New Covered Calls in Best Buy Inc.

Today, a new Covered Calls positions was entered in Best Buy Inc. (ticker BBY) for the November 17th, 2017 options expiration and at the $52.50 strike price when the stock was at $55.11.  Based on the Covered Calls Advisor's current Neutral sentiment, a moderately in-the-money position was established.

As detailed below, a potential return-on-investment is +3.2% absolute return in 24 days (equivalent to a +48.0% annualized return-on-investment).  


Best Buy Inc. (BBY) -- New Covered Calls Position
The implied volatility of the Call options was a very high 50.2 when this position was established.  Much of this elevated level is attributable to the upcoming earnings report on Nov. 16th, the day prior to the options expiration date.  This position will be tracked closely and it is possible that it will be closed out prior to the earnings report because of the high uncertainty associated with the stock price movement immediately after the earnings release.

The transactions were as follows:
10/25/2017 Bought 400 shares of Best Buy stock @ $55.11 per share 
10/25/2017 Sold 4 Best Buy November 17th, 2017 $52.50 Call options @ $4.23 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: $20,359.63
= ($55.11 - $4.23)* 400 shares + $7.63 commission

Net Profit Components:
(a) Options Income: +$1,692.00
= ($4.23* 400 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BBY stock is above $52.50 strike price at Nov 17th expiration): -$1,048.95
= ($52.50 -$55.11)* 400 shares - $4.95 commission

Total Net Profit: +$643.05
= (+$1,692.00 options income +$0.00 dividend income -$1,048.95 capital appreciation)

Absolute Return: +3.2%
= +$643.05/$20,359.63
Equivalent Annualized Return: +48.0%
= (+$643.05/$20,359.63)*(365/24 days)

The downside 'breakeven price' at expiration is at $50.88 ($55.11 - $4.23), which is 7.7% below the current market price of $55.11.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the November 17th, 2017 options expiration) for this Best Buy Covered Calls position is 66.6%, so the expected value annualized ROI of this investment (if held until expiration) is +32.0% (+48.0% * 66.6%), a very good result for this moderately in-the-money Covered Calls position.

The 'crossover price' at expiration is $59.34 ($55.11 + $4.23).  This is the price above which it would have been more profitable to buy-and-hold Best Buy stock until the November 17th, 2017 options expiration date.