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Thursday, April 3, 2025

Established Covered Calls in Vertiv Holdings Company

Today a Covered Calls position was established in Vertiv Holdings Company (ticker VRT). Three hundred shares were purchased at $68.02 and three April 17th, 2025 weekly Call options were sold at the $60.00 strike price at $9.60 per share--a buy/write net debit amount of $68.42 per share which provides a $1.58 per share time value profit potential.  This in-the-money was established to provide significant downside protection given the uncertainty from yesterday's tariffs announcement and the very high implied volatility in the Calls at 82.9 when this position was established is also indicative of this current high level of uncertainty.  As preferred, the next quarterly earnings on April 23rd is after the April 17th options expiration date.

Vertiv is in the Electrical Equipment industry and is a leader in supporting data centers and communications networks in both commercial and industrial environments.  They provide products like uninterruptible power supplies, thermal management systems, and power distribution units.  Their growth rate and profitability are strong and should continue consistent with the expected future growth in data centers.  

As detailed below, a potential return-on-investment result is +2.7% absolute return-on-investment (equivalent to +70.2% annualized return-on-investment for the next 14 days) if the Vertiv share price is in-the-money (i.e. above the $60.00 strike price) and therefore assigned on its April 17th, 2025 options expiration date.  At this time I continue as a very cautious investor -- the majority of my investable assets are in a money market fund.

Vertiv Holdings Company (VRT) -- New Covered Calls Position

The buy/write net limit order transaction was as follows:
4/3/2025 Bought 300 Vertiv shares at $68.02.
4/3/2025 Sold 3 VRT 4/17/2025 $60.00 Call options @ $9.60 per share.  The Implied Volatility of the Calls was 88.4% when these Calls were sold.

A possible overall performance result (including commissions) for this Vertiv Holdings Co. Covered Calls position is as follows:
Covered Calls Net Investment: $17,528.01
= ($68.02 - $9.60) * 300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$2,877.99
= ($9.60 * 300 shares) - $2.01 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 300 Vertiv shares assigned at the $60.00 strike price at expiration): -$2,406.00
+($60.00 strike price - $68.02 stock purchase price) * 300 shares

Total Net Profit Potential (If 300 Vertiv shares are in-the-money and therefore assigned at the $60.00 strike price at the options expiration date): +$471.99
= (+$2,877.99 options income + $0.00 dividend income - $2,406.00 capital appreciation)

Potential Absolute Return-on-Investment: +2.7%
= +$471.99/$17,528.01
Potential Annualized Return-on-Investment: +70.2%
= (+$471.99/$17,528.01) * (365/14 days)


Wednesday, April 2, 2025

Covered Calls Position Closed in Freeport-McMoran Inc.

The Freeport-McMoran (FCX) Covered Calls position had an options expiration date this Friday.  Because of my concerns related to the potential impact of the impending reciprocal tariffs announcement, I decided to free up some additional cash by closing out (i.e. unwinding) this position at a small net loss when it was somewhat below the $38.00 strike price.  So, I sold-to-close the 500 Freeport-McMoran shares at $37.85 and simultaneously bought-to-close the 5 April 4th, 2025 $38.00 Calls at $.64 per share -- a net credit for this transaction of $37.21 per share. The detailed transactions and the return-on-investment results for this position are as follows: 

Freeport-McMoran Inc. (FCX) -- Closed Out this Covered Calls Position
The simultaneous buy/write transaction was as follows:
3/21/2025 Bought 500 shares of Freeport-McMoran stock @ $39.37 per share.  
3/21/2025 Sold 5 Freeport-McMoran April 4th 28th, 2025 $38.00 Call options @ $2.11 per share.
4/2/2025 Unwound this FCX Covered Calls position by selling-to-close the 500 Freeport-McMoran shares and simultaneously buying-to-close the 5 FCX $38.00 Calls that expire Friday at a net credit of $37.21 per share.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $18,633.35
= ($39.37 - $2.11) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$728.30
= ($2.11 - $.64) * 500 shares - $6.70 commissions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation: -$760.00
= ($37.85 stock selling price - $39.37 stock purchase price) * 500 shares

Total Net Profit: -$31.70
= (+$728.30 options income + $0.00 dividend income - $760.00 capital appreciation)

Absolute Return-on-Investment: -0.17%
= -$31.70/$18,633.35
Equivalent Annualized Return-on-Investment: -5.2%
= (-$31.70/$18,633.35) * (365/12 days)


Monday, March 31, 2025

Continuation of Covered Calls Position in Alphabet Inc.

The Covered Calls Advisor Portfolio has a Covered Calls position in Alphabet Inc. (ticker GOOGL) which expired last Friday with the stock at $154.33 which was below the $155.00 strike price.  Today this position was continued by rolling down to the April 17th, 2025 monthly options expiration at the $150.00 strike price by selling-to-open two Calls at $7.00 per share when the price of Alphabet's stock was $153.75.  

As detailed below, a potential outcome for this Alphabet investment if the stock is in-the-money and therefore assigned on the options expiration date is +2.6% absolute return-on-investment over 34 days (equivalent to +28.4% annualized-return-on-investment) if the stock closes above the $150.00 strike price on the 4/17/2025 options expiration date.   This position demonstrates that if the stock price remains in-the-money on the 4/17/2025 options expiration date, the Alphabet shares will be sold at the $150.00 strike price which is a substantial 7.7% decline below the original stock purchase price.  However, by selling short-term in-the-money strike prices, the Calls premium income received would exceed the 7.7% stock price decline so that a net annualized positive return-on-investment of +28.4% would still be achieved.  The details showing this potential return-on-investment result are as follows:

Alphabet Inc. (GOOGL): Continuation of the Covered Calls Position
The simultaneous buy/write transaction was as follows:
3/14/2025 Bought 200 shares of Alphabet Inc. stock @ $162.51 per share.  
3/14/2025 Sold 2 Alphabet Inc. March 28th, 2025 $155.00 Call options @ $9.57 per share.
3/28/2025 Alphabet stock price was below the $155.00 strike price, so the Calls expired and the 200 Alphabet shares remained in the Covered Calls Advisor Portfolio. 
3/31/2025 Continued this Alphabet Covered Calls position by selling two April 17th, 2025 $150.00 Call options @ $7.00 per share when the stock was trading today at $153.75.  
Note: The Implied Volatility of the Call options was 36.1 when this transaction was executed which, as I prefer, is well above the current 22.7 of the S&P 500 Volatility Index (i.e. VIX). 

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $30,589.34
= ($162.51 - $9.57) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$3,311.32
= ($9.57 + $7.00) * 200 shares - $2.68
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Alphabet stock is above $150.00 strike price at the 4/17/2025 options expiration date): -$2,502.00
= ($150.00 strike price - $162.51 stock purchase price) * 200 shares

Total Net Profit Potential: +$809.32
= (+$3,311.32 options income + $0.00 dividend income - $2,502.00 capital appreciation)

Potential Absolute Return-on-Investment: +2.6%
= +$809.32/$30,589.34
Potential Equivalent Annualized Return-on-Investment: +28.4%
= (+$809.32/$30,589.34) * (365/34 days)

Covered Call Position Established in Microsoft Corporation

Early in this morning's trading session (9:52am ET), a Covered Call position was establised in Microsoft Corporation (ticker MSFT).  My buy/write net debit limit order was executed and 100 Microsoft shares were purchased at $368.86 and 1 April 11th, 2025 $360.00 Call option was sold at $14.16 per share -- a net debit of $354.70 per share.  So, the potential time value profit if the stock is in-the-money and therefore closed out by assignment at expiration is $5.30 per share [$14.16 Call option premium - ($368.86 stock purchase price - $360.00 strike price)].  The probability of assignment on the options expiration date was 65.1% when this transaction occurred.  This position avoids the next quarterly earnings report on April 22nd which is after the April 11th options expiration date. 

As detailed below, a potential outcome for this Microsoft Corporation investment is +1.5% absolute return-on-investment for the next 11 days (equivalent to +49.5% annualized-return-on-investment) if the stock closes above the $360.00 strike price on the April 11th, 2025 options expiration date.

Microsoft Corporation (MSFT) -- New Covered Call Position
The net debit buy/write limit order was executed as follows:
3/31/2025 Bought 100 shares of Microsoft stock @ $368.86 per share.  
3/31/2025 Sold 1 MSFT April 11th, 2025 $360.00 Call option @ $14.16 per share.  The Implied Volatility of the Call was 34.5 when this transaction was executed.

A possible overall performance result (including commissions) if this position is assigned on its 4/11/2025 option expiration date is as follows:
Microsoft Covered Call Net Investment: $35,470.67
= ($368.86 - $14.16) * 100 shares + $.67 commission

Net Profit Components:
(a) Call Option Income: +$1,415.33
= ($14.16 * 100 shares) - $.67 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Microsoft stock is above the $360.00 strike price at the April 11th option expiration date): -$886.00
= ($360.00 - $368.86) * 100 shares

Potential Total Net Profit (If assigned at expiration): +$529.33
= (+$1,415.33 option income + $0.00 dividend income - $886.00 capital appreciation)

Potential Absolute Return-on-Investment: +1.5%
= +$529.33/$35,470.67
Potential Equivalent Annualized-Return-on-Investment: +49.5%
= (+$529.33/$35,470.67) * (365/11 days)