Covered Calls Position Continued in Delta Air Lines Inc.

At the March 16th options expiration, the Covered Calls position in Delta Air Lines Inc. (ticker symbol DAL) expired with the stock price below the $57.50 strike price.  So, the Call options expired and the stock shares were retained in the Covered Calls Advisor's Portfolio.  This afternoon, the Covered Calls Advisor continued this Covered Calls position by selling next month (April 20th, 2018) Call options against the long Delta stock position. 

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

Delta Air Lines Inc. -- A +0.2% absolute return in 88 days (equivalent to a +0.9% annualized return-on-investment if stock price unchanged at $55.21 at the April 20th expiration; OR a +4.3% absolute return in 88 days (equivalent to a +17.8% annualized return if Delta stock closes above the $57.50 strike price on the April 20th expiration date.

The transactions to-date and two potential return-on-investment results are detailed below.


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

The detailed transactions and calculations are as follows:
01/23/2018  Bought 400 Delta Air Lines Inc. shares @ $59.63
01/23/2018 Sold 4 DAL Mar 16, 2018 $57.50 Call options @ $3.48
The Call options Open Interest was 7,772 contracts when this position was established and their Implied Volatility was 25.5
Note: this was a simultaneous buy/write transaction.
02/21/2018 $.305 ex-dividend per share
03/16/2018 4 DAL Mar 16th $57.50 Call options expired
03/29/2018 Sold 4 DAL Apr 20, 2018 $57.50 Call options @ $.77 per share
Note: the price of DAL was $55.21 when these Call options were sold

Two possible overall performance results (including commissions) would be as follows:
Cost Basis Purchase of 400 shares DAL: $22,467.63
= ($59.63 -$3.48)*400 shares + $7.63 commissions

Net Profit Components:
(a) Options Income: +$1,700.00
= ($3.48 + $.77) *400 shares
(b) Dividend Income: $122.00
= $.305 per share x 400 shares
(c) Capital Appreciation (If DAL stock price is unchanged at current $55.21 at Apr 20th expiration): -$1,772.95
= ($55.21 -$59.63)* 400 shares - $4.95 commission; OR
(c) Capital Appreciation (If DAL stock closes above $57.50 strike price at expiration) : -$856.95
= ($57.50 -$59.63)* 400 shares - $4.95 commission

Two Net Profit Possibilities:
(a) If Delta stock price is unchanged at current $55.21 at Apr 20th expiration: $49.05
= (+$1,700.00 options income +$122.00 dividends -$1,772.95 capital appreciation); OR
(b) If Delta shares assigned on Apr 20th options expiration date: +$965.05
= (+$1,700.00 options income +$122.00 dividends -$856.95 capital appreciation)

Two Potential Return-on-Investment Results:
(a) If DAL stock price is unchanged at current $55.21 at Apr 20th expiration:
Absolute Return : +0.2%
= +$49.05/$22,467.63
Equivalent Annualized Return: +0.9%
= (+$49.05/$22,467.63)*(365/88 days); OR
(b) If DAL stock price is above $57.50 strike price at Apr 20th expiration:
Absolute Return : +4.3%
= +$965.05/$22,467.63
Equivalent Annualized Return: +17.8%
= (+$965.05/$22,467.63)*(365/88 days)

Established Covered Calls Position in iShares China Large-Cap ETF

Today, a Covered Calls position was established in iShares China Large-Cap ETF (ticker symbol FXI) with an April 20th, 2018 expiration at the $46.00 strike price. This ETF was purchased at $46.86 and the Call options sold at $1.79 per share.  The Implied Volatility of these Call options was 28.6 when this position was established.

As detailed below, a potential outcome is +2.1% absolute return in 23 days (equivalent to a +32.6% annualized return-on-investment) if the price of iShares China Large-Cap ETF shares remain above the $46.00 strike price at expiration.


1. iShares China Large-Cap ETF (PHM) -- New Covered Calls Position

The transactions were as follows:
03/29/2018 Bought 600 FXI shares @ $46.86
03/29/2018 Sold 6 FXI Apr 20, 2018 $46.00 Call options @ $1.79
Note: a simultaneous buy/write transaction was executed.

A possible overall performance result (including commissions) for this iShares China Covered Calls position is as follows:
Stock Purchase Cost: $26,942.97
= ($46.86 - $1.79) *600 shares +$8.97 commission

Net Profit Components:
(a) Options Income: +$1,074.00
= ($1.79*600 shares)
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If FXI assigned at Apr 20, 2018 options expiration): -$520.95
=+($46.00-$46.86)*600 - $4.95 commissions

Total Net Profit (If FXI assigned at $46.00 at April 20th expiration): +$553.05

= (+$1,074.00 +$0.00 -$520.95)

Absolute Return (If FXI assigned at $46.00 on April 20th options expiration date): +2.1%

= +$553.05/$26,942.97

Annualized Return: +32.6%

= (+$553.05/$26,942.97)*(365/23 days)

The downside 'breakeven price' at expiration is at $45.07 ($46.86 - $1.79), which is 3.8% below the current market price of $46.86.  This is substantial downside protection given the potential annualized ROI for this investment.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the April 20th, 2018 options expiration) for this iShares China Large-Cap ETF Covered Calls position is 61.3%, so the expected value annualized ROI of this investment (if held until expiration) is +20.0% (+32.6% * 61.3%), an attractive expected value result for this moderately in-the-money Covered Calls position. 

Established Covered Calls Position in Discover Financial Services

Today, a Covered Calls position was established in Discover Financial Services (ticker DFS) for the April 20th, 2018 expiration and at the $72.50 strike price when the stock price was $74.96.  Discover's stock has declined about $5 per share since its earnings report two months ago. 

One of the Screeners developed by the Covered Calls Advisor called the 'QVG Model' ('QVG' stands for Quality, Value, and Growth) and uses a combination of factors in these three categories.  Discover Financial is one of the stocks that was identified by this screen.  Of the 25 analysts surveyed by Reuters, 19 rate Discover as either a Buy or Outperform.  Another upcoming benefit to Discover is that the 2017 tax rate for Discover was 40.7% which will decline substantially this year as a result of the new corporate tax rate law. 

As detailed below, a potential return-on-investment result is +1.87% absolute return (equivalent to +22.0% annualized return for the next 31 days) if the stock is assigned on the April 20th, 2018 options expiration date.

Discover Financial Services (DFS) -- New Covered Calls Position
The Implied Volatility of the Call options was 25.6 when these Apr 20th $72.50 Call options were sold.  The options liquidity is also good with 710 open interest contracts.

As shown in the chart below, a Covered Calls positions was chosen instead of its synthetically equivalent short 100% Cash-Secured Put options position in this instance since the annualized ROI potential is higher for the Covered Calls:

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".  Discover's next quarterly earnings report is after the April 20, 2018 options expiration date.
Also in the chart above is a column called "Intervening Ex-Div" and "NO" with an indication that "If 'YES' then complete Dividend Capture Strategy spreadsheet".  Discover's next ex-dividend date is after the April 20th expiration date.

For this position, the downside 'breakeven price' at expiration is at $71.16 ($74.96 - $3.80), which is 5.1% below the current market price of $74.96. 

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the April 20th, 2018 options expiration) for this Discover Covered Calls position is 67.2%, so the expected value annualized ROI of this investment (if held until expiration) is +14.8% (+22.0% * 67.2%), a satisfactory result for this moderately in-the-money Covered Calls position, especially given that there is no earnings report prior to the options expiration date.

The 'crossover price' at expiration is $76.30 = $74.96 + [$3.80 + ($74.96 - $72.50)].  This is the price above which it would have been more profitable to simply buy-and-hold Discover Financial Services stock until April 20th (the April 2018 monthly options expiration date) rather than establishing this Covered Calls position.

If you have any questions or comments to share about this position, please click on the Comments link below.

Established Covered Calls Position in PulteGroup Inc.

Today, a Covered Calls position was established in PulteGroup Inc.(ticker symbol PHM) with an April 20th, 2018 expiration at the $28.00 strike price. The stock was purchased at $29.19 and the Call options sold at $1.71 per share.  Given the Covered Calls Advisor's current Overall Market Meter sentiment of Neutral, a moderately in-the-money position was established.

The Implied Volatility of these Call options was 27.9 when this position was established.  This is noticeably higher than the average Historic Volatility for Pulte during non-earnings months during the past year, especially since there is no quarterly earnings report prior to  the April 20th expiration.

Pulte appeared on this Advisor's 'Multifactor' screen, which was developed from a combination of several valuation, profitability, capital allocation, and growth factors identified from the research results contained in Richard Tortoriello's book "Quantitative Strategies for Achieving Alpha".  At the present time for consumer oriented companies, the Covered Calls Advisor prefers companies expected to increase earnings substantially this year and that will benefit significantly from the corporate tax rate reduction recently passed into law.  Pulte certainly qualifies in this regard since their 2017 tax rate was 52.4% and they are currently expected to increase earnings by approximately +42% this year.

As detailed below, a potential outcome is +1.8% absolute return in 33 days (equivalent to a +19.4% annualized return-on-investment) if the price of Pulte remains above the strike price at expiration.


The details for this position are:

1. PulteGroup Inc. (PHM) -- New Covered Calls Position

The transactions were as follows:
03/19/2018 Bought 600 Pulte shares @ $29.19
03/19/2018 Sold 6 Pulte Apr 20, 2018 $28.00 Call options @ $1.71
Note: a simultaneous buy/write transaction was executed.

A possible overall performance result (including commissions) for this Pulte Covered Calls position is as follows:
Stock Purchase Cost: $17,522.97
= ($29.19 - $1.71) *600 shares +$8.97 commission

Net Profit Components:
(a) Options Income: +$1,026.00
= ($1.71*600 shares)
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If stock assigned at Apr 20, 2018 options expiration): -$718.95
=+($28.00-$29.19)*600 - $4.95 commissions

Total Net Profit (If Pulte stock assigned at $28.00 at April 20th expiration): +$307.05

= (+$1,026.00 +$0.00 -$718.95)

Absolute Return (If Pulte assigned at $28.00 on April 20th options expiration date): +1.8%

= +$307.05/$17,522.97

Annualized Return: +19.4%

= (+$307.05/$17,522.97)*(365/33 days)

The downside 'breakeven price' at expiration is at $27.48 ($29.19 - $1.71), which is 5.9% below the current market price of $29.19.  This is substantial downside protection given the potential annualized ROI for this investment.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the April 20th, 2018 options expiration) for this PulteGroup Covered Calls position is 69.1%, so the expected value annualized ROI of this investment (if held until expiration) is +13.4% (+19.4% * 69.1%), a satisfactory expected value result for this moderately in-the-money Covered Calls position.   

March 16th 2018 Options Expiration Results

The Covered Calls Advisor Portfolio had twelve positions with March 16th 2018 options expirations:

• Eight positions [Alibaba Group Holding Ltd. (2 positions), Bank of America Corp., Caterpillar Inc., Intel Corporation, Lam Research Corp., Marathon Petroleum Corp., and Synchrony Financial] closed in-the-money, so the maximum possible return-on-investment result was achieved for each of these positions.
• Three positions (Blackstone Group LP, Delta Air Lines Inc., and Sinclair Broadcast Group Inc.) closed yesterday with their stock price below their strike prices, so those shares will remain in the Covered Calls Advisor Portfolio (see current holdings in right sidebar) until either the stock is sold or continuation Covered Calls positions are established.  
• One position in Rio Tinto PLC had an early assignment (on the day prior to the ex-dividend date) and the +15.5% annualized return-on-investment result from this position was posted on this blog site on March 1st (the same day it occurred).

So nine of the twelve positions (75%) were assigned and thus achieved the maximum return-on-investment results.  This result exceeds the Covered Calls Advisor's overall long-term goal of having at least 67% of positions assigned at a profit.  So far in 2018, eighteen of twenty-one positions (85.7%) were assigned profitably and the remaining three positions are the Blackstone, Delta, and Sinclair positions from yesterday's close that currently remain as open positions.   

For the eight positions assigned at yesterday's March 16th expiration, the average annualized return-on-investment was +28.0%.  The results for each position was:

• Alibaba Group Holding Ltd. (Position #1):  +2.9%% absolute return (+24.4% annualized return) in 43 days
• Alibaba Group Holding Ltd. (Position #2):  +3.4%% absolute return (+32.2% annualized return) in 39 days 
• Bank of America Corp.:  +2.3% absolute return (+22.2% annualized return) in 38 days
• Caterpillar Inc.:  +4.4% absolute return (+34.4% annualized return) in 47 days
• Intel Corp.:  +1.0% absolute return (+7.6% annualized return) in 46 days  
• Lam Research Corp.:  +3.9% absolute return (+44.9% annualized return) in 32 days
• Marathon Petroleum Corp.:  +3.6% absolute return (+29.5% annualized return) in 45 days
• Synchrony Financial:  +2.9% absolute return (+29.0% annualized return) in 36 days

The cash now available in the Covered Calls Advisor Portfolio from the closing of these eight 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.  

To demonstrate how return-on-investment results for a closed Covered Calls position are calculated, the details for one of the eight assigned positions is provided here:

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

The transactions were as follows:
02/02/2018 Bought 300 shares of Alibaba stock @ $187.30 per share 
02/02/2018 Sold 3 Alibaba March 16th, 2018 $180.00 Call options @ $12.35 per share
Note: this was a simultaneous Buy/Write transaction
03/16/2018 3 BABA Mar 16th, 2018 $180.00 Call options expired in-the-money, so 300 shares of BABA owned were sold at the $180.00 strike price, thus closing out this Covered Calls position.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $52,554.60
= ($187.30 - $12.35)* 300 shares + $6.96 commission

Net Profit Components:
(a) Options Income: +$3,705.00
= ($12.35* 300 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is above $180.00 strike price at March 16th expiration): -$2,194.95
= ($180.00 -$187.30)* 300 shares - $4.95 commission

Total Net Profit: +$1,510.05
= (+$3,705.00 options income +$0.00 dividend income -$2,194.95 capital appreciation)

Absolute Return: +2.9%
= +$1,510.05/$52,554.60
Equivalent Annualized Return: +24.4%
= (+$1,510.05/$52,554.60)*(365/43 days)

Established Covered Calls Position in Alibaba Group Holding Ltd.

A new Covered Calls positions was established in Alibaba Group Holding Ltd. with an April 20th, 2018 options expiration date and at the $185.00 strike price when Alibaba was priced at $189.78. 

The Covered Calls Advisor considers Alibaba to be a core portfolio holding, so the current intention is to continue the pattern of prior months by establishing ongoing monthly Covered Calls positions in Alibaba.  With the March 16th expiration rapidly approaching and both current Alibaba Mar16th $180.00 Covered Calls likely to be assigned at expiration (an optimal result given that this outcome provides the maximum possible return-on-investment for these positions), an April position was established to ensure an ongoing Covered Calls position in Alibaba.  Alibaba's forecast is that revenue growth of about 55% will continue this quarter, in which case the trailing twelve months P/E ratio based on today's price would likely be about 37, high for most companies, but a good value given their ongoing growth potential.

As detailed below, a potential return-on-investment result is +3.0% absolute return in 39 days (equivalent to a +28.2% annualized return-on-investment).
The transactions and a potential result are detailed below:

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

The transactions were as follows:
03/13/2018 Bought 200 shares of Alibaba stock @ $189.78 per share 
03/13/2018 Sold 2 Alibaba April 20th, 2018 $185.00 Call options @ $10.22 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: $35,918.29
= ($189.78 - $10.22)* 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$2,044.00
= ($10.22* 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is above $185.00 strike price at April 20th expiration): -$960.95
= ($185.00 -$189.78)* 200 shares - $4.95 commission

Total Net Profit: +$1,083.05
= (+$2,044.00 options income +$0.00 dividend income -$960.95 capital appreciation)

Absolute Return: +3.0%
= +$1,083.05/$35,918.29
Equivalent Annualized Return: +28.2%
= (+$1,083.05/$35,918.29)*(365/39 days)

The downside 'breakeven price' at expiration is at $179.56 ($189.78 - $10.22), which is 5.4% below the current market price of $189.78.
A recent quantitative study titled "Which Index Options Should You Sell" provides statistically significant insights to determine which options strike price and expiration date combination should be selected to sell.  Figure 2 in this paper shows that the front month (i.e. next month) S&P 500 options in the range of -0.5 to -0.6 standard deviations on average provide a significantly better return than a basic buy-and-hold strategy.  For this Alibaba position, the $185.00 April 20th, 2018 monthly option was selected since its breakeven price is -0.5 standard deviations from the current price of $189.78.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the April 20th, 2018 options expiration) for this Alibaba Covered Calls position is 62.8%, so the expected value annualized ROI of this investment (if held until expiration) is +17.7% (+28.2% * 62.8%), a nice result for this moderately in-the-money Covered Calls position, especially since there is no earnings report prior to the options expiration date.

The 'crossover price' at expiration is $195.22 = $189.78 + [$10.22 - ($189.78 - $185.00)].
This is the price at expiration above which it would have been more profitable to simply buy-and-hold Alibaba stock until the April 20th, 2018 options expiration date rather than establishing this Covered Calls position.

Roll-Up-and-Out United States Steel Corp. Covered Calls

Today, the Covered Calls position in United States Steel Corp. was rolled-up-and-out from the March 16th $36.00 strike price to the April 20th $40.00 strike price. A simultaneous net debit Call spread was executed at $2.45 when the price of U.S. Steel stock was $41.88. 

As detailed below, if the stock remains above the $40.00 strike price at market close on the April 20th options expiration date, the result would be a +10.3% absolute return in 79 days (equivalent to a +47.4% annualized return-on-investment) for this US Steel position.  

United States Steel Corp. (X) -- New Covered Calls Position

The transactions were:
02/01/2018 Bought 400 shares of U.S. Steel stock @ $36.72 per share 
02/01/2018 Sold 4 U.S. Steel Mar 16th, 2018 $36.00 Call options @ $2.62 per share
Note: this was a simultaneous Buy/Write transaction
02/08/2018 $20.00 = ($.05 per share ex-dividend x 400 shares)
03/13/2018 Bought-to-Close 4 Mar 16th $36.00 Call options @ $5.99
03/13/2018 Sold-to-Open 4 Apr 20th $40.00 Call options @ $3.57
Note: this Calls debit spread transaction occurred when the stock was at $41.88

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $13,647.63
= ($36.72 - $2.62)* 400 shares + $7.63 commission

Net Profit Components:
(a) Options Income: +$71.97
= ($2.62 - $5.99 + $3.57) * 400 shares - $8.03 commissions 
(b) Dividend Income: +$20.00
= $.05 per share * 400 shares 
(c) Capital Appreciation (If X is above $40.00 strike price at Apr 20th expiration): +$1,307.05
= ($40.00 -$36.72)* 400 shares - $4.95 commission

Potential Total Net Profit (If assigned at expiration): +$1,399.02
= (+$71.97 options income +$20.00 dividend income +$1,307.05 capital appreciation)

Absolute Return: +10.3%
= +$1,399.02/$13,647.63
Equivalent Annualized Return: +47.4%
= (+$1,399.02/$13,647.63)*(365/79 days)

Established Covered Calls Position in JPMorgan Chase & Co.

Today, a Covered Calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) with an April 20th, 2018 expiration and at the $110.00 strike price.  Although not yet declared, there is an expected upcoming quarterly ex-dividend near April 4th of $.56 per share.  The potential return for this position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the April 20th, 2018 options expiration date.  The next quarterly earnings report is scheduled for April 13th, so it will be possible to capture the dividend and then decide whether to liquidate the shares prior to the earnings report or to hold the position through earnings.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Neutral, a slightly in-the-money Covered Calls position was established. 

As detailed below, a potential return-on-investment result is +2.0% absolute return (equivalent to +24.9% annualized return for the next 29 days) if the stock is assigned early (business day prior to the April 4th ex-date); OR +2.5% absolute return (equivalent to +20.1% annualized return over the next 45 days) if the stock is assigned on the April 20th options expiration date.


JPMorgan Chase & Co. (JPM) -- New Covered Calls Position

Although unlikely, if the current time value (i.e. extrinsic value) of $2.30 [$5.65 option premium - ($113.35 stock price - $110.00 strike price)] remaining in the short call options decays substantially (down to about $.15 or less) by April 3rd (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 JPM shares away to capture the dividend payment.

The transactions were:
03/07/2018 Bought 200 JPM shares @ $113.35
03/07/2018 Sold 2 JPM 4/20/2018 $110.00 Call options @ $5.65
Note: a simultaneous buy/write transaction was executed.
04/04/2018 Upcoming quarterly ex-dividend of $.56 per share

Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost: $22,674.95
= ($113.35 - $5.65) *200 + $4.95 commission

Net Profit:
(a) Options Income: +$1,123.71
= ($5.65*200 shares) - $6.29 commissions
(b) Dividend Income (If option exercised early on April 3rd, the business day prior to April 4th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at Apr 20th, 2018 expiration): +$112.00
= ($.56 dividend per share x 200 shares)

(c) Capital Appreciation (If JPM assigned early): -$674.95
+($110.00 -$113.35)*200 - $4.95 commissions; or
(c) Capital Appreciation (If JPM assigned at $110.00 strike price at expiration): -$674.95
+($110.00-$113.35)*200 - $4.95 commissions

1. Total Net Profit [If option exercised on Apr 3rd (business day prior to April 4th ex-dividend date)]: +$448.76

= (+$1,123.71 +$0.00 -$674.95); or

2. Total Net Profit (If JPM assigned at $110.00 at Apr 20th, 2018 expiration): +$560.76

= (+$1,123.71 +$112.00 -$674.95)

1. Absolute Return (If option exercised on business day prior to ex-dividend date): +2.0%

= +$448.76/$22,674.95

Annualized Return (If option exercised early): +24.9%

= (+$448.76/$22,674.95)*(365/29 days); or

2. Absolute Return (If JPM assigned at $110.00 at Apr 20, 2018 expiration): +2.5%

= +$560.76/$22,674.95

Annualized Return (If JPM assigned at $82.50 at Jul2017 expiration): +20.1%

= (+$560.76/$22,674.95)*(365/45 days)

Either outcome provides a satisfactory return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $110.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $107.14 ($113.35 -$5.65 -$.56) provides 5.5% downside protection below today's purchase price.

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 JPMorgan position.

Covered Calls Established in Sinclair Broadcast Group Inc.

Today, a Covered Calls position was established in Sinclair Broadcast Group, Inc. (ticker SBGI) for the March 16th expiration and at the $33.00 strike price.   Given the Covered Calls Advisor's current Overall Market Meter sentiment of Neutral, a slightly in-the-money position was established.

The Implied Volatility of these Call options was 38.3 when this position was established.  This is noticeably higher than the average Historic Volatility for Sinclair so far this year, so selling these Call options premiums at this time seems very advantageous, especially since there is no quarterly earnings report in the next 10 days prior to expiration.  In addition, there is an upcoming ex-dividend of $.18 tomorrow which is included in the analysis below.

Sinclair is 'Buy'-rated by Reuters -- the highest of their five rating categories.  To put that in context, of the Analysts' consensus ratings reported by Reuters (8 Analysts currently follow SBGI), only 6.5% of 3,608 optionable stocks are now 'Buy'-rated.  I also like investing now in companies that will benefit substantially this year from the corporate tax rate reduction and Sinclair certainly qualifies since their 2017 tax rate was 31.3%. 

As detailed below, a potential outcome for this investment is a +2.4% absolute return-on-investment for the next 10 days (equivalent to +86.4% on an annualized return basis) if the stock closes above the $33.00 strike price on the March 16th options expiration date.

Sinclair Broadcast Group Inc. (SBGI) -- New Covered Calls Position

The transactions were as follows:
03/07/2018 Bought 400 shares of Sinclair stock @ $33.40 per share 
03/07/2018 Sold 4 Sinclair March 16th, 2018 $33.00 Call options @ $1.00 per share
Note: this was a simultaneous Buy/Write transaction
03/08/2018 Upcoming ex-dividend of $.18 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $12,967.63
= ($33.40 - $1.00)* 400 shares + $7.63 commission

Net Profit Components:
(a) Options Income: +$400.00
= ($1.00* 400 shares)
(b) Dividend Income: +$72.00
= $.18 per share * 400 shares 
(c) Capital Appreciation (If SBGI is above $33.00 strike price at Mar 16th expiration): -$164.95
= ($33.00 -$33.40)* 400 shares - $4.95 commission

Potential Total Net Profit (If assigned at expiration): +$307.05
= (+$400.00 options income +$72.00 dividend income -$164.95 capital appreciation)

Absolute Return: +2.4%
= +$307.05/$12,967.63
Equivalent Annualized Return: +86.4%
= (+$307.05/$12,967.63)*(365/10 days)

The downside 'breakeven price' at expiration is at $32.22 ($33.40 - $1.00 - $.18), which is 3.5% below the current market price of $33.40.  This is substantial protection given the very high potential annualized ROI for this investment.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the March 16th, 2018 options expiration) for this Sinclair Covered Calls position is 57.3%, so the expected value annualized ROI of this investment (if held until expiration) is +50.2% (+87.6% * 57.3%), a nice expected value result for this in-the-money Covered Calls position.   

Roll-Up of Lam Research Corp. Covered Calls

Today, the Covered Calls position in Lam Research Corp. was rolled up from the March 16th $160.00 strike price to the March 16th $180.00 strike price.  With an ex-dividend tomorrow of $.50 and the stock deep in-the-money, there was only $.05 time value remaining in the $160 strike price short Call options.  Therefore, there is a very high likelihood the stock would have been called away later today by the owner of the Calls to capture the dividend.

The Covered Calls Advisor decided to roll-up to the $180.00 strike price (with $1.90 time value remaining) to ensure that the dividend will be captured and that there is also a good possibility of also capturing the $1.90 per share time value as additional profit as long as Lam Research stock is above the $180.00 strike price on the Mar 16th expiration date.  If this occurs, the financial result would be a +3.94% absolute return in 32 days (equivalent to a +44.9% annualized return-on-investment) for this Lam Research Corp. position.  Details are provided below.


Lam Research Corp. (LRCX) -- Roll-Up Covered Calls Position

The transactions were as follows:
02/13/2018 Bought 200 shares of Lam Research stock @ $169.41 per share 
02/13/2018 Sold 2 Lam Research Mar 16th, 2017 $160.00 Call options @ $13.68 per share
Note: this was a simultaneous Buy/Write transaction
03/05/2018 Bought-to-Close 2 LRCX Mar 16th $160.00 Call options @ $33.00 per share
03/05/2018 Sold-to-Open 2 LRCX March 16th $180.00 Call options @ $14.60 per share
Note: this was a simultaneous Call spread transaction
03/06/2018 Upcoming quarterly ex-dividend of $.50 per share

A possible overall performance result (including commissions) for this ongoing Lam Research Covered Calls position is as follows:
Stock Purchase Cost Basis: $31,150.95
= ($169.41 - $13.68) * 200 shares +$4.95 commission

Net Profit:
(a) Options Income: -$985.54
= ($13.68 -$33.00 +$14.60) *200 shares - 3* $6.96 commissions
(b) Dividend Income: +$100.00
= ($.50 dividend per share x 200 shares)

(c) Capital Appreciation (If LRCX assigned at $180.00 strike price): +2,113.05
+($180.000 -$169.41)*200 shares - $4.95 commission

Total Net Profit (If LRCX assigned on March 16th, 2018 at $180.00 strike price): +$1,227.51

= (-$985.54 +$100.00 +$2,113.05)

Absolute Return (If LRCX assigned at $180.00 at March 16th, 2018 expiration): +3.94%

= +$1,227.51/$31,150.95

Annualized Return (If LRCX assigned at $180.00 at March 16, 2018 expiration): +44.9%

= (+$1,227.51/$31,150.95)*(365/32 days)

Early Assignment of Rio Tinto PLC Covered Calls Position

Before the market open today, the Covered Calls Advisor received notification from my broker (Schwab) that the 3 Rio Tinto PLC (ticker symbol RIO) April 20th, 2017 Call options were exercised early, so the 300 shares of Rio Tinto stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $50.00 strike price. 

Rio Tinto stock was $54.71 at yesterday's market close.  Early exercise by the owners of these Call options was expected since the Call options were in-the-money and there was only $.04 time value [$4.75 midpoint of Call options bid/ask price - ($54.71 current stock price - $50.00 strike price)] remaining in these Call options.  So, the Call owners were willing to immediately forego the remaining $0.04 per share (by exercising their option to buy the shares) in order to capture today's large $1.7955 per share ex-dividend.  The per share stock price had increased slightly from $54.04 when this Rio Tinto position was originally established on February 7th to $54.71 (9.4% in-the-money) at yesterday's market close.

Rio Tinto is a London-based diversified mining company operating mostly in Australia.  They had reported their annual earnings for 2017 just prior to the Covered Calls Advisor establishing this position.   Largely as a result of increased commodity prices, their financial results were stellar.  Revenues increased to $40 billion, operating cash flow was an impressive $13.9 billion and earnings increased 69% above last year to $8.63 billion.  Mr. Jacques has been the Chief Executive for only about 18 months now, but he is demonstrating a very shareholder friendly management style.  A company record $5.2 billion will be distributed to shareholders in 2018 and an additional $1.0 billion will be used for share buybacks.

Using the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (Link to 'Criteria for Identifying Dividend Capture Covered Calls Opportunities' blog article) has been working nicely recently.  In addition to this Rio Tinto position, recent early assignments in iShares China Large Cap ETF, Devon Energy, Best Buy, Schlumberger, Bank of America (2 positions), MGM Resorts, Kohl's, Intel, JPMorgan Chase, PulteGroup, and Goldman Sachs Covered Calls positions have achieved annualized return-on-investment results of +19.1%, +22.7%, +41.1%, +33.5%, +19.3%, +33.0%, +27.1%, +37.0%, +53.2%, +16.1%, +15.6%, and +19.8% respectively. 

As detailed below, the actual return-on-investment result achieved for this Rio Tinto position was a +0.9% absolute return (equivalent to +15.5% annualized return) for the 22 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.


Rio Tinto PLC (RIO) -- New Covered Calls Position

The transactions were:
02/07/2018 Bought 300 Rio Tinto shares @ $54.04
02/07/2018 Sold 3 Rio Tinto 04/20/2018 $50.00 Call options @ $4.52
Note: a simultaneous buy/write transaction was executed.
02/28/2018 Three RIO Call options exercised early (day prior to ex-dividend date); so stock assigned (sold) at $50.00 strike price.

The overall performance results (including commissions) for this Rio Tinto Covered Calls position was as follows:
Covered Calls Cost Basis: $14,862.96
= ($54.04 - $4.52) *300 + $6.96 commission

Net Profit Components:
(a) Options Income: +$1,356.00
= ($4.52*300 shares)
(b) Dividend Income (Option exercised early on Feb 28th, the business day prior to Mar 1st ex-div date): +$0.00

(c) Capital Appreciation (RIO assigned early on Feb 28th): -$1,216.95
+($50.00-$54.04)*300 shares - $4.95 commissions

Total Net Profit: +$139.05

= (+$1,356.00 +$0.00 -$1,216.95)

Absolute Return: +0.9%

= +$139.05/$14,862.96

Annualized Return: +15.5%

= (+$139.05/$14,862.96)*(365/22 days)

Please click on the 'Comments' link below if you have any questions or comments to share related to this post.

Godspeed,
Jeff