Continuation of Covered Calls Position in Lam Research Corp.

Upon the September 21st, 2018 options expiration, the Covered Calls position in Lam Research Corp. (ticker symbol LRCX) expired with the stock price below the $165.00 strike price.  So, the September Call options expired and the 200 shares of Lam Research stock were retained in the Covered Calls Advisor Portfolio.  Today, with the price of Lam Research stock at $152.26, a sell-to-open order was executed to sell 2 December 21st, 2018 Call options at the $150.00 strike price for $5.80 per share to continue this Covered Calls position.

As detailed below, a potential return-on-investment for this Lam Research position is -1.5% absolute return in 127 days (equivalent to a -4.4% annualized return-on-investment).  

This position has an upcoming quarterly ex-dividend next Tuesday (Dec. 4th) of $1.10 per share which is included in the potential return-on-investment result for this position.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an at-the-money Covered Calls position was established.  The Covered Calls Advisor expects LRCX stock to move higher in the months ahead and will continue to sell at-the-money or slightly out-of-the-money monthly Call options going forward in an effort to return this position to profitability. 


Lam Research Corp. (LRCX) -- Continuation Covered Calls Position
The transactions to-date are:
08/17/2018 Bought 200 Lam Research Corp. shares @ $168.14
08/17/2018 Sold 2 LRCX 09/21/2018 $165.00 Call options @ $7.74
Note: a simultaneous buy/write transaction was executed.
09/06/2018 Quarterly ex-dividend of $1.10 per share
11/28/2018 Sold 2 LRCX December 21, 2018 $150.00 Call options @ $5.80
Note: price of LRCX stock was at $152.26 when these options were sold
12/04/2018 Upcoming quarterly ex-dividend of $1.10 per share


A possible overall performance result (including commissions) for this Lam Research Covered Calls position is as follows:
Covered Calls Cost Basis: $32,084.95
= ($168.14 - $7.74) *200 + $4.95 commission

Net Profit Components:
(a) Options Income: +$2,705.32
= ($7.74 +$5.80) *200 shares - 2*$1.34 commissions

(b) Dividend Income (If Lam Research shares assigned at Dec 21st, 2018 expiration): +$440.00
= ($1.10 dividend per share x 200 shares x 2 dividends)

(c) Capital Appreciation (If LRCX assigned at $150.00 strike price at options expiration): -$3,632.95
=($150.00-$168.14)*200 shares - $4.95 commissions

Total Net Profit (If Lam Research shares assigned at $150.00 at Dec 21, 2018 expiration): -$487.63

= (+$2,705.32 +$440.00 -$3,632.95)

Absolute Return (If Lam Research shares assigned at $150.00 at Dec 21, 2018 expiration): -1.5%

= -$487.63/$32,084.95

Annualized Return (If LRCX stock assigned at $150.00 at Dec 21, 2018 expiration): -4.4%

= (-$487.63/$32,084.95)*(365/127 days)

Continuation of Two Alibaba Covered Calls Positions

Today, both Covered Calls positions in Alibaba Group Holding Ltd. (ticker BABA) were continued by selling December 21st, 2018 $160.00 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 Dec 21, 2018 $160.00 Call options

• Position #2 -- Long 200 shares BABA stock and short 2 Dec 21, 2018 $160.00 Call options

As detailed below, 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.

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

The transactions have been as follows:
10/04/2018 Sold-to-Open 2 Alibaba Oct. 19th, 2018 $160.00 Put options @ $4.60 per share
Note: the price of BABA stock was $156.17 when these Put options were sold
10/19/2018 Put options expired with BABA at $142.93, so 200 shares of BABA were purchased at the $160.00 strike price
10/22/2018 Sold 2 Alibaba Nov 16th, 2018 $155.00 Call options @ $4.55 per share when the BABA shares were at $147.75
11/16/2018 2 BABA $155.00 Call options expired with 200 shares priced at $154.10
11/26/2018 Sold 2 BABA Dec 21, 2018 $160.00 Call options @ $4.50 per share
Note: the price of BABA shares was $154.60 when these 2 Call options were sold

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $31,086.29
= ($160.00 - $4.60)* 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$1,797.42
= ($4.55 + $4.50)* 200 shares - $6.29 * 2 transactions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is at current $154.60 strike price at Dec 21st expiration): -$1,080.00
= ($154.60 -$160.00)* 200 shares; OR
(d) Capital Appreciation (If BABA stock is above $160.00 strike price at Dec 21st expiration): -$4.95 = ($160.00 -$160.00)* 200 shares - $4.95 commission

Total Net Profit:
(a) If BABA stock is at current $154.60 strike price at Dec 21st expiration: +$717.42
= (+$1,797.42 options income +$0.00 dividend income -$1,080.00 capital appreciation); OR
(b) If BABA stock is above $160.00 strike price at Dec 21st expiration: +$1,792.47
= (+$1,797.42 options income +$0.00 dividend income -$4.95 capital appreciation)

Two Possible Return-on-Investment Results:
(a) Absolute Return (If BABA stock is at current $154.60 strike price at Dec 21st expiration): +2.3%
= +$717.42/$31,086.29
Equivalent Annualized Return: +10.7%
= (+$717.42/$31,086.29)*(365/79 days); OR
(b) Absolute Return (If BABA stock is above $160.00 strike price at Dec 21st expiration): +5.8%
= +$1,792.47/$31,086.29
Equivalent Annualized Return: +26.6%
= (+$1,792.47/$31,086.29)*(365/79 days)


2. Alibaba Group Holding Ltd. (BABA) -- Covered Calls Position #2

The transactions were as follows:
10/10/2018 Bought 200 shares of Alibaba stock @ $140.375 per share 
10/22/2018 Sold 2 Alibaba Nov 16th, 2018 $155.00 Call options @ $4.55 per share
Note: the price of BABA shares was $147.75 when these 2 Call options were sold
11/16/2018 2 BABA $155.00 Call options expired with 200 shares priced at $154.10
11/26/2018 Sold 2 BABA Dec 21, 2018 $160.00 Call options @ $4.50 per share
Note: the price of BABA shares was $154.60 when these 2 Call options were sold
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $28,081.29
= $140.375 * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$1,797.42
= ($4.55 + $4.50)* 200 shares - $6.29 * 2 transactions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is at current $154.60 strike price at Dec 21st expiration): +$2,845.00
= ($154.60 -$140.375)* 200 shares; OR
(d) Capital Appreciation (If BABA stock is above $160.00 strike price at Dec 21st expiration): +$3,920.05
= ($160.00 -$140.375)* 200 shares - $4.95 commission

Two Possible Total Net Profit Results:
(a) Total Net Profit (If BABA stock is at current $154.60 strike price at Dec 21st expiration): +$4,642.42
= (+$1,797.42 options income +$0.00 dividend income +$2,845.00 capital appreciation)
(b) Total Net Profit (If BABA stock is above $160.00 strike price at Dec 21st expiration): +$5,717.47
= (+$1,797.42 options income +$0.00 dividend income +$3,920.05 capital appreciation)

Two Possible Return-on-Investment Results:
(a) Absolute Return (If BABA stock is at current $154.60 strike price at Dec 21st expiration): +16.5%
= +$4,642.42/$28,081.29
Equivalent Annualized Return: +82.7%
= (+$4,642.42/$28,081.29)*(365/73 days); OR
(b) Absolute Return (If BABA stock is above $160.00 strike price at Dec 21st expiration): +20.4%
= +$5,717.47/$28,081.29
Equivalent Annualized Return: +101.8%
= (+$5,717.47/$28,081.29)*(365/73 days)

Covered Calls Established in Occidental Petroleum Corp. Using Dividend Capture Strategy

Today, a Covered Calls position was established in Occidental Petroleum Corp. (ticker symbol OXY) with a December 21st, 2018 expiration and at the $67.50 strike price.  This position has an expected upcoming quarterly ex-dividend on December 7th of $.78 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the Dec 21st, 2018 options expiration date.  Quarterly earnings were reported recently, so the next earnings report will not be until mid February 2019.  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 +2.1% absolute return (equivalent to +54.0% annualized return for the next 14 days) if the stock is assigned early (business day prior to December 7th ex-date); OR +3.2% absolute return (equivalent to +40.9% annualized return over the next 29 days) if the stock is assigned on the September 21st options expiration date.


Occidental Petroleum Corp. (OXY) -- New Covered Calls Position
Although unlikely, if the current time value (i.e. extrinsic value) of $1.82 ($69.32 stock price - $67.50 strike price) remaining in the two short Call options decays substantially (down to about $.15 or less) by Dec 6th (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 Occidental Petroleum shares away to capture the dividend payment.

The transactions were:
11/23/2018 Bought 200 Occidental Petroleum shares @ $69.32
11/23/2018 Sold 2 OXY 12/21/2018 $67.50 Call options @ $3.22
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was 317 contracts and the Implied Volatility was very attractive at 34.6 considering the large size and relative predictability of Oxy's business.
12/07/2018 Expected upcoming quarterly ex-dividend of $.78 per share

Two possible overall performance results (including commissions) for this Occidental Petroleum Covered Calls position are as follows:
Covered Calls Cost Basis: $13,224.95
= ($69.32 - $3.22) *200 + $4.95 commission

Net Profit Components:
(a) Options Income: +$642.66
= ($3.22*200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on Dec 6th, the business day prior to Dec 7th ex-div date): +$0.00; or
(b) Dividend Income (If Occidental Petroleum shares assigned at Dec 21st, 2018 expiration): +$156.00
= ($.78 dividend per share x 200 shares)

(c) Capital Appreciation (If OXY assigned early on Dec 6th): -$368.95
+($67.50-$69.32)*200 shares - $4.95 commissions; or
(c) Capital Appreciation (If OXY assigned at $67.50 strike price at options expiration): -$368.95
+($67.50-$69.312)*200 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Dec 6th (business day prior to Dec 7th ex-dividend date)]: +$273.71

= (+$642.66 +$0.00 -$368.95); or

2. Total Net Profit (If Occidental Petroleum shares assigned at $67.50 at Dec 21st, 2018 expiration): +$429.71

= (+$642.66 +$156.00 -$368.95)

1. Absolute Return [If OXY option exercised on Dec 6th (business day prior to ex-dividend date)]: +2.1%

= +$273.71/$13,224.95

Annualized Return (If option exercised early): +54.0%

= (+$273.71/$13,224.95)*(365/14 days); or

2. Absolute Return (If Occidental Petroleum shares assigned at $67.50 at Dec 21, 2018 expiration): +3.2%

= +$429.71/$13,224.95

Annualized Return (If OXY stock assigned at $67.50 at Dec 21, 2018 expiration): +40.9%

= (+$429.71/$13,224.95)*(365/29 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $67.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $65.32 ($69.32 -$3.22 -$.78) provides 5.8% 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, all of the eleven criteria are achieved for this Occidental Petroleum Corp. Covered Calls position.

Covered Calls Established in Bank of America Corp.

Today, a Covered Calls position was established in Bank of America Corp. (ticker BAC) for the December 21st, 2018 expiration and at the $27.00 strike price when the stock was at $27.67.   Given the Covered Calls Advisor's current Overall Market Meter sentiment of Slightly Bearish, a relatively conservative slightly in-the-money position was established.

There is an upcoming ex-dividend of $.15 on December 6th which is included in the analysis below.  This investment is very similar to the Citigroup investment last month using a dividend capture strategy.  It seems that interest rates have bottomed and have now begun an increasing trajectory which will continue to benefit bank earnings.  Selling in-the-money or near-the-money monthly Covered Calls using this dividend capture strategy for one of the four biggest U.S. money center banks (Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo) each month (JPMorgan for Jan, Apr, July, and Oct options expirations; Citigroup and/or Wells Fargo for Feb, May, Aug, and Nov expirations; and Bank of America for Mar, Jun, Sep, and Dec expirations) should result in approximately a +4.0% higher annualized return than would be achieved with Covered Calls in these same stocks during non-ex-dividend months.    

As detailed below, a potential outcome for this investment is +2.7% absolute return-on-investment for the next 33 days (equivalent to +29.9% on an annualized return basis) if Bank of America stock closes above the $27.00 strike price on the Dec. 21st options expiration date.

Bank of America Corp. (BAC) -- New Covered Calls Position
The transactions were:
11/19/2018 Bought 1,000 shares of Bank of America stock @ $27.67 per share 
11/19/2018 Sold 10 BAC Dec 21st, 2018 $27.00 Call options @ $1.24 per share
Note: The Open Interest in these Calls was a very liquid 18,507 contracts and the Implied Volatility was 28.4 (very attractive) considering the relative predictability of BofA's financials.
12/06/2018 Upcoming ex-dividend of $.15 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $26,441.65
= ($27.67 - $1.24)* 1,000 shares + $11.65 commission

Net Profit Components:
(a) Options Income: +$1,240.00
= ($1.24* 1,000 shares)
(b) Dividend Income: +$150.00
= $.15 per share * 1,000 shares 
(c) Capital Appreciation (If Bank of America stock is above $27.00 strike price at Dec 21st expiration): -$674.95
= ($27.00 -$27.67)* 1,000 shares - $4.95 commission

Potential Total Net Profit (If BAC stock assigned at expiration): +$715.05
= (+$1,240.00 options income +$150.00 dividend income -$674.95 capital appreciation)

Absolute Return: +2.7%
= +$715.05/$26,441.65
Equivalent Annualized Return: +29.9%
= (+$715.05/$26,441.65)*(365/33 days)

The downside 'breakeven price' at expiration is at $26.28 ($27.67 - $1.24 - $.15), which is 5.0% below the current market price of $27.67.  This is good downside protection given the attractive potential +29.9% annualized ROI for this investment.

Closed Postion in Citigroup Inc.

Last Friday, the November 16th, 2018 Covered Calls position in Citigroup Inc. (ticker symbol C) expired with the stock price at $64.95, below the $65.00 strike price -- so the Call options expired and the 500 shares were retained in the Covered Calls Advisor's Portfolio.  The stock moved higher today and the position was closed out by selling the 500 shares at $65.22.

This position demonstrates the trifecta that can sometimes be achieved using a Covered Calls dividend capture strategy with profits being obtained from all three sources: (1) Call options income; (2) Dividend income; and (3) Capital Appreciation of the underlying stock. 

As detailed below, this Citigroup Inc. position achieved a return-on-investment result of +4.3% absolute return in 20 days (equivalent to a +78.2% annualized return-on-investment).


Citigroup Inc. (C) -- Covered Calls Position Closed
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
11/02/2018 Ex-dividend of $225.00 = 500 shares x $.45 per share
11/16/2018 Call options expired with closing stock price of $64.95 below the $65.00 strike price
11/19/2018 Sold 500 shares Citi stock at $65.22

The overall performance result (including commissions) is 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: +$365.05
= ($65.22 -$64.48)* 500 shares - $4.95 commission

Total Profit: +$1,350.05
=$760.00 options income + $225.00 dividend income + $365.05 capital appreciation

Absolute Return-On-Investment: +4.3%
= +$1,350.05/$31,488.30
Equivalent Annualized Return: +78.2%
= (+$1,350.05/$31,488.30)*(365/20 days)

November 16th, 2018 Options Expiration Results

The Covered Calls Advisor Portfolio had four positions [Alibaba Group Holding Ltd.(2 positions), Alphabet Inc., and Citigroup Inc.] with November 16th, 2018 options expirations.  Each of these Covered Calls positions closed with their stock prices below the strike prices, so their respective Call options expired and their underlying shares remain in the Covered Calls Advisor Portfolio.  Decisions will be made for each position to either: (1) Sell Call options against the long stock position to re-establish another Covered Calls position at the December 21, 2018 options expiration date; or (2) Sell the stock to close out the position.  As always, all transactions will be posted on this blog on the same day they occur. 

So far in 2018, thirty-eight of forty-four (86.4%) 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 six positions [Alibaba Group Holding Ltd. (two positions), Alphabet Inc., Citigroup 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%.  In comparison, the annualized return-on-investment so far in 2018 for the S&P 500 benchmark is +4.5%.     

Established Covered Calls in Las Vegas Sands Corp.

Today, a Covered Calls position was established in Las Vegas Sands Corp. (ticker symbol LVS) with a December 21st, 2018 expiration and at the $50.00 strike price.  This position has an expected upcoming quarterly ex-dividend on December 17th of $.75 per share, so the potential return for this position includes the ex-dividend since it goes ex-dividend prior to the December 21st options expiration date.  Quarterly earnings were reported recently, so the next earnings report will not be until January 23rd, 2019.  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 +4.6% absolute return (equivalent to +46.5% annualized return for the next 36 days) if the stock is assigned on the December 21st options expiration date.  These potential returns are high because of the recent decline in LVS stock and also the stock market in general.  The Implied Volatility of the options has increased to the high level of 45.5 when this Covered Calls transactions was executed.

Las Vegas Sands Corp. (LVS) -- New Covered Calls Position
The transactions were:
11/16/2018 Bought 300 Las Vegas Sands shares @ $52.90
11/16/2018 Sold 3 LVS 12/21/2018 $50.00 Call options @ $4.40
Note: a simultaneous buy/write transaction was executed, and the Open Interest in these Call options was 328 contracts.
12/17/2018 Upcoming quarterly ex-dividend of $.75 per share

A possible overall performance result (including commissions) for this Las Vegas Sands Covered Calls position is as follows:
Covered Calls Cost Basis: $14,554.95
= ($52.90 - $4.40) *300 + $4.95 commission

Net Profit Components:
(a) Options Income: +$1,317.99
= ($4.40*300 shares) - $2.01 commissions
(b) Dividend Income (If Las Vegas Sands shares assigned at Dec 21st, 2018 expiration): +$225.00
= ($.75 dividend per share x 300 shares)

(c) Capital Appreciation (If LVS assigned at $50.00 strike price at options expiration): -$874.95
+($50.00-$52.90)*300 shares - $4.95 commissions

Total Net Profit (If Las Vegas Sands shares assigned at $50.00 at Dec 21, 2018 options expiration): +$668.04

= (+$1,317.99 +$225.00 -$874.95)

Absolute Return (If Las Vegas Sands shares assigned at $50.00 at Dec 21, 2018 options expiration): +4.6%

= +$668.04/$14,554.95

Annualized Return (If LVS stock assigned at $50.00 at Dec 21, 2018 expiration): +46.5%

= (+$668.04/$14,554.95)*(365/36 days)

These returns will be achieved as long as the stock is above the $50.00 strike price at the Dec. 21st options expiration date.  If the stock declines below the strike price, the breakeven price of $47.75 ($52.90 -$4.40 -$.75) provides 9.7% downside protection below today's purchase price.

Established Covered Calls in Blackstone Group L.P.

Today, a new Covered Calls positions was entered in Blackstone Group L.P. (ticker BX) for the December 21st, 2018 options expiration and at the $34.00 strike price when the stock was at $33.61.  

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

+3.5% absolute return in 39 days (equivalent to a +32.8% annualized return-on-investment) if the price of BX is unchanged upon the Dec 21st options expiration; OR

+4.7% absolute return in 39 days (equivalent to a +43.6% annualized return-on-investment) if the price of BX increases above the $34.00 strike price on the expiration date 

Blackstone Group L.P. (BX) -- New Covered Calls Position

The transactions were as follows:
11/13/2018 Bought 300 shares of Blackstone Group @ $33.61 
11/13/2018 Sold 3 BX Dec 21st, 2018 $34.00 Call options @ $1.14 per share
Note: this was a simultaneous Buy/Write transaction.  There is good liquidity with 2,565 Open Interest contracts and the Implied Volatility of these Call options was 31.0 when this transaction was executed. 

Two possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $9,747.96
= ($33.61 - $1.14)* 300 shares + $6.96 commission

Net Profit Components:
(a) Options Income: +$342.00
= ($1.14* 300 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BX is unchanged at $33.61 purchase price at Dec 21st expiration): +$0.00
= ($33.61 -$33.61)* 300 shares; OR
(c) Capital Appreciation (If BX is above $34.00 strike price at Dec 21st expiration): +$112.05
= ($34.00 -$33.61)* 300 shares - $4.95 commission

(a) Total Net Profit (If BX price unchanged at $33.61 at expiration): +$342.00
= (+$342.00 options income +$0.00 dividend income -$0.00 capital appreciation); OR
(b) Total Net Profit (If BX shares assigned at expiration): +$454.05
= (+$342.00 options income +$0.00 dividend income +$112.05 capital appreciation)

(a) Absolute Return (If BX price unchanged at expiration): +3.5%
= +$342.00/$9,747.96
Equivalent Annualized Return: +32.8%
= (+$342.00/$9,747.96)*(365/39 days); OR
(b) Absolute Return (If BX shares assigned at expiration): +4.7%
= +$454.05/$9,747.96
Equivalent Annualized Return: +43.6%
= (+$454.05/$9,747.96)*(365/39 days)

The downside 'breakeven price' at expiration is at $32.47 ($33.61 - $1.14), which is 3.4% below the current market price of $33.61.

The 'crossover price' at expiration is $34.75 ($33.61 + $1.14).  This is the price above which it would have been more profitable to buy-and-hold Blackstone Group stock until the December 21st, 2018 options expiration date.