Covered Calls Position Established in Metlife Inc.

Today, a Covered Calls position was established by buying 500 shares of Metlife Inc. (ticker symbol MET) stock at $47.63 and selling 5 June 15th, 2018 $47.50 Call options at $.99 -- a net debit of $46.64 per share.   The Implied Volatility of these Call options was 20.4 when this position was established.  Given the Covered Calls Advisor's current Overall Market Meter sentiment of Slightly Bearish, a slightly in-the-money position was established.

As detailed below, a potential outcome for this investment is +1.8% absolute return-on-investment for the next 22 days (equivalent to +30.2% on an annualized return basis) if the stock closes above the $47.50 strike price on the June 15th options expiration date.

Metlife Inc. (MET) -- New Covered Calls Position

The transactions were as follows:
05/25/2018 Bought 500 MET shares @ $47.63
05/25/2018 Sold 5 MET June 15, 2018 $47.50 Call options @ $.99
Note: a simultaneous buy/write transaction was executed.

A possible overall performance result (including commissions) for this MET Covered Calls position is as follows:
Stock Purchase Cost Basis: $23,328.30
= ($47.63 -$.99) *500 shares +$8.30 commission

Net Profit:
(a) Options Income: +$495.00
= ($.99*500 shares)
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If price of Metlife stock is above $47.50 strike price at June 15th options expiration date): -$69.95
=+($47.50-$47.63)*500 - $4.95 commission

Total Net Profit (If Metlife stock assigned at $47.50 at June 15, 2018 expiration): +$425.05

= (+$495.00 +$0.00 -$69.95)

Absolute Return (If MET assigned at $47.50 at June 15, 2017 expiration): +1.8%

= +$425.05/$23,328.30

Annualized Return: +30.2%

= (+$425.05/$23,328.30)*(365/22 days)

The downside 'breakeven price' at expiration is at $46.64 ($47.63 - $.99), which is 2.1% below the current market price of $47.63. 

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the June 15th, 2018 options expiration) for this Metlife Covered Calls position is 52.3%, so the expected value annualized ROI of this investment (if held until expiration) is +15.8% (+30.2% * 52.3%), a satisfactory expected value profit for this in-the-money Covered Calls position. 

Continuation of Delta Air Lines Inc. Covered Calls Position

Today, the Covered Calls position in Delta Air Lines Inc. (ticker DAL) was continued by selling 4 June 15th, 2018 $55.00 Call options against the existing 400 shares of Delta stock.  Airline stocks have declined as oil prices have increased in recent weeks; and Delta is no exception -- having declined in price by about $4 since it was purchased in January.  However, the Covered Calls Advisor remains confident in Delta's management and business prospects so will continue this Covered Calls position by selling Call options against the long stock position and thereby continue to reduce the breakeven price so that a modest profit is achieved from this position.  
A potential result for this Delta position is for a +2.4% absolute return over 143 days (equivalent to a +6.1% annualized return-on-investment) if Delta closes above the $55.00 strike price on the June 15th expiration date.  


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

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
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
04/20/2018 4 DAL Call options expired with stock price below strike price 
05/10/2018 $.305 ex-dividend per share
05/22/2018 Sold 4 DAL June 15, 2018 $55.00 Call options @ $1.17 to continue Delta Covered Calls position
Note: the price of Delta stock was $54.60 when these Calls were sold

A possible overall performance result (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: +$2,152.74
= ($3.48 + $.77 + $1.17) *400 shares - 2*$7.63 commissions
(b) Dividend Income: $244.00
= $.305 per share x 400 shares x 2 dividend payments
(c) Capital Appreciation (If DAL stock closes above $55.00 strike price at expiration) : -$1,856.95
= ($55.00 -$59.63)* 400 shares - $4.95 commission

Net Profit Potential:
If Delta shares assigned on June 15th options expiration date: +$539.79
= (+$2,152.74 options income +$244.00 dividend income -$1,856.95 capital appreciation)

A Potential Return-on-Investment Result:
If DAL stock price is above $55.00 strike price at June 15th, 2018 options expiration date:
Absolute Return : +2.4%
= +$539.79/$22,467.63
Equivalent Annualized Return: +6.1%
= (+$539.79/$22,467.63)*(365/143 days)

May 18th, 2018 Options Expiration Results

The Covered Calls Advisor Portfolio had six positions with May 18th, 2018 options expirations:

• Three positions (Citigroup Inc., Sinclair Broadcast Group Inc., and U.S. Steel Corp.) have previously been rolled out to June 15th, 2018 Covered Calls positions and thus continue to be held in the Covered Calls Advisor Portfolio. 
• Three positions (Alcoa Corp., Alibaba Group Holding Ltd, and Lam Research Corp.) closed yesterday in-the-money, so those shares were assigned (sold) at their respective strike prices.

So far in 2018, twenty-seven of thirty-two positions (84.4%) were assigned profitably and at an average annualized return-on-investment of +28.9%.  This 84.4% year-to-date result exceeds the Covered Calls Advisor's overall long-term goal of having at least 67% of positions closed out at a profit.  None of the remaining five positions (Blackstone Group, Citigroup Inc., Delta Air Lines Inc., Sinclair Broadcasting Group Inc., and U.S. Steel Corp.) have yet to be closed out, but instead currently remain as open positions in the Covered Calls Advisor Portfolio. 

For the three positions assigned at yesterday's May 18th expiration, the average annualized return-on-investment was +45.9%.  The results for each position was:

• Alcoa Corp.:  +2.6% absolute return (+43.8% annualized return) in 22 days
• Alibaba Group Holding Ltd.:  +7.7% absolute return (+42.5% annualized return) in 66 days 
• Lam Research Corp.:  +4.2% absolute return (+51.4% annualized return) in 30 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.  

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


Alcoa Corporation (AA) -- Covered Calls Position Closed

The transactions were as follows:
04/27/2018 Bought 400 shares of Alcoa stock @ $51.65 per share 
04/27/2018 Sold 4 Alcoa May 18th, 2018 $50.00 Call options @ $2.95 per share
Note: this was a simultaneous Buy/Write transaction
05/18/2018 4 AA Call options closed in-the-money and stock assigned at $50.00 strike price
Note: Closing price of AA stock was $50.83 upon 5/18/2018 options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $19,487.63
= ($51.65 - $2.95) * 400 shares + $7.63 commission
Net Profit Components:
(a) Option Income: +$1,180.00
= ($2.95 * 400 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Alcoa stock was above $50.00 strike price at May 18th expiration): -$664.95
= ($50.00 -$51.65) * 400 shares - $4.95 commission

Total Net Profit (If assigned at expiration): +$515.05
= (+$1,180.00 options income +$0.00 dividend income -$664.95 capital appreciation)

Absolute Return: +2.6%
= +$515.05/$19,487.63
Equivalent Annualized Return: +43.8%
= (+$515.05/$19,487.63)*(365/22 days)

Roll Outs -- Citigroup Inc. and Sinclair Broadcast Group Inc.

Today, the Covered Calls Advisor decided to roll out two May 18th Covered Calls to the June 15th expiration date.

A Covered Calls position in Citigroup Inc. (ticker C) was rolled out from today's (May 18th, 2018) options expiration at the  $67.50 strike price to another $67.50 strike for next month's June 15th expiration.  A Call options roll out limit order was established at a net credit of $.73, and the transaction was executed within a few minutes as follows:
Buy-to-Close 5 Citigroup May 18th, 2018 Call options @ $2.40
Sell-to-Open 5 Citi June 15, 2018 Call options              @ $3.13
Net Credit Received                                                             $ .73

The Covered Calls in Sinclair Broadcast Group Inc.were rolled down from today's $30.00 strike to June 15th's $29.00 strike price at a net credit of $1.53 ($1.93-$.40).

As detailed below, potential investment results are:

• Citigroup Inc. -- A +2.7% absolute return in 53 days (which is equivalent to a +18.6% annualized return-on-investment) if Citigroup stock closes above the $67.50 strike price on the June 15th options expiration date.  
• Sinclair Broadcast Group Inc. -- A +1.3% absolute return in 100 days (which is equivalent to a +4.6% annualized return-on-investment) if Sinclair stock closes above the $29.00 strike price on the June 15th options expiration date. 

The transaction history and potential return on investment results are as follows:

1.  Citigroup Inc. (C) --Roll Out of Covered Calls Position 

The transactions were as follows:
04/23/2018 Bought 500 shares of Citigroup stock @ $69.73 per share 
04/23/2018 Sold 5 Citigroup May 18th, 2018 $67.50 Call options @ $3.01 per share
Note: this was a simultaneous Buy/Write transaction
05/04/2018 $160.00 ex-dividend = $.32 per share x 500 shares
05/18/2018 Bought-to-Close 5 Citi May 18th $67.50 Call options
05/18/2018 Sold-to-Open 5 Citi June 15, 2018 $67.50 Call options
Note: the price of Citi stock was $69.89 when this Call spread transaction occurred today

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $33,368.30
= ($69.73 - $3.01)* 500 shares + $8.30 commission

Net Profit Components:
(a) Options Income: +$1,861.70
= ($3.01 -$2.40 + $3.13) * 500 shares -$8.30 commissions
(b) Dividend Income: +$160.00 = $.32 per share * 500 shares 
(c) Capital Appreciation (If Citi is above $67.50 strike price at June 15th expiration): -$1,119.95
= ($67.50 -$69.73)* 500 shares - $4.95 commission

Total Net Profit: +$901.75
= (+$1,861.70 options income +$160.00 dividend income -$1,119.95 capital appreciation)

Absolute Return: +2.7%
= +$901.75/$33,368.30
Equivalent Annualized Return: +18.6%
= (+$901.75/$33,368.30)*(365/53 days)



2.  Sinclair Broadcast Group Inc. (SBGI) -- Roll Out of 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 Ex-dividend of $72.00 ($.18 per share x 400 shares)
03/15/2018 4 March 16th Call options expired
03/27/2018 Sold 4 Sinclair April 20th, 2018 $32.00 Call options @ $1.45 per share
04/20/2018 4 Sinclair April 20th Call options expired
05/09/2018 Sold 4 Sinclair May 18th, 2018 $30.00 Call options @ $.52 per share
05/18/2018 Bought-to-Close 4 SBGI May 18th $30.00 Call options
05/18/2018 Sold-to-Open 4 SBGI June 15, 2018 $29.00 Call options
Note: the price of Sinclair stock was $30.33 when this Call spread transaction occurred today
05/31/2018 Upcoming Ex-dividend of $72.00 ($.18 per share x 400 shares)

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: +$1,784.84
= ($1.00 + $1.45 + $.52 -$.40 + $1.93) * 400 shares - 2 * $7.58
(b) Dividend Income: +$144.00
= 2 x ($.18 per share * 400 shares) 
(c) Capital Appreciation (If SBGI is above $29.00 strike price at June 15th expiration): -$1,764.95
= ($29.00 -$33.40)* 400 shares - $4.95 commission

Potential Total Net Profit (If assigned at expiration): +$163.89
= (+$1,784.84 options income +$144.00 dividend income -$1,764.95 capital appreciation)

Absolute Return: +1.3%
= +$163.89/$12,967.63
Equivalent Annualized Return: +4.6%
= (+$163.89/$12,967.63)*(365/100 days)

Overall Market Meter Changes from 'Neutral' to 'Slightly Bearish'

Today, the Covered Calls Advisor recalculated the current values for each of the seven factors used to determine the "Overall Market Meter" rating.  The result is that the Covered Calls Advisor's current market viewpoint changes from Neutral to Slightly Bearish.  A graphical representation of the "Overall Market Meter" is shown in the right sidebar on this page.    

The seven factors used are categorized as macroeconomic, momentum, value, and growth metrics as as follows:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next two indicators), and
- growth (the last indicator).
Note: The rating for each of these factors is not subjective.  Each factor is calculated using objective, quantifiable measures.

The current Market Meter average of 3.00 (see blue line at the bottom of the chart above) is in the Slightly Bearish range (Note: this Slightly Bearish range is from 2.35 to 3.09).  As shown in the right sidebar, the Covered Calls investing strategy corresponding to this overall Slightly Bearish sentiment is to "on-average sell 1% in-the-money Covered Calls for the next options expiration month".

The Macroeconomic factors are Bullish, the Momentum factors are Neutral, the Value factors are Very Bearish, and the Growth factor is Slightly Bullish.  The two Value indicators are especially noteworthy and concerning:

• The current P/E ratio for the S&P 500 (based on the average of the actual 'Operating' and 'As Reported' earnings for the past year) is high at 22.0.  This is higher than the expected current P/E ratio of 18.6 (based on the current 2.5% CPI-U inflation rate for the past year).  The market would have to decline by 15.5% from its current level to reach a current expected average P/E ratio of 18.6.  
• As the chart below clearly demonstrates, the Wilshire 5000 to GDP (aka Buffett Indicator) is especially alarming since it is now at its very highest level since 1970.    
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  

The current very high market valuations explains why the Covered Calls Advisor Portfolio is now establishing only conservative in-the-money positions.

Finally, in February last year, the Covered Calls Advisor posted an article about the 'Emotional Roller Coaster of Investing' (Link to Article).  A Covered Calls Advisor post on December 13, 2017 took a position that we were in the 'Exhiliration' stage and that passing the proposed Tax Reform Bill might be the final step that would transition investors further into the 'Euphoria' stage. Furthermore, passing such a bill into law might result in yet another short-term all-time high in the stock market.  This is precisely what occurred -- the bill was passed, signed into law on December 22, 2017 and the Wilshire 5000 hit its all-time high of 29,760.59 on January 26, 2018.

But when it comes to investing, the Covered Calls Advisor now advises 'extreme caution' since, as the 'Emotional Roller Coaster of Investing' graph shows, 'Euphoria' is subsequently often followed by 'Unease' which is accompanied by additional declines in both investors' sentiment and stock market prices. 









This concern is also confirmed today by the Covered Calls Advisor's Overall Market Meter rating change from 'Neutral' to 'Slightly Bearish' .  The quotation shown in the 'Investing Words of Wisdom' section in the right sidebar of this blog by legendary investor and humanitarian John Templeton is very appropriate at this time in the market cycle:

• "Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell." -- John Templeton

To share your comments or questions regarding this post (or the details related to any of the seven factors used in this Overall Market Meter model), please click on the Comments link below or email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Continuation of Covered Calls Positions in Sinclair Broadcast Group Inc. and U.S. Steel Corp.

At the April 20th, 2018 options expiration, Covered Calls positions in Sinclair Broadcast Group Inc. (ticker symbol SBGI) and United States Steel Corp. (ticker X) expired with the stock prices below their strike prices.  So, the Call options expired and their stock shares were retained in the Covered Calls Advisor's Portfolio.  The Covered Calls Advisor continued both Covered Calls positions by selling Call options against both long stock positions, the Sinclair May 18th $30s and the U.S. Steel $40s for June 15th. 

Details as well as some potential overall return-on-investment results for each position are:

1. Sinclair Broadcast Group Inc. (SBGI) -- Continuation of 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 Ex-dividend of $72.00 ($.18 per share x 400 shares)
03/15/2018 4 March 16th Call options expired
03/27/2018 Sold 4 Sinclair April 20th, 2018 $32.00 Call options @ $1.45 per share
04/20/2018 4 Sinclair April 20th Call options expired
05/09/2018 Sold 4 Sinclair May 18th, 2018 $30.00 Call options @ $.52 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: +$1,188.00
= ($1.00 + $1.45 + $.52) * 400 shares
(b) Dividend Income: +$72.00
= $.18 per share * 400 shares 
(c) Capital Appreciation (If SBGI is above $30.00 strike price at May 18th expiration): -$1,364.95
= ($30.00 -$33.40)* 400 shares - $4.95 commission

Potential Total Net Profit (If assigned at expiration): -$104.95
= (+$1,188.00 options income +$72.00 dividend income -$1,364.95 capital appreciation)

Absolute Return: -0.8%
= -$104.95/$12,967.63
Equivalent Annualized Return: -4.0%
= (-$104.95/$12,967.63)*(365/73 days)



2.  United States Steel Corp. (X) -- Continuation of 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
04/20/2018 4 U.S. Steel April 20th Call options expired
05/10/2018 Sold 4 U.S. Steel June 15th, 2018 $40.00 Call options @ $.66 per share
Note: the price of U.S. Steel stock was $36.04 when these Calls were sold

Two possible overall performance results (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: +$335.97
= ($2.62 - $5.99 + $3.57 + $.66) * 400 shares - $8.03 commissions 
(b) Dividend Income: +$20.00
= $.05 per share * 400 shares 
(c) Capital Appreciation (If price of X stock is unchanged at $36.04 at June 15th expiration): -$276.95
= ($36.04 -$36.72)* 400 shares - $4.95 commission; OR
(c) Capital Appreciation (If X is above $40.00 strike price at June 15th expiration):
+$1,307.05
= ($40.00 -$36.72)* 400 shares - $4.95 commission

1. Potential Total Net Profit (If stock price unchanged at expiration): +$79.02
= (+$335.97 options income +$20.00 dividend income -$276.95 capital appreciation); OR
2. Potential Total Net Profit (If assigned at expiration): +$1,663.02
= (+$335.97 options income +$20.00 dividend income +$1,307.05 capital appreciation)

1. Absolute Return (If stock price unchanged at expiration): +0.6%
= +$79.02/$13,647.63
Equivalent Annualized Return: +1.6%
= (+$79.02/$13,647.63)*(365/134 days); OR
2. Absolute Return (If assigned at expiration): +12.2%
= +$1,663.02/$13,647.63
Equivalent Annualized Return: +33.2%
= (+$1,663.02/$13,647.63)*(365/134 days)

Continuation of Covered Calls Position in Alibaba Group Holding Ltd.

A Covered Calls position in Alibaba Group Holding Ltd. at the $185.00 strike price and with an April 20th, 2018 options expiration date closed out-of-the-money, so the 200 shares of Alibaba were retained in the Covered Calls Advisor Portfolio.  Today, Alibaba reported their 4th quarter 2018 earnings and although their profit margin declined, their sales increased by a truly amazing 61% compared with the same quarter last year -- and they expect 2019 sales to grow at a similar pace as occurred in 2018.  The trailing 12 months P/E ratio is at 36, high for most companies but reasonable given Alibaba's ongoing growth potential.

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. 

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

• +6.7% absolute return in 66 days (equivalent to a +36.8% annualized return-on-investment) if Alibaba stock price is unchanged at $188.15 at the May 18th expiration; OR
• +7.7% absolute return in 66 days (equivalent to a +42.5% annualized return-on-investment) if Alibaba stock is above $190.00 strike price at May 18th expiration.

The transactions and a potential result are detailed below:

1. Alibaba Group Holding Ltd. (BABA) -- Continuation 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
04/20/2018 Call options expired and 200 shares were retained in the Covered Calls Advisor Portfolio
05/04/2018 Sold 2 Alibaba May 18th, 2018 $190.00 Call options @ $3.40 per share
Note: the price of Alibaba stock was $188.15 when these Call options were sold

Two possible overall performance results (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: +$2,724.00
= ($10.22 + $3.40) * 200 shares
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock price is unchaged at $188.15 at the May 18th expiration): -$330.95
= ($188.15 -$189.78)* 200 shares - $4.95 commission; OR
(c) Capital Appreciation (If BABA stock is above $190.00 strike price at May 18th expiration): +$39.05
= ($190.00 -$189.78)* 200 shares - $4.95 commission

Total Net Profit:
(a) If BABA stock price is unchaged at $188.15 at the May 18th expiration): +$2,393.05
= (+$2,724.00 options income +$0.00 dividend income -$330.95 capital appreciation); OR
(b) If BABA stock is above $190.00 strike price at May 18th expiration): +$2,763.05
= (+$2,724.00 options income +$0.00 dividend income +$39.05 capital appreciation)

Absolute Return:
(a) If BABA stock price is unchaged at $188.15 at the May 18th expiration): +6.7%
= +$2,393.05/$35,918.29
Equivalent Annualized Return: +36.8%
= (+$2,393.05/$35,918.29)*(365/66 days); OR
(b) If BABA stock is above $190.00 strike price at May 18th expiration): +7.7%
= +$2,763.05/$35,918.29
Equivalent Annualized Return: +42.5%
= (+$2,763.05/$35,918.29)*(365/66 days)