Established Covered Calls Position in Alexion Pharmaceuticals Inc.

Today, a new monthly Covered Calls position was established in Alexion Pharmaceuticals Inc. (ticker symbol ALXN) with a February 21st, 2020 options expiration date at the $95.00 strike price when Alexion shares were priced at $99.63.  A conservative in-the-money position was established given both the Covered Calls Advisor's current Slightly Bearish Overall Market Outlook and the current increasing volatility in the stock market.  Quarterly earnings were just reported that beat expectations, although forward guidance was below analysts' expectations but still above 2019's results.

Alexion is a biotech company with a small number of drugs using antibody therapies against rare but severe disorders, including autoimmune disease, cardiovascular disease, inflammation, and cancer.  Analysts expectations for the stock price are bullish.  Prior to the earnings, 15 analysts rated the stock as either Buy or Outperform, 5 rated it a Hold, and none rated it either Underperform or Sell, and the average one-year target price for these firms was $150, a 50% increase above the current price.  Seven firms that have so far changed their target price since the latest earnings release have, on average, reduced Alexion's target price by only $2.    

As shown below, the potential return-on-investment result is +1.6% absolute return in 22 days (equivalent to a +26.6% annualized return-on-investment).


Alexion Pharmaceuticals Inc. (ALXN) -- New Covered Calls Position

The transactions were as follows:
1/31/2020 Bought 200 shares of Alexion stock @ $99.63 per share 
1/31/2020 Sold 2 Alexion February 21, 2020 $95.00 Call options @ $6.13 per share
Note: this was a simultaneous Buy/Write transaction.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $18,701.34
= ($99.63 - $6.13) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,226.00
= ($6.13 * 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Alexion stock is above $95.00 strike price at Feb 21st expiration): -$926.00
= ($95.00 -$99.63) * 200 shares

Total Net Profit: +$300.00
= (+$1,226.00 options income +$0.00 dividend income -$926.00 capital appreciation)

Absolute Return: +1.6%
= +$300.00/$18,701.34
Equivalent Annualized Return: +26.6%
= (+$300.00/$18,701.34)*(365/22 days)

The downside 'breakeven price' at expiration is at $93.50 ($99.63 - $6.13), which is 6.2% below the current market price of $99.63.

Calendar Year 2019 Results

2019 was a very good year for the Covered Calls Advisor Portfolio.  There were a total of fifty-four positions this year with fifty-three closed profitably and only one closed out at a loss.

The weighted average annualized return-on-investment for the fifty-four positions was +40.4%, a very strong result given that the benchmark S&P 500 index was +28.9% during the same 2019 calendar year.

A cautionary note:
As described in this prior post Exploiting Our Covered Calls Investing "Edges" from several years ago, "...a disciplined covered calls investor that is cognizant of the six "edges" described above, and works to take advantage of them might expect (on average over the years), to outperform a buy-and-hold benchmark by about 3% to 5% per year."
So, the outperformance achieved by the Covered Calls Advisor Portfolio in 2019 was exceptional and should not be viewed as the norm.

Best Wishes and Godspeed to All for a Happy and Prosperous 2020,
Jeff

Closed Positions in CommScope Holdings and Marathon Petroleum Corp.

The two remaining positions (CommScope Holdings Co., Inc. and Marathon Petroleum Corp.) in the Covered Calls Advisor Portfolio were closed out by selling the stocks.  The detailed history of each of these positions is shown below.  It is likely that a stock sell-off will occur in early January, so all positions have been liquidated for at least the next couple of weeks.  A post of calendar year 2019 results will be posted on this blog site within the first two or three days after the December 31st end of this calendar year that will summarize this year's performance of the Covered Calls Advisor's Portfolio (which has been very rewarding).
 
1.  CommScope Holdings Co. Inc. (COMM) -- Position Closed
The transactions were as follows:
07/10/2019  Sold 5 COMM August 16th, 2019 $15.00 100% Cash-Secured Put options @ $.80
Note: the price of CommScope stock was $15.56 when this transaction was executed.
08/16/2019 Stock was below strike price at expiration, so 5 Put options expired and 500 shares of CommScope were purchased at $15.00 per share.
09/11/2019 Sold 5 COMM Sept 20, 2019 $13.00 Call options at $.40 per share
Note: the price of COMM stock was $13.01 when these Calls were sold
9/20/2019 5 COMM Call options expired
11/7/2019 Sold 5 Dec. 20, 2019 $15.00 Call options at $.70 per share to continue existing Covered Calls position.
12/20/2019 5 Dec 20th, 2019 Call options expired with stock below $15.00 strike price.
12/26/2019 Sold 500 CommScope shares at $14.08

The overall performance result (including commissions) for this CommScope Holdings Covered Calls position was as follows:
Covered Calls Cost Basis: $7,508.30
= $15.00 *500 shares + $8.30 commission

Net Profit Components:
(a) Options Income: +$946.65
= ($.80 +$.40 +$.70) * 500 shares - $3.35 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation: -$460.00
=($14.08-$15.00)* 500 shares

Total Net Profit: +$486.65

= (+$946.65 options income +$0.00 dividend income -$460.00 capital appreciation)

Absolute Return: +6.5%

= +$486.65/$7,508.30

Annualized Return: +14.0%

= (+$486.65/$7,508.30)*(365/169 days)

2.  Marathon Petroleum Corp. (MPC) -- Closed Position

The transactions were:
11/14/2019 Bought 200 Marathon Petroleum shares @ $64.65
11/14/2019 Sold 2 MPC 12/20/2019 $62.50 Call options @ $3.40
Note: a simultaneous buy/write transaction was executed and the implied volatility in the option was 31.3.  
11/19/2019 Upcoming quarterly ex-dividend of $.53 per share
12/20/2019 2 Dec 20th, 2019 Call options expired with stock below $62.50 strike price.
12/26/2019 Sold 200 Marathon Petroleum Corp. shares at $61.1432

The overall performance result (including commissions) for this Marathon Petroleum Covered Calls position was as follows:
Covered Calls Cost Basis: $12,250.00
= ($64.65 - $3.40) *200 shares

Net Profit Components:
(a) Options Income: +$678.66
= ($3.40 *200 shares) - $1.34 commissions
(b) Dividend Income: +$106.00
= ($.53 dividend per share x 200 shares)

(c) Capital Appreciation: -$701.36
+($61.1432 -$64.65)*200 shares

Total Net Profit: +$83.30

= (+$678.66 options income +$106.00 dividend income -$701.36 capital appreciation)

Absolute Return: +0.7%

= +$83.30/$12,250.00

Annualized Return: +5.9%

= (+$83.30/$12,250.00)*(365/42 days)

December 20th, 2019 Monthly Options Expiration Results

The Covered Calls Advisor Portfolio had three positions with December 20th, 2019 monthly options expiration date and the results at options expiration were:

• One position in Diamondback Energy closed in-the-money on the December 20th options expiration date, so the 200 shares were assigned (sold) at the $85.00 strike price.  The detailed transactions and results are shown below.
• Two positions (CommScope Holdings and Marathon Petroleum Corp.) closed out-of-the-money (stock price below the strike price) at the December 20th, 2019 options expiration.  Therefore, the options expired and the shares owned now remain in the Covered Calls Advisor Portfolio (as shown in the right sidebar).  A decision will be made soon to either sell the shares or to continue with Covered Calls positions by selling Call options against the shares currently held.  As always, the transactions and return-on-investment results for these positions will be posted on this blog site on the same day the transactions occur.

The Covered Calls Advisor's objective is to outperform the S&P 500 benchmark.  So far in calendar year 2019, 51 positions have been closed out at a profit, one was closed out at a loss, and two remain as ongoing open positions.  The weighted average annualized return on investment for the 51 completed positions is +41.5%, which substantially exceeds the +28.5% year-to-date annualized return-on-investment for the S&P 500. 
Note:  the final 2019 results will be posted in early January -- soon after the December 31st end of this calendar year. 




1. Diamondback Energy (FANG) -- Covered Calls Position Closed

The transactions have been as follows:
09/30/2019 Bought 200 shares of Diamondback stock @ $89.61 per share 
09/30/2019 Sold 2 Diamondback October 18th, 2019 $85.00 Call options @ $6.13 per share
Note: this was a simultaneous Buy/Write transaction.  The Implied Volatility of the Call options was 39.5. 
10/18/2019 FANG stock closed at $81.97, so the two Call options expired and the 200 shares of Diamondback Energy were retained in the Covered Calls Advisor portfolio.
10/22/2019 Sold 2 FANG Nov 15th, 2019 $85.00 Call options at $2.99 against the 200 shares of Diamondback stock to continue the FANG Covered Calls position.
Note: the price of FANG was $84.13 today when these Call options were sold.
11/14/2019 Ex-dividend of $37.50 = $.1875 per share x 200 shares
11/15/2019 FANG stock closed at $77.09, so the two Call options expired and the 200 shares of Diamondback Energy were retained in the Covered Calls Advisor portfolio.
12/06/2019 Sold 2 FANG Dec. 20th, 2019 $85.00 Call options at $1.45 against the 200 shares of Diamondback stock to continue the FANG Covered Calls position.
12/20/2019 At this options expiration date, the FANG stock price closed above the $85.00 strike price, so the 200 shares were assigned (i.e. sold) at $85.00 per share.


The overall performance results (including commissions) were as follows:
Covered Calls Cost Basis: $16,666.29
= ($89.61 - $6.31) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$1,945.98
= ($6.31 + $2.99 +$1.45) * 200 shares - $2.68 commission
(b) Dividend Income: +$37.50
= $.1875 per share x 200 shares 
(c) Capital Appreciation: -$922.00
= ($85.00 -$89.61) * 200 shares

Total Net Profit: +$1,061.48
= (+$1,945.98 options income +$37.50 dividend income -$922.00 capital appreciation)

Absolute Return: +6.4%= +$1,061.48/$16,666.29
Equivalent Annualized Return: +28.3%
= (+$1,061.48/$16,666.29)*(365/82 days)