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Thursday, March 27, 2025

Covered Call Position Established in Taiwan Semiconductor ADR

This morning my net debit limit order was executed and a Covered Call position was established in Taiwan Semiconductor ADR (ticker TSM) when the Covered Calls Advisor's buy/write limit order for the April 11th, 2025 $162.50s executed at a net debit price of $159.57. One hundred Taiwan Semi shares were purchased at $169.83 and 1 April 11th, 2025 $162.50 Call was sold at $10.26 per share. So, the corresponding time value (aka extrinsic value) was $2.93 per share = [$10.26 Call option premium - ($169.83 stock purchase price - $162.50 strike price)]. The probability that the position will close in-the-money and therefore by assigned on the 4/11/2025 options expiration date was 69.0% when this position was established. In addition, the Implied Volatility of the Calls was 41.8 which, as desired, was above the VIX which is now 18.5.   

As detailed below a potential return-on-investment result if this Taiwan Semi Covered Call position if the stock is assigned on its April 11th, 2025 options expiration date is +1.8% absolute return (equivalent to +44.6% annualized return-on-investment over the next 15 days of this investment).

Taiwan Semiconductor ADR (TSM) -- New Covered Call Position
The simultaneous buy/write transactions was as follows:
3/27/2025 Bought 100 shares of Taiwan Semiconductor stock @ $169.83 per share 
3/27/2025 Sold 1 Taiwan Semi April 11th, 2025 $162.50 Call option @ $10.26 per share

A potential overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $15,957.67
= ($169.83 - $10.26) * 100 shares + $.67 commission

Net Profit Components:
(a) Option Income: +$1,025.33
= ($10.26 * 100 shares) - $.67 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If TSM stock is above the $162.50 strike price and therefore assigned at the 4/11/2025 option expiration date): -$733.00
= ($162.50 - $169.93) * 100 shares

Potential Net Profit (If stock price is above $162.50 strike price at the 4/11/2025 options expiration): +$292.33
= (+$1,025.33 option income +$0.00 dividend income - $733.00 capital appreciation) 

Potential Absolute Return-on-Investment: +1.8%
= +292.33/$15,957.67
Potential Equivalent Annualized Return-on-Investment: +44.6%
= (+292.33/$15,957.67) * (365/15 days)