Established New Covered Calls Position in Citigroup Inc.

Today, a new Covered Calls position was established in Citigroup Inc. (ticker symbol C) with a November 16th, 2018 options expiration date and at the $65.00 strike price. Five hundred shares were purchased at $64.48 and 4 Call options were sold at $1.52 for a net debit cost basis of $62.06 ($64.48 - $1.52).  This position has an expected upcoming quarterly ex-dividend this Friday of $.45 per share, so the potential return for this position includes this dividend.  Quarterly earnings were reported recently, so the next earnings report will not be until mid January.

Two potential return-on-investment results are: (1) +3.1% absolute return in 18 days (equivalent to a +63.4% annualized return-on-investment) if the stock closes at $64.48 (same as today's purchase price); and (2) +3.9% absolute return in 18 days (equivalent to a +79.9% annualized return-on-investment) if the stock closes above the $65.00 strike price on the Nov. 16th options expiration date.  These high potential returns are largely a result of the elevated implied volatility of the Call options (36.3) which is attributable largely to the recent steep decline the the overall stock market in general and also with Citi stock in particular.

Today's transactions and two potential results are detailed below:

1. Citigroup Inc. (C) -- New Covered Calls Position
The transactions were as follows:
10/30/2018 Bought 500 shares of Citigroup Inc. stock @ $64.48 per share 
10/30/2018 Sold 5 Citi Nov 16th, 2018 $65.00 Call options @ $1.52 per share
Note: this was a simultaneous Buy/Write transaction

There are a multitude of possible outcomes, but two possible overall performance results (including commissions) are as follows:
Covered Calls Cost Basis: $31,488.30
= ($64.48 - $1.52)* 500 shares + $8.30 commissions

Net Profit Components:
(a) Options Income: +$760.00
= ($1.52 * 500 shares)
(b) Dividend Income: +$225.00
 = $.45 per share x 500 shares 
(c) Capital Appreciation (If Citigroup stock price remains unchanged at $64.48 purchase price at Nov 16th expiration): +$0.00
= ($64.48 -$64.48)* 500 shares; OR
(c) Capital Appreciation (If Citigroup stock is above $65.00 strike price at Nov 16th expiration): +$255.05
= ($65.00 -$64.48)* 500 shares - $4.95 commission

(a) Total Net Profit (If Citi stock price unchanged at $64.48 at Nov. 16th options expiration): +$985.00
= (+$760.00 options income +$225.00 dividend income +$0.00 capital appreciation); OR
(b) Total Net Profit (If stock price is above $65.00 strike price at Nov. 16th options expiration): +$1,240.05
= (+$760.00 options income +$225.00 dividend income +$255.05 capital appreciation)

(a) Absolute Return (If Citi stock price unchanged at $64.48 at Nov. 16th options expiration): +3.1%
= +$985.00/$31,488.30
Equivalent Annualized Return: +63.4%
= (+$985.00/$31,488.30)*(365/18 days); OR
(b) Absolute Return (If stock price is above $65.00 strike price at Nov. 16th options expiration): +3.9%
= +$1,240.05/$31,488.30
Equivalent Annualized Return: +79.9%
= (+$1,240.05/$31,488.30)*(365/18 days)

The downside 'breakeven price' at expiration is at $62.51 ($64.48 - $1.52 -$.45 ex-div), which is 3.1% below the current market price of $64.48.

Continuation of Two Alibaba Covered Calls Positions

Yesterday, both Covered Calls positions in Alibaba Group Holding Ltd. (ticker BABA) were continued by selling November 16th, 2018 $155.00 Call options against the current Alibaba shares owned.  The Covered Calls Advisor considers Alibaba as a core hold and is continuing the pattern of prior months by establishing monthly Covered Calls positions in Alibaba. 

The two Alibaba holdings are now as follows:

• Position #1 -- Long 200 shares BABA stock and short 2 Nov 16, 2018 $155.00 Call options
• Position #2 -- Long 200 shares BABA stock and short 2 Nov 16, 2018 $155.00 Call options

These two positions differ in their original cost basis as well as the options income that has been received to-date.  Alibaba shares in the first position were purchased at $160.00 and at $140.375 in the second position.  The return-on-investment results for each position will be calculated and posted on this blog when the positions are closed out.  

October 19th, 2018 Options Expiration Results

The Covered Calls Advisor Portfolio had only one position (Alibaba Group Holding Ltd.) with an October 19th, 2018 options expiration. This Covered Calls position closed with the stock price of $142.93 below the $145.00 strike price, so the two Call options expired and the 200 shares remain in the Covered Calls Advisor Portfolio.  Soon, two Call options will be sold against the long stock position to re-establish another Covered Calls position at the November 16th, 2018 options expiration date.  As always, all transactions will be posted on this blog on the same day they occur. 

So far in 2018, thirty-eight of forty-three (88.4%) positions have been closed at a profit.  This far exceeds the Covered Calls Advisor's overall long-term goal of having at least two-thirds (67%) of positions closed out at a profit.  None of the remaining five positions [Alibaba Group Holding Ltd. (two positions), Alphabet Inc., Lam Research Inc., and U.S. Steel Corp.] have yet to be closed out, but instead are currently held as open long stock positions in the Covered Calls Advisor Portfolio.  For the thirty-eight positions closed out so far in 2018, the average annualized return-on-investment is +28.8%.  

Established New Covered Calls Position in Alphabet Inc.

Today, a new Covered Calls position was established in Alphabet Inc. (although it's still more often still referred to as Google) with a November 16th, 2018 options expiration date. Despite the recent decline in the stock market, including Alphabet stock, the Covered Calls Advisor is now bullish on both Alphabet and Alibaba's long-term prospects and intends to continue establishing monthly Covered Calls positions in both companies. 

As detailed below, two potential return-on-investment results are: (1) +3.3% absolute return in 29 days (equivalent to a +41.9% annualized return-on-investment) if the stock closes at $1,104.78 (same as today's purchase price); and (2) +4.7% absolute return in 29 days (equivalent to a +59.7% annualized return-on-investment) if the stock closes above the $1,120.00 strike price on the Nov. 16th options expiration date.  These high potential returns are largely attributable to the elevated implied volatility of the Call option (32.9) since there is a quarterly earnings release upcoming prior to the options expiration date.

Today's transactions and two potential results are detailed below:

1. Alphabet Inc. (GOOGL) -- New Covered Calls Position

The transactions were as follows:
10/19/2018 Bought 100 shares of Alphabet Inc. stock @ $1,104.78 per share 
10/19/2018 Sold 1 Alphabet Nov 16th, 2018 $1,120.00 Call option @ $35.58 per share
Note: this was a simultaneous Buy/Write transaction

There are a multitude of possible outcomes, but two possible overall performance results (including commissions) are as follows:
Covered Calls Cost Basis: $106,925.62
= ($1,104.78 - $35.58)* 100 shares + $5.62 commission

Net Profit Components:
(a) Options Income: +$3,558.00
= ($35.58* 100 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If GOOGL stock price remains unchanged at $1,104.78 strike price at Nov 16th expiration): +$0.00
= ($1,104.78 -$1,104.78)* 100 shares; OR
(c) Capital Appreciation (If GOOGL stock is above $1,104.78 strike price at Nov 16th expiration): +$1,517.05
= ($1,120.00 -$1,104.78)* 100 shares - $4.95 commission

(a) Total Net Profit (If stock price unchanged at $1,104.78 at Nov. 16th options expiration): +$3,558.00
= (+$3,558.00 options income +$0.00 dividend income +$0.00 capital appreciation); OR
(b) Total Net Profit (If stock price is above $1,120.00 strike price at Nov. 16th options expiration): +$5,075.05
= (+$3,558.00 options income +$0.00 dividend income +$1,517.05 capital appreciation)

(a) Absolute Return (If stock price unchanged at $1,104.78 at Nov. 16th options expiration): +3.3%
= +$3,558.00/$106,925.62
Equivalent Annualized Return: +41.9%
= (+$3,558.00/$106,925.62)*(365/29 days); OR
(b) Absolute Return (If stock price is above $1,120.00 strike price at Nov. 16th options expiration): +4.7%
= +$5,075.05/$106,925.62
Equivalent Annualized Return: +59.7%
= (+$5,075.05/$106,925.62)*(365/29 days)

The downside 'breakeven price' at expiration is at $1,069.20 ($1,104.78 - $35.58), which is 3.2% below the current market price of $1,104.78.

Established New Covered Calls Position in Alibaba Group Holding Ltd.

Yesterday, a new Covered Calls position was established in Alibaba Group Holding Ltd. with an October 19th, 2018 options expiration date. Despite the large decline in the stock market for the past two days, the Covered Calls Advisor remains bullish on Alibaba's long-term prospects and intends to continue the pattern of prior months by establishing Covered Calls positions in Alibaba. 

As detailed below, two potential return-on-investment results are: (1) +1.3% absolute return in 9 days (equivalent to a +54.7% annualized return-on-investment) if the stock closes at $139.74 (same as the purchase price); and (2) +5.1% absolute return in 9 days (equivalent to a +208.6% annualized return-on-investment) if the stock closes above the $145.00 strike price on the Oct. 19th options expiration date.  

Today's transactions and two potential results are detailed below:

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

The transactions were as follows:
10/11/2018 Bought 200 shares of Alibaba stock @ $139.74 per share 
10/11/2018 Sold 2 Alibaba Oct 19th, 2018 $145.00 Call options @ $1.86 per share
Note: this was a simultaneous Buy/Write transaction

There are a multitude of possible outcomes, but two possible overall performance results (including commissions) are as follows:
Covered Calls Cost Basis: $27,582.29
= ($139.74 - $1.86)* 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$372.00
= ($1.86* 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock price remains unchanged at $139.74 strike price at Oct 19th expiration): +$0.00
= ($139.74 -$139.74)* 200 shares; OR
(c) Capital Appreciation (If BABA stock is above $145.00 strike price at Oct 19th expiration): +$1,047.05
= ($145.00 -$139.74)* 200 shares - $4.95 commission

(a) Total Net Profit (If stock price unchanged at $139.74 at Oct. 19th options expiration): +$372.00
= (+$372.00 options income +$0.00 dividend income +$0.00 capital appreciation); OR
(b) Total Net Profit: +$1,419.05
= (+$372.00 options income +$0.00 dividend income +$1,047.05 capital appreciation)

(a) Absolute Return: +1.3%
= +$372.00/$27,582.29
Equivalent Annualized Return: +54.7%
= (+$372.00/$27,582.29)*(365/9 days); OR
(b) Absolute Return: +5.1%
= +$1,419.05/$27,582.29
Equivalent Annualized Return: +208.6%
= (+$1,419.05/$27,582.29)*(365/9 days)

The downside 'breakeven price' at expiration is at $137.88 ($139.74 - $1.86), which is 1.3% below the current market price of $139.74.