Established Covered Calls in Best Buy Inc.

Today, a Covered Calls position was established in Best Buy Inc. (ticker symbol BBY) with an October 20th, 2017 expiration and at the $52.50 strike price.  This morning, Best Buy declared a quarterly dividend of $.34 with an ex-dividend date of September 18th, so the potential return-on-investment results for this position includes the possibility of early exercise since the ex-dividend is prior to the October 20th options expiration date.

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

• A +3.30% absolute return (equivalent to +75.2% annualized return for the next 17 days) if the stock is assigned early (business day prior to the September 18th ex-div date); OR 
• A +3.96% absolute return (equivalent to +27.8% annualized return over the next 52 days) if the stock is assigned on the Oct 20th, 2017 options expiration date.

Either result exceeds the Covered Calls Advisor's target for a greater than +20% potential annualized return-on-investment. 

Given the Covered Calls Advisor's current Neutral overall market outlook, an in-the-money covered calls position was established.  As shown in the chart below, a Covered Calls positions was established since the potential return-on-investment results are preferable in comparison to its synthetically equivalent short Cash-Secured Put options position in this instance:

You will notice in the chart above (click on chart to view a larger and more legible version) that there is a column titled "Intervening Earnings" and "NO*" with an indication that "If 'YES' then consider avoiding position".  Best Buy does not have a quarterly earnings report prior to the options expiration date.
Also in the chart above is a column called "Intervening Ex-Div" and "YES" with an indication that "If 'YES' then complete Dividend Capture Strategy spreadsheet".  This means that Best Buy will go ex-dividend sometime between today and the options expiration date and the Covered Calls Advisor's Dividend Capture Strategy spreadsheet should be completed to determine if the pre-determined criteria are met to justify establishing a Covered Calls position for Best Buy. The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls using a dividend capture strategy.  The minimum threshold desired to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, all eleven criteria are achieved for this Best Buy position.

Best Buy Inc. (BBY) -- New Covered Calls Position
An ex-dividend occurs on August 3rd for $.2725.  In the relatively unlikely event that the current time value (i.e. extrinsic value) of $1.70 [$3.37 option premium - ($54.17 stock price - $52.50 strike price)] remaining in the short call options decays substantially (down to about $.15 or less) by September 14th (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 Best Buy shares away to capture the dividend payment.

The transactions were:
08/30/2017 Bought 200 BBY shares @ $54.17
08/30/2017 Sold 2 BBY Oct 20, 2017 $52.50 Call options @ $3.37
Note: the implied volatility for these Call options was 30.6 when this simultaneous buy/write transaction was executed.
09/18/2017 Upcoming quarterly ex-dividend of $.34 per share

Two possible overall performance results (including commissions) for this Best Buy covered calls position are as follows:
Covered Calls Position Cost Basis: $10,166.29
= ($54.17 stock price -$3.37 options price) *200 shares +$6.29 commissions

Net Profit:
(a) Options Income: +$674.00
= ($3.37*200 shares)
(b) Dividend Income (If option exercised early on Sept 15th, the business day prior to ex-div date): +$0.00; or
(b) Dividend Income (If BBY assigned at Oct 20th, 2017 expiration): +$68.00
= ($.34 dividend per share x 200 shares)

(c) Capital Appreciation (If BBY assigned): -$338.95
+($52.50 -$54.17)*200 shares - $4.95 commissions

1. Total Net Profit [If option exercised early]: +$335.05

= (+$674.00 options income +$0.00 dividend income -$338.95 capital appreciation); or

2. Total Net Profit (If Best Buy assigned at $52.50 at expiration): +$403.05

= (+$674.00 options income +$68.00 dividend income -$338.95 capital appreciation)

1. Absolute Return (If option exercised on Sept 15th, the business day prior to ex-dividend date): +3.30%

= +$335.05/$10,166.29

Annualized Return (If option exercised early -- on Sept 15th): +75.2%

= (+$335.05/$10,166.29)*(365/17 days); or

2. Absolute Return (If BBY assigned at $52.50 on Oct 20, 2017 expiration date): +3.96%

= +$403.05/$10,166.29

Annualized Return (If BBY assigned at $52.50 on Oct 20th options expiration date): +27.8%

= (+$403.05/$10,166.29)*(365/52 days)

The downside 'breakeven price' at expiration is at $50.46 ($54.17 - $3.37 -$.34), which is 6.8% below the current market price of $54.17. 

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the October 20th, 2017 options expiration) for this Best Buy Inc. covered calls position is 61.4%, so the expected value annualized ROI of this investment (if held until expiration) is +17.1% (+27.8% * 61.4%), an attractive result for this moderately in-the-money covered calls position.

The 'crossover price' at expiration is $57.20 ($54.17 + $3.37 -$.34).  This is the price above which it would have been more profitable to simply buy-and-hold Best Buy stock until October 20th (the October monthly options expiration date) rather than establishing this covered calls position.

Covered Calls Established in MGM Resorts International and Nucor Corp.

Today, two covered calls positions were established in MGM Resorts International (ticker symbol MGM) and Nucor Corp. (NUE).  The September 15th expiration was chosen for the MGM position and the October 20, 2017 expiration for the Nucor position.  Given the Covered Calls Advisor's current cautious overall market outlook, moderately in-the-money covered calls positions were established in each instance. Also, there are upcoming ex-dividend dates prior to both options expirations which are also taken into consideration.

Some potential return-on-investment results for each position are: 

• MGM Resorts International -- A +1.2% absolute return in 19 days (equivalent to a +22.8% annualized return-on-investment if assigned at expiration; or a +0.8% absolute return in 11 days (equivalent to a +27.1% annualized return if assigned the day prior to the September 8th ex-dividend date).    

• Nucor Corp. -- A +3.2% absolute return in 54 days (equivalent to a +21.8% annualized return-on-investment if assigned at expiration); or a +2.5% absolute return in 31 days (equivalent to a +29.3% annualized return if assigned the day prior to the September 28th ex-dividend date).

Detailed transactions and possible return-on-investment results for both positions are provided below.
 
1. MGM Resorts International -- New Covered Calls Position

The transactions were as follows:
08/28/2017  Bought 700 MGM Resorts International shares @ $31.56
08/28/2017 Sold 7 MGM Sept 15, 2017 $30.00 Call options @ $1.81 and the implied volatility of these options was 29.2 when this buy/write transaction was executed.
09/08/2017 Upcoming $.11 per share ex-dividend.

Two possible overall performance results (including commissions) would be as follows:
Cost Basis Purchase of 700 shares MGM: $20,834.64
= ($31.56 -$1.81)*700 + $9.64 commissions

Net Profit:
(a) Options Income: +$1,267.00
= ($1.81*700 shares)
(b) Dividend Income (If assigned at Sept 15th expiration): +$77.00
= $.11 per share x 700 shares; OR
(b) Dividend Income (If assigned early on Sept 7th -- day prior to Sept 8th ex-dividend): $0.00
(c) Capital Appreciation: -$1,096.95
= ($30.00-$31.56)*700 shares - $4.95 commissions

Total Net Profit:
(a)  (If MGM is above $30.00 strike price at Sep 15, 2017 options expiration): +$247.05
= (+$1,267.00 options income +$77.00 dividends -$1,096.95 capital appreciation); OR
(b) (If MGM is called away early on day prior to Sept 8th ex-dividend date): +$170.05
= (+$1,267.00 options income +$0.00 dividends - $1,096.95 capital appreciation)

(a) Absolute Return if Assigned at Expiration: +1.2%
= +$247.05/$20,834.64
Equivalent Annualized Return: +22.8%
= (+$247.05/$20,834.64)*(365/19 days); OR

(b) Absolute Return if Assigned on Sept 7th (day prior to Ex-Dividend): +0.8%
= +$170.05/$20,834.64
Equivalent Annualized Return: +27.1%
= (+$170.05/$20,834.64)*(365/11 days)

The downside 'breakeven price' at expiration is at $29.64 ($54.16 - $2.96 -$.3775), which is 6.1% below the current market price of $31.56. 

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the Sep 15th, 2017 options expiration) for this MGM Covered Calls position is 79.8%, so the expected value annualized ROI of this investment (if held until expiration) is +18.2% (+22.8% * 79.8%), an attractive result for this moderately in-the-money covered calls position.

The 'crossover price' at expiration is $33.26 ($31.56 + $1.81 -$.11).  This is the price above which it would have been more profitable to simply buy-and-hold MGM stock until September 15th (the September monthly options expiration date) rather than establishing this Covered Calls position.



2. Nucor Corp. -- New Covered Calls Position

The transactions were as follows:
08/28/2017  Bought 200 Nucor Corp. shares @ $54.16
08/28/2017 Sold 2 NUE October 20, 2017 $52.50 Call options @ $2.96
Note: this was a simultaneous buy/write transaction.
09/28/2017 Expected upcoming $.3775 ex-dividend per share

Two possible overall performance results (including commissions) would be as follows:
Cost Basis Purchase of 200 shares NUE: $10,246.29
= ($54.16 -$2.96)*200 + $6.29 commissions

Net Profit:
(a) Options Income: +$592.00
= ($2.96*200 shares)
(b) Dividend Income (If assigned at Oct 20th expiration): +$75.50
= $.3775 per share x 200 shares; OR
(b) Dividend Income (If assigned early on Sept 27th -- day prior to Sept 28th ex-dividend): $0.00
(c) Capital Appreciation (If NUE is above $52.50 strike price at assignment): -$336.95
= ($52.50-$54.16)*200 shares - $4.95 commissions

Total Net Profit:
(a)  (If NUE is above $52.50 strike price at Oct 20, 2017 options expiration): +$330.55
= (+$592.00 options income +$75.50 dividends -$336.95 capital appreciation); OR
(b) (If NUE is called away early on day prior to Sept 28th ex-dividend date): +$255.05
= (+$592.00 options income +$0.00 dividends - $336.95 capital appreciation)

(a) Absolute Return if Assigned at Expiration: +3.2%
= +$330.55/$10,246.29
Equivalent Annualized Return: +21.8%
= (+$330.55/$10,246.29)*(365/54 days); OR

(b) Absolute Return if Assigned on Sept 27th (day prior to Ex-Dividend date): +2.5%
= +$255.05/$10,246.29
Equivalent Annualized Return: +29.3%
= (+$255.05/$10,246.29)*(365/31 days)

The downside 'breakeven price' at expiration is at $50.8225 ($54.16 - $2.96 -$.3775), which is 6.2% below the current market price of $54.16. 

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the Oct 20th, 2017 options expiration) for this Nucor Covered Calls position is 63.0%, so the expected value annualized ROI of this investment (if held until expiration) is +13.7% (+21.8% * 63.0%), an attractive result for this moderately in-the-money covered calls position.

The 'crossover price' at expiration is $56.7425 ($54.16 + $2.96 -$.3775).  This is the price above which it would have been more profitable to simply buy-and-hold Nucor stock until October 20th (the October monthly options expiration date) rather than establishing this Covered Calls position.

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Established Covered Calls Position in Tenneco Inc.

Today, a Covered Calls position was established in Tenneco Inc. (ticker symbol TEN) with a September 15, 2017 expiration and at the $50.00 strike price.  This position has an upcoming quarterly ex-dividend on September 6th of $.25 per share, so the potential return-on-investment results for this position includes the possibility of early exercise since the ex-dividend is prior to the Sept 15th options expiration date.

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

• A +0.72% absolute return (equivalent to +29.0% annualized return for the next 9 days) if the stock is assigned early (business day prior to the September 6th ex-div date); OR 
• A +1.22% absolute return (equivalent to +23.4% annualized return over the next 19 days) if the stock is assigned on the Sept 16th, 2017 options expiration date.

Either result exceeds the Covered Calls Advisor's target for a greater than +20% potential annualized return-on-investment and also demonstrates that despite the historically low current value of the volatility index (VIX), good potential covered calls returns can still be achieved in some carefully selected stocks.

The majority of Tenneco's business is as a premier supplier to virtually all major automobile and light truck original equipment manufacturers (OEMs) worldwide in two areas: (1) emissions control systems, and (2) intelligent suspension systems.  Tenneco's stock market valuation metrics are currently attractive relative to some of its primary competitors:

One of the many Screeners developed by the Covered Calls Advisor is the 'Buffett Screener', which attempts to replicate methods used by Warren Buffett in his stock selection process; and Tenneco appeared on this screen.  In addition, over the weekend I read a thorough and helpful bullish position update analysis on Tenneco presented by Kyle Guske on New Constructs.  


Given the Covered Calls Advisor's current Neutral overall market outlook, an in-the-money covered calls position was established.  As shown in the chart below, a Covered Calls positions was established since the potential return-on-investment results are preferable in comparison to its comparable short Put options position in this instance:

You will notice in the chart above (click on chart to view a larger and more legible version) that there is a column titled "Intervening Earnings" and "NO*" with an indication that "If 'YES' then consider avoiding position".  Tenneco does not have a quarterly earnings report prior to the options expiration date.
Also in the chart above is a column called "Intervening Ex-Div" and "YES" with an indication that "If 'YES' then complete Dividend Capture Strategy spreadsheet".  This means that Tenneco will go ex-dividend sometime between today and the options expiration date and the Covered Calls Advisor's Dividend Capture Strategy spreadsheet should be completed to determine if the pre-determined criteria are met to justify establishing a covered calls position for Tenneco. The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls using a dividend capture strategy.  The minimum threshold desired to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, nine of the eleven criteria are achieved for this Tenneco Inc. position.

Early assignment is preferable to the Covered Calls Advisor since it would provide a higher annualized return-on-investment result, but either outcome would provide a very good result for this investment position.  These returns will be achieved as long as the stock is above the $50.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $49.37 ($52.73 -$3.11 -$.25) provides 6.4% downside protection below today's $52.73 purchase price. 

Established New Covered Calls Position in Applied Materials Inc.

Yesterday was options expiration for August 25th.  Late in afternoon trading, it was apparent that the Covered Calls Advisor's Applied Materials (ticker AMAT) Aug 25th $43.00 Covered Calls position would close in-the-money and the position would be closed.  That did occur (Link).  The terrific returns were achieved because of the very high 45.2 implied volatility when the position was established; primarily because of the upcoming earnings report that occurred prior to the Aug 25th expiration.  AMAT's good earnings report helped maintain the AMAT stock price above the strike price until yesterday's expiration.  Despite the typical volatility crush (explanation of 'volatility crush') that occurs after the earnings report (from 45.2 to 25.6 in this case), the potential return-on-investment for a new position was still attractive enough (an absolute return of  +2.1% which is equivalent to +35.1% annualized return over the next 22 days) to warrant establishing another Covered Calls investment in Applied Materials.


Applied Materials Inc. -- New Covered Calls Position Established
The transactions were:
08/25/2017 Bought 500 AMAT shares @ $43.38
08/25/2017 Sold 5 AMAT Sept 15, 2017 $43.00 Call options @ $1.28
Note: a simultaneous buy/write transaction was executed.

A possible overall performance result (including commissions) for this Applied Materials covered calls position is as follows:
Covered Calls Position Cost Basis: $21,058.30
= ($43.38 stock price -$1.28 options price) *500 shares +$8.30 commissions

Net Profit:
(a) Options Income: +$640.00
= ($1.28*500 shares)
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If AMAT assigned at $43.00 strike price at Sept 15th options expiration): -$194.95
= ($43.00-$43.38)*500 shares - $4.95 commissions

Total Net Profit (If AMAT assigned at $43.00 at options expiration): +$445.05

= (+$640.00 options income +$0.00 dividend income -$194.95 capital appreciation)

Absolute Return: +2.1%

= +$445.05/$21,058.30

Annualized Return: +35.1%

= (+$445.05/$21,058.30)*(365/22 days)

These returns will be achieved as long as the stock is above the $43.00 strike price at expiration.  If the stock declines below the strike price, the breakeven price of $42.10 ($43.38 -$1.28) provides 3.0% downside protection.

August 25th Expiration Result -- Applied Materials Position Closed

The Covered Calls Advisor Portfolio (CCAP) contained one position (Applied Materials Inc.) with an August 25th, 2017 options expiration.  The five Call options expired in-the-money so the maximum potential return-on-investment (ROI) result of  +2.5% absolute return (equivalent to +100.3% annualized return for the 9 days holding period) was achieved. 

Applied Materials Inc. -- Covered Calls Position Closed
The transactions were:
08/17/2017 Bought 500 AMAT shares @ $43.60
08/17/2017 Sold 5 AMAT Aug 25, 2017 $43.00 Call options @ $1.55
Note: a simultaneous buy/write transaction was executed.
08/22/2017 Quarterly ex-dividend of $.10 per share
08/25/20175 AMAT Call options expired in-the-money so the 500 AMAT shares were sold at the $43.00 strike price
Note: the price of AMAT shares was $43.31 at yesterday's options expiration (at market close)

The overall performance result (including commissions) for this Applied Materials covered calls position was:
Covered Calls Position Cost Basis: $21,033.30
= ($43.60 stock price -$1.55 options price) *500 shares +$8.30 commissions

Net Profit:
(a) Options Income: +$775.00
= ($1.55*500 shares)
(b) Dividend Income ($.10 per share ex-dividend on 8/22/2017): +$50.00
= ($.10 dividend per share x 500 shares)

(c) Capital Appreciation (AMAT assigned at $43.00 strike price at Aug 25th options expiration): -$304.95
= ($43.00-$43.60)*500 shares - $4.95 commissions

Total Net Profit: +$520.05

= (+$775.00 options income +$50.00 dividend income -$304.95 capital appreciation)

Absolute Return: +2.5%

= +$520.05/$21,033.30

Annualized Return on Investment: +100.3%

= (+$520.05/$21,033.30)*(365/9 days)

Established Covered Calls Positions in Micron Technology Inc. and Voya Financial Inc.

Today, two new Covered Calls positions were established in Micron Technology Inc. and Voya Financial Inc.(ticker VOYA).  The Micron position was established when the stock price was $29.71 and the September 15th, 2017 $28.00 Calls were sold at $2.29.   The Voya stock was purchased at $36.94 and the Sept 15th $36.00 Calls were sold at $1.54.   Both positions are relatively conservative since the Covered Calls Advisor's current Overall Market Meter sentiment is Neutral -- Micron has 5.8% downside protection to the strike price and Voya has 2.5%.

As detailed below, the potential returns are:

• Micron Technology Inc. -- +2.1% absolute return in 26 days (equivalent to a +29.3% annualized return-on-investment). 
• Voya Financial Inc. -- +1.7% absolute return in 26 days (equivalent to a +23.5% annualized return-on-investment). 
• Both of these positions exceed the Covered Calls Advisor's desired threshold of >20% returns.
  
  
  1. Micron Technology Inc. (MU) -- New Covered Calls Position
  
  
  The implied volatility of the Call options was 40.3 when this position was established.    
  
  The transactions were as follows:
  08/21/2017 Bought 600 shares of Micron @ $29.71 
  08/21/2017 Sold 6 MU Sept 15, 2017 $28.00 Call options @ $2.29
  Note: this was a simultaneous Buy/Write transaction
  
  
  A possible overall performance result (including commissions) would be as follows:
  Cost Basis: $16,460.97
  = ($29.71 - $2.29)* 600 shares + $8.97 commission
  
  Net Profit:
  (a) Options Income: +$1,374.00
  = ($2.29* 600 shares)
  (b) Dividend Income: +$0.00 
  (c) Capital Appreciation (If Micron is above $28.00 strike price at Sept 15th expiration): -$1,030.95
  = ($28.00-$29.71)* 600 shares - $4.95 commission
  
  Total Net Profit (If MU stock price is above $28.00 strike price at Sept 15th options expiration): +$343.05
  = (+$1,374.00 options income +$0.00 dividend income -$1,030.95 capital appreciation)
  
  Absolute Return: +2.1%
  = +$343.05/$16,460.97
  Annualized Return: +29.3%
  = (+$343.05/$16,460.97)*(365/26 days)
  
  The downside 'breakeven price' at expiration is at $27.42 ($29.71 - $2.29), which is 7.7% below the current market price of $29.71.
  
  The probability of making a profit (if held until the Sept 15th, 2017 options expiration) for this Micron Technology Covered Calls position is 72.6%. This compares with a probability of profit of 50.2% for a buy-and-hold of Micron shares over the same time period. Using this probability of profit of 72.6%, the expected value annualized return-on-investment (if held until expiration) is +21.3% (+29.3% * 72.6%), a satisfactory risk/reward profile for this relatively conservative investment.  
  
  The 'crossover price' at expiration is $32.00 ($29.71 + $2.29).  This is the price above which it would have been more profitable to simply buy-and-hold Micron Technology stock until the Sept 15th, 2017 options expiration date.
  
  
   
  2. Voya Financial Inc. (VOYA) -- New Covered Calls Position
  
  
  The implied volatility of the Call options was 23.9 when this position was established; so the $1.54 per share received is a nice premium received for these in-the-money (i.e. strike price below the current stock price) Call options.    
  
  The transactions were as follows:
  08/21/2017 Bought 300 shares VOYA @ $36.94 
  08/21/2017 Sold 3 VOYA Sept 15, 2017 $36.00 Call options @ $1.54
  Note: this was a simultaneous Buy/Write transaction
  08/29/2017 Upcoming $.01 per share ex-dividend
  
  A possible overall performance result (including commissions) would be as follows:
  Cost Basis: $10,626.96
  = ($36.94 - $1.54)*300 shares + $6.96 commission
  
  Net Profit:
  (a) Options Income: +$462.00
  = ($1.54*300 shares)
  (b) Dividend Income: +$3.00 = $.01 dividend x 300 shares 
  (c) Capital Appreciation (If VOYA is above $36.00 strike price at Sept 15th expiration): -$286.95
  = ($36.00-$36.94)*300 shares - $4.95 commission
  
  Total Net Profit (If VOYA stock price is above $36.00 strike price at Sept 15th options expiration): +$178.05
  = (+$462.00 options income +$3.00 dividend income -$286.95 capital appreciation)
  
  Absolute Return: +1.7%
  = +$178.05/$10,626.96
  Annualized Return: +24.2%
  = (+$178.05/$10,626.96)*(365/26 days)
  
  The downside 'breakeven price' at expiration is at $35.41 ($36.96 - $.01 - $1.54), which is 4.1% below the current market price of $36.94.
  
  The probability of making a profit (if held until the Sept 15th, 2017 options expiration) for this Voya Covered Calls position is 66.4%. This compares with a probability of profit of 50.3% for a buy-and-hold of VOYA shares over the same time period. Using this probability of profit of 66.4%, the expected value annualized return-on-investment (if held until expiration) is +16.1% (+24.2% * 66.4%), a satisfactory risk/reward profile for this relatively conservative investment.  
  
  The 'crossover price' at expiration is $38.47 ($36.94 - $.01 + $1.54).  This is the price above which it would have been more profitable to simply buy-and-hold Voya stock until the Sept 15th, 2017 options expiration date instead of holding this Covered Calls position.

August 2017 Options Expiration Results

The Covered Calls Advisor Portfolio had seven positions with August 18, 2017 options expirations.  One position (Intel) had an early assignment on the day prior to the ex-dividend date and the results from that position were described here: Link

Of the total seven positions, the remaining six were held until Friday's August 18th expiration.  Of these, three positions (Alibaba Group Holding Ltd., Express Scripts Holding Co., and Micron Technology Inc.) closed in-the-money, so the maximum possible return-on-investment result was achieved for each of these positions:

• Alibaba Group Holding Ltd.:  +1.2% absolute return (+26.3% annualized return) in 17 days
• Express Scripts Holding Co.:  +1.0% absolute return (+15.5% annualized return) in 23 days  
• Micron Technology Inc.:  +2.5% absolute return (+41.7% annualized return) in 22 days

The cash now available in the Covered Calls Advisor Portfolio from the closing of these three positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new position(s) established with this available cash will be posted on this site on the same day the transactions occur.  

The remaining three positions (Delta Air Lines Inc., Devon Energy Corp., and Range Resources Corp.) closed yesterday with their stock price below their strike prices, so those shares will remain in the Covered Calls Advisor Portfolio (see holdings in right sidebar) until either the stock is sold or a continuation covered calls position is established. 

The details for each of the closed positions is as follows:

1.  Alibaba Group Holding Ltd. (BABA) -- Covered Calls Position Closed 

The transactions were as follows:
08/02/2017  Bought 200 Alibaba shares @ $150.61
08/02/2017 Sold 2 BABA August 18, 2017 $140.00 Call options @ $12.33
Note: this was a simultaneous Buy/Write transaction
08/18/2017 200 BABA shares sold at $140 strike price at Aug 18th options expiration  

The overall performance result (including commissions) was as follows:
Cost Basis: $27,662.29
= ($150.61 -$12.33) * 200 shares + $6.29 commission

Net Profit:
(a) Options Income: +$2,466.00
= ($12.33 *200 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (BABA was above $140.00 strike price at August 18, 2017 expiration): -$2,126.95
= ($140.00-$150.61)*200 shares - $4.95

Total Net Profit: +$339.05
= (+$2,466.00 options income +$0.00 dividend income -$2,126.95 capital appreciation)

Absolute Return: +1.2%
= +$339.05/$27,662.29
Annualized Return: +26.3%
= (+$339.05/$27,662.29)*(365/17 days)


2. Express Scripts Holding Co. (ESRX) -- Covered Calls Position Closed

The transactions were as follows:
07/27/2017  Bought 400 Express Scripts Holding Co. shares @ $62.47
07/27/2017 Sold 4 ESRX Aug 18, 2017 $60.00 Call options @ $3.07
Note: this was a simultaneous buy/write transaction.
08/18/2017 400 ESRX shares sold at $60.00 strike price at Aug 18th options expiration

The overall performance result (including commissions) was as follows:
Cost Basis: $23,767.55
= ($62.47 - $3.07) *400 shares + $7.55 commissions

Net Profit:
(a) Options Income: +$1,225.32
= ($3.07*400 shares) - $2.68 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (ESRX is above $60.00 strike price at Aug 18th expiration): -$992.95
= ($60.00-$62.47)*400 shares - $4.95 commissions

Total Net Profit (ESRX was above $60.00 strike price at Aug 18, 2017 options expiration): +$232.37
= (+$1,225.32 options income +$0.00 dividends -$992.95 capital appreciation)

Absolute Return: +1.0%
= +$232.37/$23,767.55
Annualized Return: +15.5%
= (+$232.37/$23,767.55)*(365/23 days)


3. Micron Technology Inc. (MU) -- 100% Cash-Secured Put Options Position Closed

The transactions were as follows:
07/28/2017  Sold 10 MU Aug 18, 2017 $28.00 100% cash-secured Put options @ $.71
Note: the price of Micron's stock was $29.15 today when this transaction was executed.
08/18/2017 10 MU Put options expired since price of stock was above strike price on the 8/18/2017 expiration date

The Covered Calls Advisor does not use margin, so the detailed information on this position and the result shown below reflect the fact that this position was established using 100% cash securitization for the ten Put options sold.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $28,004.95
= $28.00*1,000 shares + $4.95 commission

Net Profit:
(a) Options Income: +$703.30
= ($.71*1,000 shares) - $6.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Micron Technology Inc. was above $28.00 strike price at August 18th expiration): +$0.00
= ($28.00-$28.00)*1,000 shares

Total Net Profit: +$703.30
= (+$703.30 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +2.5%
= +$703.30/$28,004.95
Annualized Return: +41.7%
= (+$703.30/$28,004.95)*(365/22 days)

Established Covered Calls in Applied Materials Inc.

Today, a covered calls position was established in Applied Materials Inc. (ticker symbol AMAT) with an August 25, 2017 expiration and at the $43.00 strike price.  This position has an upcoming quarterly ex-dividend on August 22nd of $.10 per share, so the potential return-on-investment result at expiration includes this dividend.  Given the Covered Calls Advisor's current overall market outlook, an in-the-money covered calls position was established. 

As detailed below, a potential return-on-investment result is an absolute return of  +2.5% which is equivalent to +100.3% annualized return over the next 9 days) if the stock is assigned on the August 25, 2017 options expiration date.

Applied Materials did report quarterly earnings after market close today.  I decided to go forward and establish this position because: (1) AMAT's four largest semiconductor equipment competitors (ASML, LRCX, KLAC, and TER) have already reported earnings and they each soundly beat analysts' EPS expectations (by from 2.8% to 8.0%), so I expected AMAT to do the same; and (2) the implied volatility had expanded to a very high 45.2 which is much higher than the Covered Calls Advisor would have expected for a company that is so closely covered by so many analysts (21 at present) and for which the expected EPS range was relatively narrow at $.82 - $.86.  Here's a short news summary related to Applied Materials' earnings report today:

Applied Materials Posts Better-than-Expected Q3 Results, Q4 Guidance                                      
04:04 PM EDT, 08/17/2017 (MT Newswires) -- Applied Materials (AMAT) reported Q3 revenue of $3.74 billion, up 33% year-over-year and ahead of the analyst consensus of $3.68 billion on Capital IQ. Earnings were $0.86 per share, up 72% year-over-year and topping the Street view of $0.83 per share.
For Q4, the company expects sales in the range of $3.85-$4.0 billion, vs. the analyst consensus of $3.71 billion. Non-GAAP earnings are seen at $0.86-$0.94 per share, vs. expectations for $0.82 per share.

AMAT shares are up more than 3% on 1.1 million shares in aftermarket trading as of 5:00pm today.

Details for this position as well as a possible return-on-investment outcome is provided below.

Applied Materials Inc. -- Covered Calls Position Established
The transactions were:
08/17/2017 Bought 500 AMAT shares @ $43.60
08/17/2017 Sold 5 AMAT Aug 25, 2017 $43.00 Call options @ $1.55
Note: a simultaneous buy/write transaction was executed.
08/22/2017 Upcoming quarterly ex-dividend of $.10 per share

A possible overall performance result (including commissions) for this Applied Materials covered calls position is as follows:
Covered Calls Position Cost Basis: $21,033.30
= ($43.60 stock price -$1.55 options price) *500 shares +$8.30 commissions

Net Profit:
(a) Options Income: +$775.00
= ($1.55*500 shares)
(b) Dividend Income (If AMAT assigned at Aug 25th, 2017 expiration): +$50.00
= ($.10 dividend per share x 500 shares)

(c) Capital Appreciation (If AMAT assigned at $43.00 strike price at Aug 25th options expiration): -$304.95
= ($43.00-$43.60)*500 shares - $4.95 commissions

Total Net Profit (If AMAT assigned at $43.00 at options expiration): +$520.05

= (+$775.00 options income +$50.00 dividend income -$304.95 capital appreciation)

Absolute Return (If AMAT assigned at $43.00 on August 25, 2017 expiration date): +2.5%

= +$520.05/$21,033.30

Annualized Return (If AMAT assigned at $43.00 on August 25th options expiration date): +100.3%

= (+$520.05/$21,033.30)*(365/9 days)

These returns will be achieved as long as the stock is above the $43.00 strike price at expiration.  If the stock declines below the strike price, the breakeven price of $41.95 ($43.60 -$1.55 -$.10) provides 3.8% downside protection below today's $43.60 purchase price.

Established Covered Calls Position in Kohl's Corporation

Today, a covered calls position was established in Kohl's Corporation (ticker symbol KSS) with a September 15, 2017 expiration.  Given the Covered Calls Advisor's current Neutral overall market outlook, an in-the-money covered calls position was established with the strike price of $35.00 moderately below the stock purchase price of $37.02. 

There is potential for a +3.0% absolute return in 30 days (equivalent to a +36.7% annualized return-on-investment).   This potential result substantially exceeds the Covered Calls Advisor's desired threshold of >20% annualized return-on-investment.  An upcoming ex-dividend of $.55 per share will occur on September 1st, so this dividend is included in the potential return-on-investment result detailed below.

The stock price of all big box retailers, including Kohl's, declined today in sympathy with the decline in Walmart stock after it reported decent (but not inspiring) quarterly earnings this morning.  The Covered Calls Advisor believes that Kohl's current valuation relative to its primary competitors is now very attractive:
       

Given this relatively attractive valuation along with Kohl's upcoming generous dividend and attractive options premiums (current implied volatility of 31.0), the Covered Calls Advisor decided to establish the Covered Calls position described below.  It is also noted that Kohl's already reported their earnings last week, so there will be no earnings report surprises prior to the options expiration date.





Kohl's Corporation (KSS) -- New Covered Calls Position

The transactions were as follows:
08/17/2017  Bought 500 Kohl's shares @ $37.02
08/17/2017 Sold 5 KSS Sept 15, 2017 $35.00 Call options @ $2.52
Note: this was a simultaneous buy/write transaction.
09/01/2017 $.55 ex-dividend

A possible overall performance result (including commissions) would be as follows:
Cost Basis Purchase of 500 shares KSS: $17,258.30
= ($37.02 -$2.52)*500 + $8.30 commissions

Net Profit:
(a) Options Income: +$1,260.00
= ($2.52*500 shares)
(b) Dividend Income: +$275.00
= $.55 per share x 500 shares
(c) Capital Appreciation (If KSS is above $35.00 strike price at Sept 15th expiration): -$1,014.95
= ($35.00-$37.02)*500 shares - $4.95 commissions

Total Net Profit (If KSS is above $35.00 strike price at Sept 15, 2017 options expiration): +$520.05
= (+$1,260.00 options income +$275.00 dividends -$1,014.95 capital appreciation)

Absolute Return: +3.0%
= +$520.05/$17,258.30
Annualized Return: +36.7%
= (+$520.05/$17,258.30)*(365/30 days)

The downside 'breakeven price' at expiration is at $33.95 ($37.02 - $2.52 -$.55), which is 8.3% below the current market price of $37.02. 

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the Sept 15th, 2017 options expiration) for this Kohl's Corporation covered calls position is 70.6%, so the expected value annualized ROI of this investment (if held until expiration) is +25.9% (+36.7% * 70.6%), a very attractive result for this in-the-money covered calls position.

The 'crossover price' at expiration is $38.99 ($37.02 + $2.52 -$.55).  This is the price above which it would have been more profitable to simply buy-and-hold Kohl's stock until September 15th (the September monthly options expiration date) rather than establishing this covered calls position.

Established Covered Calls in Alibaba Group Holding Ltd.

Today, the Covered Calls Advisor established a new Covered Calls position in Alibaba Group Holding Ltd. (ticker symbol BABA) at the September 15, 2017 options expiration and at the $140.00 strike price.  This is the second BABA Covered Calls position now held in the Covered Calls Advisor Portfolio.  The first position was at the same strike price but was for the August 18th options expiration.  This new position is a relatively conservative one since it was established today when the price of Alibaba was $147.68 (5.2% downside protection to the strike price) and 36 calendar days remaining until the options expiration date.

For Alibaba, the chart below (click on the chart to view a larger and more legible version) shows that the potential annualized return of +31.9% for the Covered Calls position is preferable to the +30.4% to establish a comparable 100% Cash-Secured Puts position. 

This potential annualized return-on-investment of +31.9% exceeds the Covered Calls Advisor's desired threshold of >20%. 

The implied volatility of the Call options was 40.2 when this position was established, the highest it has been for Albaba options in more than a year.  This high volatility is largely attributable to the uncertainty associated with the upcoming quarterly earnings report due on August 17th as well as a rapid $10 decline in the stock price this week.  

The downside 'breakeven price' at expiration is at $135.70 ($147.68 - $11.98), which is 8.1% below the current market price of $147.68.  

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the September 15th, 2017 options expiration) for this position is 69.5%. This compares with a probability of profit of 50.2% for a buy-and-hold of this Alibaba stock over the same time period. Using this probability of profit of 69.5% the expected value for the annualized return-on-investment (if held until expiration) is +22.2% (+31.9% maximum potential annualized return on investment * 69.5%), an attractive risk/reward profile for this conservative investment.  

Finally, the 'crossover price' at expiration is $159.66 ($147.68 + $11.98).  This is the price above which it would have been more profitable to simply buy-and-hold Alibaba stock until the September 15th options expiration date rather than establishing this Covered Calls position.

Established Covered Calls in Bank of America and Delta Air Lines

Today, two covered calls positions were established in Bank of America (BAC) and Delta Air Lines (DAL) for the September 15, 2017 options expiration date.  Given the Covered Calls Advisor's current cautious overall market outlook, moderately in-the-money covered calls positions were established in each instance. Also, there are upcoming ex-dividend dates prior to options expiration which are taken into consideration for each of these two positions.

Some potential return-on-investment results for each position are: 

• Bank of America Corp. -- A +1.3% absolute return in 37 days (equivalent to a +13.2% annualized return-on-investment if assigned at expiration; or a +0.8% absolute return in 19 days (equivalent to a +15.2% annualized return if assigned the day prior to the August 30th ex-dividend date).    

• Delta Air Lines Inc. -- A +2.3% absolute return in 37 days (equivalent to a +21.9% annualized return-on-investment if assigned at expiration); or a +1.6% absolute return in 11 days (equivalent to a +52.3% annualized return if assigned the day prior to the August 21st ex-dividend date).

Details for the Delta Air Lines position are provided below to explain the position further for those interested in understanding the type of thought processes and calculations underlying establishing these covered calls positions.
 
Delta Air Lines Inc. (DAL) -- New Covered Calls Position

First and foremost, is is essential to invest only in companies that you are bullish about.  Delta meets the Covered Calls Advisor's key quality, value, and growth metrics.  My bullish sentiment is shared by respected analysts including: (1) Outperform by both Schwab Equity Ratings and Reuters Research Average Rating; (2) Buy by Argus (their highest rating); (3) Strong Buy by S&P (their highest rating); (4) Barron's article last weekend on Delta was bullish, indicating a +35% stock price potential sometime during the next two years; and (5) Just today, Barclays initiated a 12-month Overweight target of $70 (See link).  Also, as shown below, the potential rate-of-return exceeds the Covered Calls Advisor's desired threshold of +20% annualized return if assigned at expiration.  Another positive occurred yesterday when the Board authorized a substantial increase in the quarterly dividend from $.2025 to $.305 and DAL stock will go ex-dividend on August 21st, before the September 15th options expiration date for this Covered Calls position.

Because of Put/Call parity, Covered Calls and Cash-Secured Puts are synthetically equivalent strategies (when done at the same strike price for the same expiration date).  However, subtle and temporary differences often exist, so just prior to executing the transactions, a comparison is made to see which strategy provides a better potential return.  For Delta, the chart below shows that the potential annualized return of +21.9% for the Covered Calls position is preferable to the +20.6% for a 100% Cash-Secured Puts position in this instance:
 

You will notice in the chart above (click on chart to view a larger and more legible version) that there is a column titled "Intervening Earnings" and "NO*" with an indication that "If 'YES' then consider avoiding position".  The "NO" in this case means that Delta does not have a quarterly earnings report prior to the options expiration.

Also in the chart above is a column called "Intervening Ex-Div" and "YES" with an indication that "If 'YES' then complete Dividend Capture Strategy spreadsheet".  This means that Delta will go ex-dividend sometime between today and the options expiration date and the Covered Calls Advisor's Dividend Capture Strategy spreadsheet should be completed to assess whether the pre-determined criteria are met to justify establishing a covered calls position for Delta.  The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls using a dividend capture strategy.  The minimum threshold desired to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, all eleven criteria are achieved for this Delta Air Lines Inc. position.

The transactions were as follows:
08/10/2017  Bought 1,000 Delta Air Lines Inc. shares @ $49.45
08/10/2017 Sold 10 DAL Sept 15, 2017 $48.00 Call options @ $2.20
Note: this was a simultaneous buy/write transaction.
08/30/2017 $.305 ex-dividend

A possible overall performance result (including commissions) would be as follows:
Cost Basis Purchase of 1,000 shares DAL: $47,239.88
= ($49.45 -$2.20)*1,000 + $11.65 commissions

Net Profit:
(a) Options Income: +$2,200.00
= ($2.20*1,000 shares)
(b) Dividend Income: +$305.00
= $.305 per share x 1,000 shares
(c) Capital Appreciation (If DAL is above $48.00 strike price at Sep 15th expiration): -$1,454.95
= ($48.00-$49.45)*1,000 shares - $4.95 commissions

Total Net Profit (If DAL is above $48.00 strike price at Sep 15, 2017 options expiration): +$1,050.05
= (+$2,200.00 options income +$305.00 dividends -$1,454.95 capital appreciation)

Absolute Return: +2.3%
= +$1,080.05/$47,239.88
Annualized Return: +21.9%
= (+$1,080.05/$47,239.88)*(365/37 days)

The downside 'breakeven price' at expiration is at $46.945 ($49.45 - $2.20 -$.305), which is 5.1% below the current market price of $49.45. 

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the Sep 15th, 2017 options expiration) for this Delta Air Lines covered calls position is 70.1%, so the expected value annualized ROI of this investment (if held until expiration) is +15.8% (+22.6% * 70.1%), an attractive result for this moderately in-the-money covered calls position.

The 'crossover price' at expiration is $51.345 ($49.45 + $2.20 -$.305).  This is the price above which it would have been more profitable to simply buy-and-hold Delta Air Lines stock until September 15th (the September monthly options expiration date) rather than establishing this covered calls position.

USE EXTREME CAUTION !

There are many ways to measure the current value of the U.S. stock market in comparison to its historic values.  By most valuation-related metrics, the stock market is now (with the S&P 500 at 2,477) substantially overvalued.  Some of my favorite valuation measures are:

• Total Market Capitalization-to-GDP Ratio -- this has traditionally been Warren Buffet's favorite indicator.  Detailed explanation here: Link   Using this valuation method, the stock market is currently more than 30% overvalued.
• Price-to-Sales Ratio -- measures total corporate market capitalization as a percentage of total corporate annual sales revenue.  The most recent 'Weekly Market Comment' by John Hussman on their hussmanfunds.com site includes this indicator (along with several others).  Please read this article carefully -- it provides some terrific insights, including an especially lucid explanation of the Federal Reserve Bank's Balance Sheet: Link  By this P/S Ratio method, the stock market is currently more than 40% overvalued.
• Price-to-Earnings Ratio -- this is the single valuation metric most often used by analysts and investors.  As shown below, the Covered Calls Advisor tracks the current P/E Ratio relative to Annual Inflation as a measure of current market value.  By this P/E relative to Inflation method, the stock market is currently 17% overvalued.
  
     

Clearly, each of these Valuation-related metrics provide a 'Bearish' market outlook.  However, remember that Valuation is only one factor (albeit a very important one) in the Covered Calls Advisor's 'Overall Market Meter'.  As shown in the right sidebar, the current 'Overall Market Meter' sentiment is 'Neutral'.  In addition to Valuation, other important factors include:

• Macroeconomic -- currently Slightly to Moderately Bullish
• Momentum -- currently Moderately Bullish
• Future Growth -- currently Neutral to Slightly Bullish

So, the positive macro, momentum, and growth factors are a counterbalance to the bearish valuation indicators.

Recently, you might have noticed that the Covered Calls Advisor has established conservative, in-the-money Covered Calls positions, which is a direct result of the current high market value relative to its historic average.  The S&P 500 is now at 2,477 and is extremely overvalued, so it is prudent to "Use Extreme Caution" with our investments.

Remember this similar sentiment from these three all-time great investors:

• John Templeton -- "The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell"
• Warren Buffett -- "We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful"; and 
• Benjamin Graham -- "I have every confidence in the threefold merit of this general method based on (a) sound logic, (b) simplicity of application, and (c) an excellent supporting record. At bottom it is a technique by which true investors can exploit the recurrent excessive optimism and excessive apprehension of the speculative public."

Please click on the 'Comments' link below with any thoughts/questions you wish to share.

Regards and Godspeed,
Jeff

Early Assignment of Intel Corp. Covered Calls

Early this morning I received both email and text notifications from my broker (Schwab) that the 6 Intel Corp. (ticker symbol INTC) Call options were exercised early, so the 600 shares of Intel stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $34.00 strike price. 

Details of the transactions and the result for this Intel position are provided below.  The per share price had increased from $34.65 when the position was originally established (on July 26th) to $36.64 at yesterday's market close.  This stock price increase is largely a result of what I like to call its 'trifecta earnings'.  Trifecta earnings is when the earnings report exceeds analysts' expectations on three key measures: (1) revenues, (2) earnings per share, and (3) forward guidance.  This occurred for Intel's earnings recently reported.  

The time value remaining in the Call options at the market close yesterday was only $.01; so as expected, the Call owners exercised their option to buy the shares in order to capture the dividend.  I  preferred this early assignment outcome instead of keeping the covered calls position and capturing the $.2725 per share ex-dividend today.  This is because early assignment resulted in substantially higher annualized return-on-investment (+53.2% achieved) rather than if the position had instead been assigned on the August 18th options expiration date which (including the $.2725 per share dividend) would have resulted in a +29.3% annualized ROI.
Using my Dividend Capture Strategy spreadsheet has been working nicely.  Last month, excellent early assignment results were achieved with a similar position in JPMorgan Chase & Co:  http://coveredcallsadvisor.blogspot.com/2017/07/early-assignment-of-jpmorgan-chase-co.html

As detailed below, the actual return-on-investment result achieved for this Intel position was a +1.17% absolute return (equivalent to +53.2% annualized return) for the 8 days this position was held.  The Covered Calls Advisor will retain the cash received in the Covered Calls Advisor Portfolio until a new covered calls position is established, the transactions details of which will be posted on this blog site the same day they occur.



Intel Corp. -- Position Closed

The transactions were:
07/26/2017 Bought 600 INTC shares @ $34.65
07/26/2017 Sold 6 INTC Aug 18, 2017 $34.00 Call options @ $1.05
Note: a simultaneous buy/write transaction was executed.

08/02/2017 Six Call options exercised early (day prior to ex-dividend date) and stock sold at $34.00 strike price.

The overall performance result (including commissions) for this Intel covered calls position was as follows:
Covered Calls Position Cost Basis: $20,168.85
= ($34.65 stock price -$1.05 options price) *600 shares +$8.85 commissions

Net Profit:
(a) Options Income: +$630.00
= ($1.05*600 shares)
(b) Dividend Income (Call options exercised early on August 2nd, the business day prior to ex-div date): +$0.00

(c) Capital Appreciation (INTC assigned early): -$394.95
+($34.00-$34.65)*600 shares - $4.95 commissions

Total Net Profit: +$235.05

= (+$630.00 options income +$0.00 dividend income -$394.95 capital appreciation)

Absolute Return: +1.17%

= +$235.05/$20,168.85

Annualized Return: +53.2%

= (+$231.03/$20,168.85)*(365/8 days)

Established Covered Calls in Alibaba Group Holding Ltd.

Today, the Covered Calls Advisor established a new position in Alibaba Group Holding Ltd. (ticker symbol BABA) by establishing two Covered Calls position with September 15, 2017 expiration and at the $140.00 strike price.  This is the second BABA Covered Calls position now in the Covered Calls Advisor Portfolio.  The first position was at the same strike price but was for the August 18th options expiration.  This new position is a relatively conservative one since it was established today when the price of Alibaba was $147.68 (5.2% downside protection to the strike price) and 36 calendar days remaining until the options expiration date. 

For Alibaba, the chart below (click on the chart to view a larger and more legible version) shows that the potential annualized return of +31.9% for the Covered Calls position is preferable to the +30.4% to establish a comparable 100% Cash-Secured Puts position. 



This potential annualized return-on-investment of +31.9% exceeds the Covered Calls Advisor's desired threshold of >20%. 

The implied volatility of the Call options was 40.2 when this position was established, the highest it has been for Albaba options in more than a year.  This high volatility is largely attributable to the uncertainty associated with the upcoming quarterly earnings report due on August 17th as well as a rapid $10 decline in the stock price this week.  


The downside 'breakeven price' at expiration is at $135.70 ($147.68 - $11.98), which is 8.1% below the current market price of $147.68.  

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the September 15th, 2017 options expiration) for this position is 69.5%. This compares with a probability of profit of 50.2% for a buy-and-hold of this Alibaba stock over the same time period. Using this probability of profit of 69.5% the expected value for the annualized return-on-investment (if held until expiration) is +22.2% (+31.9% maximum potential annualized return on investment * 69.5%), an attractive risk/reward profile for this conservative investment.  

Finally, the 'crossover price' at expiration is $159.66 ($147.68 + $11.98).  This is the price above which it would have been more profitable to simply buy-and-hold Alibaba stock until the September 15th options expiration date rather than establishing this Covered Calls position.

Established Covered Calls Position in Delta Air Lines Inc.

Today, a covered calls position was established in Delta Air Lines Inc. (ticker symbol DAL) with an August 18, 2017 expiration.  Given the Covered Calls Advisor's current Neutral overall market outlook, an in-the-money covered calls position was established with the strike price of $49.00 slightly below the stock purchase price of $49.97. 

There is potential for a +1.5% absolute return in 18 days (equivalent to a +30.2% annualized return-on-investment).   This potential result substantially exceeds the Covered Calls Advisor's desired threshold of >20% annualized return-on-investment and also demonstrates that despite the historically low current value of the volatility index (VIX), good potential returns are available in some carefully selected stocks.  Although a dividend will not be declared for a few days, it is likely that a dividend at least equal to that of prior quarters of $.2025 is expected to go ex-dividend on about August 15th; so this dividend is included in the potential return-on-investment result detailed below.

Delta Air Lines Inc. (DAL) -- New Covered Calls Position

The transactions were as follows:
08/01/2017  Bought 500 Delta Air Lines Inc. shares @ $49.97
08/01/2017 Sold 5 DAL Aug 18, 2017 $49.00 Call options @ $1.50
Note: this was a simultaneous buy/write transaction.
08/15/2017 $.2025 ex-dividend

A possible overall performance result (including commissions) would be as follows:
Cost Basis Purchase of 500 shares DAL: $24,243.30
= ($49.97 -$1.50)*500 + $8.30 commissions

Net Profit:
(a) Options Income: +$750.00
= ($1.50*500 shares)
(b) Dividend Income: +$101.25
= $.2025 per share x 500 shares
(c) Capital Appreciation (If DAL is above $49.00 strike price at Aug 18th expiration): -$489.95
= ($49.00-$49.97)*500 shares - $4.95 commissions

Total Net Profit (If DAL is above $49.00 strike price at Aug 18, 2017 options expiration): +$361.30
= (+$750.00 options income +$101.25 dividends -$489.95 capital appreciation)

Absolute Return: +1.5%
= +$361.30/$24,243.30
Annualized Return: +30.2%
= (+$361.30/$10,829.95)*(365/18 days)

The downside 'breakeven price' at expiration is at $48.2675 ($49.97 - $1.50 -$.2025), which is 3.4% below the current market price of $49.97. 

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the Aug 18th, 2017 options expiration) for this Delta Air Lines covered calls position is 66.9%, so the expected value annualized ROI of this investment (if held until expiration) is +20.2% (+30.2% * 66.9%), a very attractive result for this in-the-money covered calls position.

The 'crossover price' at expiration is $51.2675 ($49.97 + $1.50 -$.2025).  This is the price above which it would have been more profitable to simply buy-and-hold Delta Air Lines stock until August 18th (the August monthly options expiration date) rather than establishing this covered calls position.