Roll-Up Covered Calls in Morgan Stanley

On July 19th, 2021 the Covered Calls Advisor established a Covered Calls position in Morgan Stanley at the August 6th, 2021 $86.00 strike price.  The price of the 200 Morgan Stanley shares has increased from the purchase price of $88.42 to $95.775 this afternoon.  There was only $.055 time value per share remaining in the Call options but 7 days remaining until the ex-dividend of $.70 per share and 16 days remaining until the Aug. 6th options expiration date.

The Covered Calls Advisor looked at the time value to roll-up the existing Calls to various higher strike prices and decided to roll up from the original $86.00 strike to the $91.00 strike at the same Aug. 6th, 2021 options expiration date.  A vertical debit spread transaction was executed at a net debit of $4.75 ($9.83 - $5.08) per share -- so $.25 time value per share potential additional net profit ($91.00 new strike price - $86.00 original strike price - $4.75 net debit) was added to the Covered Calls position.  In addition, there remains a possibility that the $.70 dividend will be captured if the stock continues to rise somewhat higher and the time value declines to about $.15 or less on the day prior to next Friday's ex-dividend date. 

As detailed below, two potential return-on-investment results are: 

•  +1.6% absolute return (equivalent to +59.2% annualized return for 10 days) if the stock is assigned early (business day prior to the July 29th ex-dividend date); OR 

• +2.4% absolute return (equivalent to +47.0% annualized return over a 19 days investment) if the stock is assigned on the August 6th options expiration date.

By rolling up the original Covered Calls, the potential early assignment annualized return-on-investment of +59.2% would exceed the +49.0% potential from the original position.  Alternatively, if assigned on the August 6th options expiration date, the +47.0% annualized roi would exceed the +41.7% potential aroi from the original position.  In Covered Calls investing parlance, this is sometimes referred to as "hitting a double" (instead of the usual "single"), since the roll-up enables us to sell Calls twice against the original stock purchase with both positions being at the same options expiration date and to increase our annualized return-on-investment if the new rolled-up Covered Calls position is assigned.

Morgan Stanley (MS) -- Continuation of Covered Calls Position by Roll-Up Transaction
The buy/write transaction was:
07/19/2021 Bought 200 Morgan Stanley shares @ $88.42
07/19/2021 Sold 2 Morgan Stanley 08/06/2021 $86.00 Call options @ $3.56
Note: the Implied Volatility of the Call options was 26.8 when this buy/write transaction was executed.
07/22/2021 Roll-up MS Covered Calls position from the $86.00 to the $91.00 strike price at the identical Aug. 6th, 2021 expiration date at a net debit price of $4.75.
07/29/2021 Upcoming quarterly ex-dividend of $.70 per share

Two possible overall performance results (including commissions) for this rolled-up Morgan Stanley Covered Calls position are as follows:
Covered Calls Cost Basis: $16,973.34
= ($88.42 - $3.56) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: -$240.68
= ($3.56 - $9.83 + $5.08) * 200 shares - $2.68 commissions
(b) Dividend Income (If option exercised early on July 28th, the business day prior to the July 29th ex-div date): +$0.00; or
(b) Dividend Income (If Morgan Stanley stock assigned at Aug. 6th, 2021 expiration): +$140.00
= ($.70 dividend per share x 200 shares)

(c) Capital Appreciation (If Morgan Stanley Call options assigned early on July 28th): +$516.00
+($91.00 - $88.42) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $91.00 strike price at Aug. 6th options expiration): +$516.00
+($91.00 - $88.42) * 200 shares

1. Total Net Profit [If option exercised on July 28th (business day prior to July 29th ex-dividend date)]: +$275.34

= (-240.68 options income +$0.00 dividend income +$516.00 capital appreciation); or

2. Total Net Profit (If Morgan Stanley shares assigned at $91.00 strike price at August 6th, 2021 expiration): +$415.32

= (-$240.68 +$140.00 +$516.00)

1. Absolute Return (If option exercised early on July 28th): +1.6%

= +$275.34/$16,973.34

Annualized Return (If option exercised early): +59.2%

= (+$275.34/$16,973.34)*(365/10 days); or

2. Absolute Return (If Morgan Stanley shares assigned at $91.00 at August 6th, 2021 options expiration): +2.4%

= +$415.32/$16,973.34

Annualized Return (If Morgan Stanley shares assigned at $91.00 at Aug 6th, 2021 expiration): +47.0%

= (+$415.32/$16,973.34)*(365/19 days)

Continuation of Covered Calls Positions in Micron Technology Inc. and Prudential Financial Inc.

Today, the Covered Calls positions in Micron Technology Inc. (ticker MU) and Prudential Financial Inc. (ticker PRU) was continued by selling Call options against the shares held in the Covered Calls Advisor Portfolio.  Last Friday, existing Covered Calls in both companies expired with the stock price out-of-the-money and the Covered Calls Advisor decided today to continue both Covered Calls positions.  For Micron, 3 July 30th $75.00 Calls were sold at $1.52 per share against the 300 MU shares owned.  For Prudential, 2 August 20th, 2021 $100.00 Calls were sold at $1.95 per share against the 200 PRU shares owned.  There has been no negative news on either company since these positions were originally established so the Covered Calls Advisor's bullish outlook persists. 

As detailed below, the potential return-on-investment results if assigned at options expiration are: 

• Micron Technology:  +3.8% absolute return (equivalent to +32.8% annualized return for 42 days).
  

• Prudential Financial:  +3.1% absolute return (equivalent to +21.4% annualized return for 53 days).

1. Micron Technology Inc. (MU) -- Continuation of Covered Calls Position

The Buy/Write transaction was as follows:
06/18/2021 Bought 300 shares of Micron Technology Inc. stock @ $77.00 per share 
06/18/2021 Sold 3 Micron July 16th, 2021 $77.50 Call options @ $3.28 per share
07/16/2021 3 MU Call options expired out-of-the-money so 300 MU shares remain in the Covered Calls Advisor Portfolio.
07/20/2021 Continued Covered Calls position by selling 3 MU July 30th, 2021 $75.00 Call options @ $1.52 when stock price was $74.56.

A possible overall performance result (including commissions) for this Micron Technology Inc. Covered Calls position is as follows:
Stock Purchase Cost: $22,118.01
= ($77.00 - $3.28) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,435.98
= (($3.28 + $1.52) *300 shares) - $4.02 commissions
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 300 Micron shares assigned at $75.00 strike price at 8/20/2021 options expiration): -$600.00
+($75.00 -$77.00) * 300 shares

Total Net Profit (If 300 Micron shares assigned at $75.00 strike price at expiration): +$835.98

= (+$1,435.98 options income +$0.00 dividend income -$600.00 capital appreciation)

 

Absolute Return (If 300 Micron shares assigned at $75.00 strike price at expiration): +3.8%

= +$835.98/$22,118.01

Annualized Return (If MU shares assigned at $77.50 at July 16th 2021 expiration): +32.8%

= (+$835.98/$22,118.01) *(365/42 days)

2. Prudential Financial Inc. (PRU) -- Continuation of Covered Calls Position

The buy/write transaction was as follows:
06/28/2021 Bought 200 shares of Prudential Financial stock @ $102.49 per share 
06/28/2021 Sold 2 Prudential July 16th, 2021 $100.00 Call options @ $3.63 per share
Note: The Implied Volatility of the Call options was 24.2 when this transaction was executed.
07/16/2021 2 PRU Call options expired out-of-the-money so 200 PRU shares remain in the Covered Calls Advisor Portfolio.
07/20/2021 Continued Covered Calls position by selling 2 PRU August 20th, 2021 $100.00 Call options @ $1.95 per share when PRU stock price was $97.07.

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $19,773.34
= ($102.49 - $3.63) * 200 shares + $1.34 commission

Net Profit Components:
(a) Option Income: +$1,113.32
= [($3.63 + $1.95) * 200 shares)] - $2.68 commissions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If PRU stock is above $100.00 strike price at August 20th, 2021 expiration): -$498.00
= ($100.00 -$102.49) * 200 shares

Total Net Profit: +$615.32
= (+$1,113.32 Call options income +$0.00 dividend income -$498.00 capital appreciation)

Absolute Return-on-Investment: +3.1%
= +$615.32/$19,773.34
Equivalent Annualized Return-on-Investment: +21.4%
= (+$615.32/$19,773.34)*(365/53 days)

Closed Positions in LyondellBasel Industries N.V. and Ralph Lauren Corporation

At last Friday's (July 16th) options expiration, the Covered Calls positions in LyondellBasel Industries N.V. (ticker LYB) and Ralph Lauren Corporation (RL) expired with the stock price below their respective strike prices, so their shares remained in the Covered Calls Advisor Portfolio. This morning, the Covered Calls Advisor closed out both positions at a loss as detailed below.

1. LyondellBasell Industries N.V. (LYB) -- Covered Calls Position Closed
The buy/write transaction was as follows:
05/28/2021 Bought 200 shares of LyondellBasell stock @ $112.54 per share 
05/28/2021 Sold 2 LyondellBasell June 18th, 2021 $110.00 Call options @ $3.82 per share
Note: the Implied Volatility of the Call options was 22.0.
06/04/2021 Upcoming ex-dividend of $1.13 per share
06/18/2021 Two LYB 6/18/2021 $110.00 Call options expired out-of-the-money and 200 long shares of LYB stock remain in the Covered Calls Advisor Portfolio
Note: the LYB stock price was $100.35 on the options expiration date.
07/01/2021 Sold 2 LYB 7/16/2021 $105.00 Call options @ $1.80 per share when the stock was trading at $104.01 to continue this Covered Calls position.
07/16/2021 LYB Covered Calls expired out-of-the-money, so 200 shares of LYB shares retained in the Covered Calls Advisor Portfolio.
07/20/2021 Closed out LYB Covered Calls position by selling 200 LYB shares @ $94.42 per share.

The overall performance results (including commissions) was as follows:
Covered Calls Cost Basis: $21,745.34
= ($112.54 - $3.82) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,121.32
= ($3.82 + $1.80) * 200 shares - $2.68 commission
(b) Dividend Income: +$226.00
= $1.13 dividend per share x 200 shares
(c) Capital Appreciation: -$3,624.00
= ($94.42 - $112.54) * 200 shares

Total Net Profit:  -$2,276.68
= (+$1,121.32 options income +$226.00 dividend income -$3,624.00 capital appreciation)

Absolute Return: -10.5%
= -$2,276.68/$21,745.34
Equivalent Annualized Return: -72.1%
= (-$2,276.68/$21,745.34) * (365/53 days)

2. Ralph Lauren Corporation (RL) -- Covered Calls Position Closed

The buy/write transaction was:
06/22/2021 Bought 300 Ralph Lauren shares @ $113.66
06/22/2021 Sold 3 Ralph Lauren 07/16/2021 $110.00 Call options @ $5.46.  As required by the Covered Calls Advisor for positions in individual stocks, the Implied Volatility of these Calls at 27.8 exceeded the current S&P 500 Volatility Index (VIX) of 17.2.
06/24/2021 Upcoming quarterly ex-dividend of $.6875 per share
07/16/2021 Ralph Lauren Covered Calls position expired out-of-the-money, so 300 shares of LYB shares retained in the Covered Calls Advisor Portfolio.
07/20/2021 Closed out RL Covered Calls position by selling 300 Ralph Lauren Corp. shares @ $106.15 per share.

The overall performance results (including commissions) was as follows:

Covered Calls Cost Basis: $32,462.01
= ($113.66 - $5.46) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,635.99
= ($5.46 *300 shares) - $2.01 commission
(b) Dividend Income: +$206.25
= ($.6875 dividend per share x 300 shares)
(c) Capital Appreciation: -$2,253.00
+($106.15-$113.66) * 300 shares

Total Net Profit: -$410.76

= (+$1,635.99 options income +$206.25 dividend income - $2,253.00 capital appreciation)
 

Absolute Return: -1.3%

= -$410.76/$32,462.01

Annualized Return-on-Investment: -16.5%

= (-$410.76/$32,462.01)*(365/28 days)