Covered Call Established in Lam Research Corp.

Today, a Covered Calls position was established in Lam Research Corp. (ticker LRCX) for the December 15th expiration and at the $185.00 strike price.   Given the Covered Calls Advisor's current Overall Market Meter sentiment of Neutral, a relatively conservative in-the-money position was established.

The Implied Volatility of the Dec 15th $185.00 Call options was 34.7 when this position was established.  With the sharp decline in semiconductor stocks today, LRCX's Implied Volatility spiked up dramatically to its highest level in almost 2 years.  Selling this Covered Call at this time seems very advantageous, especially since there is no quarterly earnings report prior to expiration.  In addition there is an upcoming ex-dividend of $.50 next Tuesday (Dec. 5th) which is included in the detailed analysis below.  Furthermore, Lam Research is either 'Buy' or 'Outperform' rated by 15 of the 18 Analysts that cover its stock according to Reuters. 

As detailed below, a potential outcome for this investment is +1.8% absolute return-on-investment for the next 17 days (equivalent to +38.3% on an annualized return basis) if the stock closes above the $185.00 strike price on the December 15th options expiration date.

Lam Research Corp. (LRCX) -- New Covered Calls Position

The transactions were as follows:
11/29/2017 Bought 100 shares of Lam Research stock @ $193.48 per share 
11/29/2017 Sold 1 Lam Research Dec 15th, 2017 $185.00 Call option @ $11.28 per share
Note: this was a simultaneous Buy/Write transaction
12/05/2017 Upcoming ex-dividend of $.50 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $18,225.62
= ($193.48 - $11.28)* 100 shares + $5.62 commission

Net Profit Components:
(a) Option Income: +$1,128.00
= ($11.28 * 100 shares)
(b) Dividend Income: +$50.00
= $.50 per share * 100 shares 
(c) Capital Appreciation (If LRCX is above $185.00 strike price at Dec 15th expiration): -$852.95
= ($185.00 -$193.48)* 100 shares - $4.95 commission

Potential Total Net Profit (If assigned at expiration): +$325.05
= (+$1,128.00 option income +$50.00 dividend income -$852.95 capital appreciation)

Absolute Return: +1.8%
= +$325.05/$18,225.62
Equivalent Annualized Return: +38.3%
= (+$325.05/$18,225.62)*(365/17 days)

The downside 'breakeven price' at expiration is at $181.70 ($193.48 - $11.28 - $.50), which is 6.1% below the current market price of $193.48.  This is substantial protection given the relatively high +38.3% potential annualized ROI for this investment.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the December 15th, 2017 options expiration) for this Lam Research Covered Call position is 72.0%, so the expected value annualized ROI of this investment (if held until expiration) is +27.6% (+38.3% * 72.0%), a nice expected value profit for this moderately in-the-money Covered Call position.