Continuation of Covered Calls Positions in Citigroup Inc.

At the June 15th, 2018 options expiration, the Covered Calls position in Citigroup Inc. (ticker C) expired with the stock price below the strike price.  So, the Call options expired and the stock shares were retained in the Covered Calls Advisor's Portfolio.  Yesterday, the Covered Calls Advisor continued this Covered Calls positions by selling the July 20th, 2018 $68.00 Call options against the current long stock position in Citigroup stock. 

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

1.  Citigroup Inc. (C) --Roll Out 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 at $2.40 per share
05/18/2018 Sold-to-Open 5 Citi June 15, 2018 $67.50 Call options at $3.13 per share
Note: the price of Citi stock was $69.89 when this Call spread transaction occurred today
06/15/2018 5 Citi Call options expired with stock price below the $67.50 strike price
06/27/2018 Sold 5 Citigroup July 20, 2018 $68.00 Call options @ $1.40 to continue Citigroup Covered Calls position
Note: the price of Citi stock was $67.46 when these Calls were sold


Two possible overall performance results (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: +$2,553.41
= ($3.01 -$2.40 + $3.13 + $1.40) * 500 shares - 2*$8.30 commissions
(b) Dividend Income: +$160.00 = $.32 per share * 500 shares 
(c) Capital Appreciation (If Citi stock price is unchanged at $67.46 at June 15th expiration): -$1,139.95
= ($67.46 -$69.73)* 500 shares - $4.95 commission; OR
(c) Capital Appreciation (If Citi is above $68.00 strike price at June 15th expiration): -$869.95
= ($68.00 -$69.73)* 500 shares - $4.95 commission

1.  Total Net Profit (If Citi stock price is unchanged at $67.46 at June 15th expiration) : +$1,573.46
= (+$2,553.41 options income +$160.00 dividend income -$1,139.95 capital appreciation); OR
2.  Total Net Profit (If Citi is above $68.00 strike price at June 15th expiration) : +$1,843.46
= (+$2,553.41 options income +$160.00 dividend income -$869.95 capital appreciation);

1.  Absolute Return (If Citi stock price is unchanged at $67.46 at June 15th expiration): +4.7%
= +$1,573.46/$33,368.30
Equivalent Annualized Return: +19.6%
= (+$1,573.46/$33,368.30)*(365/88 days); OR
2.  Absolute Return (If Citi is above $68.00 strike price at June 15th expiration): +5.5%
= +$1,843.46/$33,368.30
Equivalent Annualized Return: +22.9%
= (+$1,843.46/$33,368.30)*(365/88 days)

Established Covered Calls Position in Alibaba Group Holding Ltd.

Today, a new Covered Calls positions was established in Alibaba Group Holding Ltd. with a July 20th, 2018 options expiration date.  A moderately conservative in-the-money position was established given the Covered Calls Advisor's current Overall Market Meter sentiment of Slightly Bearish.

The Covered Calls Advisor intended to continue the pattern of prior months by establishing Covered Calls positions in Alibaba.  The stock price declined by more than $10 today, so I decided to take advantage of the spike in implied volatility to 35.9 in these Call options when this position was established today.

As detailed below, a potential return-on-investment result is +1.8% absolute return in 26 days (equivalent to a +24.7% annualized return-on-investment).

Today's transactions and a potential result are detailed below:

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

The transactions were as follows:
06/25/2018 Bought 200 shares of Alibaba stock @ $190.92 per share 
06/25/2018 Sold 2 Alibaba July 20th, 2018 $180.00 Call options @ $14.06 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: $35,378.29
= ($190.92 - $14.06)* 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$2,812.00
= ($14.06* 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is above $180.00 strike price at July 20th expiration): -$2,188.95
= ($180.00 -$190.92)* 200 shares - $4.95 commission

Total Net Profit: +$623.05
= (+$2,812.00 options income +$0.00 dividend income -$2,188.95 capital appreciation)

Absolute Return: +1.8%
= +$623.05/$35,378.29
Equivalent Annualized Return: +24.7%
= (+$623.05/$35,378.29)*(365/26 days)

The downside 'breakeven price' at expiration is at $176.86 ($190.92 - $14.06), which is 7.4% below the current market price of $190.92.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the July 20th, 2018 options expiration) for this Alibaba Covered Calls position is 74.9%, so the expected value annualized ROI of this investment (if held until expiration) is +18.5% (+24.7% * 74.9%), a very nice result for this moderately in-the-money Covered Calls position.

The 'crossover price' at expiration is $194.06 = $190.92 + [$14.06 - ($190.92 - $180.00)].
This is the price above which it would have been more profitable to simply buy-and-hold Alibaba stock until the July 20th, 2018 options expiration date rather than establishing this Covered Calls position.

Continuation of Covered Calls Positions in U.S. Steel Corp.

At the June 15th, 2018 options expiration, the Covered Calls position in United States Steel Corp. (ticker X) expired with the stock price below the strike price.  So, the Call options expired and the stock shares were retained in the Covered Calls Advisor's Portfolio.  The Covered Calls Advisor continued this Covered Calls positions by selling the July 20th, 2018 $37.50 Call options against the current long stock position in U.S. Steel. 

Detail transactions as well as some potential overall return-on-investment results for this position are:


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
05/09/2018 $20.00 = ($.05 per share ex-dividend x 400 shares)
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
06/15/2018 4 X Call options expired with stock price below strike price
06/22/2018 Sold 4 U.S. Steel July 20, 2018 $37.50 Call options @ $1.35 to continue U.S. Steel Covered Calls position
Note: the price of U.S. Steel stock was $36.79 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: +$861.11
= ($2.62 - $5.99 + $3.57 + $.66 + $1.35) * 400 shares - $22.89 commissions 
(b) Dividend Income: +$40.00
= $.05 per share * 2 ex-dividends * 400 shares 
(c) Capital Appreciation (If price of X stock is unchanged at $36.79 at July 20th expiration): +$23.05
= ($36.79 -$36.72)* 400 shares - $4.95 commission; OR
(c) Capital Appreciation (If X is above $37.50 strike price at July 20th expiration):
+$307.05
= ($37.50 -$36.72)* 400 shares - $4.95 commission

1. Potential Total Net Profit (If stock price unchanged at expiration): +$924.16
= (+$861.11 options income +$40.00 dividend income +$23.05 capital appreciation); OR
2. Potential Total Net Profit (If assigned at expiration): +$1,208.16
= (+$861.11 options income +$40.00 dividend income +$307.05 capital appreciation)

1. Absolute Return (If stock price unchanged at expiration): +6.8%
= +$924.16/$13,647.63
Equivalent Annualized Return: +14.6%
= (+$924.16/$13,647.63)*(365/169 days); OR
2. Absolute Return (If assigned at expiration): +8.9%
= +$1,208.16/$13,647.63
Equivalent Annualized Return: +19.1%
= (+$1,208.16/$13,647.63)*(365/169 days)

Covered Calls Established in Lam Research Corporation

Today, a Covered Calls position was established by buying 200 shares of Lam Research Corp. (ticker symbol LRCX) stock at $175.85 and selling 2 July 20th, 2018 $175.00 Call options at $7.30 -- a net debit of $168.55 per share.   The Implied Volatility of these Call options was 33.4 when this position was established, a relatively high level given that the next earnings report is after the July 20th options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter sentiment of Slightly Bearish, a slightly in-the-money position was established.

Lam Research is either 'Buy' or 'Outperform' rated by 19 of the 22 analysts that cover its stock according to Reuters.  The Covered Calls Advisor believes that Lam Research continues to be incorrectly perceived as a cyclical stock when in reality it has successfully transitioned itself into a secular growth company and is now best positioned in the semiconductor equipment industry to benefit from the expected ongoing double-digit annual revenue growth in big data.  Lam Research appeared in the screeners developed by the Covered Calls Advisor for both 'Free Cash Flow and Cash Return on Invested Capital' and also the 'Warren Buffett' screen that includes Quality (ROE > 20%), Value (P/E < 15), and Growth (Estimated Long-Term Earnings Growth >15%) metrics.  Finally, using a Discounted Cash Flow analysis, the one-year target price for Lam Research is in the mid-$200s .

As detailed below, a potential outcome for this investment is +3.8% absolute return-on-investment for the next 30 days (equivalent to +46.4% on an annualized return basis) if the stock closes above the $175.00 strike price on the July 20th options expiration date.

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

The transactions were as follows:
06/21/2018 Bought 200 shares of Lam Research stock @ $175.85 per share 
06/21/2018 Sold 2 Lam Research July 20th, 2018 $175.00 Call options @ $7.30 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: $33,716.29
= ($175.85 - $7.30)* 200 shares + $6.29 commission

Net Profit Components:
(a) Option Income: +$1,460.00
= ($7.30 * 200 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If LRCX is above $175.00 strike price at July 20th expiration): -$174.95
= ($175.00 -$175.85)* 200 shares - $4.95 commission

Potential Total Net Profit (If assigned at expiration): +$1,285.05
= (+$1,460.00 option income +$0.00 dividend income -$174.95 capital appreciation)

Absolute Return: +3.8%
= +$1,285.05/$33,716.29
Equivalent Annualized Return: +46.4%
= (+$1,285.05/$33,716.29)*(365/30 days)

The downside 'breakeven price' at expiration is at $168.55 ($175.85 - $7.30), which is 4.2% below the current market price of $175.85.  This is good protection given the relatively high +46.4% potential annualized ROI for this investment.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the July 20th, 2018 options expiration) for this Lam Research Covered Calls position is 53.6%, so the expected value annualized ROI of this investment (if held until expiration) is +24.9% (+46.4% * 53.6%), a nice expected value profit for this in-the-money Covered Calls position.   

Established Covered Calls Position in JPMorgan Chase & Co.

Today, a Covered Calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) with a July 20th, 2018 expiration and at the $105.00 strike price.  This position uses the Covered Calls Advisor's Dividend Capture Strategy since there is an upcoming ex-dividend of $.56 on July 5th which is prior to the options expiration date.  So, the potential returns-on-investment shown below includes the possibility of early assignment on the last business day prior to the ex-dividend date.  The next quarterly earnings report is scheduled for July 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 Slightly Bearish, a slightly in-the-money Covered Calls position was established. 

As detailed below, a potential return-on-investment result is +1.4% absolute return (equivalent to +36.6% annualized return for the next 14 days) if the stock is assigned early (business day prior to the July 5th ex-date); OR +1.9% absolute return (equivalent to +23.7% annualized return over the next 30 days) if the stock is assigned on the July 20th options expiration date.


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

Although unlikely, if the current time value (i.e. extrinsic value) of $1.47 [$3.70 option premium - ($107.23 stock price - $105.00 strike price)] remaining in the short call options decays substantially (down to about $.15 or less) by July 3rd (the final business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 500 JPM shares away to capture the dividend payment.

The transactions were:
06/21/2018 Bought 500 JPM shares @ $107.23
06/21/2018 Sold 5 JPM 7/20/2018 $105.00 Call options @ $3.70
Note: a simultaneous buy/write transaction was executed.
07/05/2018 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: $51,769.95
= ($107.23 - $3.70) *500 shares + $4.95 commission

Net Profit:
(a) Options Income: +$1,846.65
= ($3.70*500 shares) - $3.35 commissions
(b) Dividend Income (If option exercised early on July 3rd, the business day prior to July 5th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at Jul 20th, 2018 expiration): +$280.00
= ($.56 dividend per share x 500 shares)

(c) Capital Appreciation (If JPM assigned early): -$1,119.95
+($105.00 -$107.23)*500 - $4.95 commissions; or
(c) Capital Appreciation (If JPM assigned at $110.00 strike price at expiration): -$1,119.95
+($105.00-$107.23)*500 - $4.95 commissions

1. Total Net Profit [If option exercised on July 3rd (business day prior to July 5th ex-dividend date)]: +$726.70

= (+$1,846.65 +$0.00 -$1,119.95); or

2. Total Net Profit (If JPM assigned at $105.00 at July 20th, 2018 expiration): +$1,006.70

= (+$1,846.65 +$280.00 -$1,119.95)

1. Absolute Return (If option exercised on July 3rd which is th business day prior to the ex-dividend date): +1.4%

= +$726.70/$51,769.95

Annualized Return (If option exercised early): +36.6%

= (+$726.70/$51,769.95)*(365/14 days); or

2. Absolute Return (If JPM assigned at $105.00 at July 20, 2018 expiration): +1.9%

= +$1,006.70/$51,769.95

Annualized Return (If JPM assigned at $105.00 at July 20, 2018 expiration): +23.7%

= (+$1,006.70/$51,769.95)*(365/30 days)

Either outcome provides a nice return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $105.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $102.97 ($107.23 -$3.70 -$.56) provides 4.0% 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, ten of the eleven criteria are achieved for this JPMorgan position.

June 15th, 2018 Options Expiration Results

The Covered Calls Advisor Portfolio had five positions with June 15th, 2018 options expirations:

• Three positions (Citigroup Inc., Metlife Inc., and U.S. Steel Corp.) closed with the stock price below the strike price so the Call options expired and the stocks currently remain in the Covered Calls Advisor Portfolio.  It is likely that Covered Calls positions will be maintained by selling July monthly Calls against these long stock positions within the next few days.  As always, these Covered Calls continuation transactions will be posted on this blog on the same day they occur.  
• Two positions (Delta Air Lines Inc. and Sinclair Broadcast Group Inc.) closed at options expiration last Friday in-the-money, so those shares were assigned (sold) at their respective strike prices.

So far in 2018, twenty-nine of thirty-three positions (87.9%) were assigned profitably and at an average annualized return-on-investment of +27.3%.  This 87.9% 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 four positions (Blackstone Group, Citigroup Inc., Metlife 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 two positions assigned at Friday's June 15th expiration, the average annualized return-on-investment was +5.4%.  The results for each position was:

• Delta Air Lines Inc.:  +2.4% absolute return (+6.1% annualized return) in 143 days
• Sinclair Broadcast Group Inc.:  +1.3% absolute return (+4.6% annualized return) in 100 days

The cash now available in the Covered Calls Advisor Portfolio from the closing of these two 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 two assigned positions (Delta Air Lines Inc.) is detailed below:


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

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
06/15/2018 4 DAL Call options closed in-the-money and stock assigned at $55.00 strike price
Note: Closing price of DAL stock was $55.18 upon 6/15/2018 options expiration.

The overall performance result (including commissions) was 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 (DAL stock closed above $55.00 strike price at expiration) : -$1,856.95
= ($55.00 -$59.63)* 400 shares - $4.95 commission

Net Profit: +$539.79
= (+$2,152.74 options income +$244.00 dividend income -$1,856.95 capital appreciation)

Actual Return-on-Investment Results:

Absolute Return : +2.4%
= +$539.79/$22,467.63
Equivalent Annualized Return: +6.1%
= (+$539.79/$22,467.63)*(365/143 days)