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.