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Monday, April 14, 2025

Covered Calls Position Established in Amazon.com Inc.

This afternoon my buy/write net debit limit order was executed at a price of $168.85 when 200 shares of Amazon.com Inc. (ticker symbol AMZN) stock were purchased at $181.97 and 2 May 2nd, 2025 $175.00 Call options were sold at $13.12 per share.  So the potential time value profit if the stock is in-the-money and therefore closed out by assignment on the options expiration date is $6.15 per share [$13.12 Call options premium - ($181.97 stock purchase price - $175.00 strike price)].  The probability that the Calls will be above the $175.00 strike price on the May 2nd options expiration date when this Covered Calls position was established was 60.2%.

It has been a while since I had a Covered Calls position in Amazon.com and I was pleased to see that it appeared today in my GARP (Growth at a Reasonable Price) stock screener.  This stock screen includes both growth and value filters.  As shown below Amazon.com passed every filter criterion in the screener.  Please consider taking some time to review the filters I have established for this screener and how Amazon compares against each one:

Amazon.com Inc. (AMZN) -- New Covered Calls Position
The net debit buy/write limit order was executed as follows:
4/14/2025 Bought 200 shares of Amazon.com stock @ $181.97 per share.  
4/14/2025 Sold 2 AMZN May 2nd, 2025 $175.00 Call options @ $13.12 per share.
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of the Calls was 57.2 when this position was established which, as preferred, is well above the current VIX of 30.2.  

A possible overall performance result (including commissions) if this position is assigned on its 5/2/2025 options expiration date is as follows:
Covered Calls Net Investment: $33,771.34
= ($181.97 - $13.12) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$2,622.66
= ($13.12 * 200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Amazon.com stock is above the $175.00 strike price at the May 2nd, 2025 options expiration date): -$1,394.00
= ($175.00 strike price - $181.97 stock purchase price) * 200 shares

Total Net Profit Potential (If assigned at the $175.00 strike price on the 5/2/2025 options expiration date): +$1,228.66
= (+$2,622.66 options income + $0.00 dividend income - $1,394.00 capital appreciation)

Potential Absolute Return-on-Investment: +3.6%
= +$1,228.66/$33,771.34
Potential Equivalent Annualized-Return-on-Investment: +73.8%
= (
+$1,228.66/$33,771.34) * (365/18 days)

Given the current volatility in the stock market primarily caused by the ongoing tariffs uncertainty, I am now approximately 50% invested in Covered Calls and 50% remains in a Schwab Money Market Fund with a current annual yield of 4.18%.