at the Dec. 13th, 2024 options expiration): +$138.00
= ($1.38 dividends per share x 100 shares)
(c) Capital Appreciation (If Fedex's Call option is assigned early on Dec. 6th): -$604.00
+($290.00 strike price - $296.04 stock purchase price) * 100 shares; or
(c) Capital Appreciation (If shares assigned at $290.00 strike price at the 12/13/2024 options expiration): -$604.00
+($290.00 - $296.04) * 100 shares
1. Total Net Profit (If option exercised early): +$189.33
= (+$793.33 options income +$0.00 dividend income - $604.00 capital appreciation); or
2. Total Net Profit (If 100 Fedex shares assigned at the $290.00 strike price at the Dec. 13th, 2024 expiration): +$327.33
= (+$793.33 options income +$138.00 dividend income - $604.00 capital appreciation)
1. Potential Absolute Return-on-Investment [If option exercised on business day prior to the 12/9/2024 ex-dividend date]: +0.7%
= +$189.33/$28,810.67
Potential Annualized Return-on-Investment (If option exercised early): +34.3%
= (+$189.33/$28,810.67) * (365/7 days); or
2. Potential Absolute Return-on-Investment (If Fedex's shares assigned on the Dec. 13th options expiration date): +1.1%
= +$327.33/$28,810.67
Potential Annualized Return-on-Investment (If 100 Fedex shares assigned at $290.00 at the Dec. 13th, 2024 expiration): +37.7%
= (+$327.33/$28,810.67) * (365/11 days)
3. Schlumberger Ltd. (SLB) -- New Covered Calls Position
The buy/write transaction was:
12/2/2024 Bought 400 SLB shares @ $43.22.
12/2/2024 Sold 4 USB 12/13/2024 $42.00 Call options @ $1.48 per share.
12/4/2024 Upcoming quarterly ex-dividend of $.275 per share.
Two possible overall performance results (including commissions) for this SLB Covered Calls position are as follows:
Covered Calls Net Investment: $16,698.68
= ($43.22 - $1.48) * 400 shares + $2.68 commission
Net Profit Components:
(a) Options Income: +$589.32
= ($1.48 * 400 shares) - $2.68 commission
(b) Dividend Income (In the unlikely event that the SLB Call options exercised early on the last business day prior to this Wednesday's Dec. 4th ex-div date): +$0.00; or
(b) Dividend Income (If SLB stock assigned at the Dec. 13th, 2024 options expiration): +$110.00
= ($.275 dividends per share x 400 shares)
(c) Capital Appreciation (If SLB's Call options assigned early on Dec. 4th): -$488.00
+($42.00 strike price - $43.22 stock purchase price) * 400 shares; or
(c) Capital Appreciation (If shares assigned at $42.00 strike price at the 12/13/2024 options expiration): -$488.00
+($42.00 - $43.22) * 400 shares
1. Total Net Profit [If option exercised early (business day prior to the Dec. 4th ex-dividend date)]: +$101.32
= (+$589.32 options income +$0.00 dividend income - $488.00 capital appreciation); or
2. Total Net Profit (If 400 SLB shares assigned at the $42.00 strike price at the Dec. 13th, 2024 expiration): +$211.32
= (+$589.32 options income + $110.00 dividend income - $488.00 capital appreciation)
1. Potential Absolute Return-on-Investment [If option exercised on business day prior to the 12/4/2024 ex-dividend date]: +0.6%
= +$101.32/$16,698.68
Potential Annualized Return-on-Investment (If option exercised early): +110.7%
= (+$101.32/$16,698.68) * (365/2 days); or
2. Potential Absolute Return-on-Investment (If SLB's shares assigned on the Dec. 13th options expiration date): +1.3%
= +$211.32/$16,698.68
Potential Annualized Return-on-Investment (If 400 SLB shares assigned at $42.00 at the December 13th, 2024 expiration): +42.0%
= (+$211.32/$16,698.68) * (365/11 days)
