Closed Positions in CommScope Holdings and Marathon Petroleum Corp.

The two remaining positions (CommScope Holdings Co., Inc. and Marathon Petroleum Corp.) in the Covered Calls Advisor Portfolio were closed out by selling the stocks.  The detailed history of each of these positions is shown below.  It is likely that a stock sell-off will occur in early January, so all positions have been liquidated for at least the next couple of weeks.  A post of calendar year 2019 results will be posted on this blog site within the first two or three days after the December 31st end of this calendar year that will summarize this year's performance of the Covered Calls Advisor's Portfolio (which has been very rewarding).
 
1.  CommScope Holdings Co. Inc. (COMM) -- Position Closed
The transactions were as follows:
07/10/2019  Sold 5 COMM August 16th, 2019 $15.00 100% Cash-Secured Put options @ $.80
Note: the price of CommScope stock was $15.56 when this transaction was executed.
08/16/2019 Stock was below strike price at expiration, so 5 Put options expired and 500 shares of CommScope were purchased at $15.00 per share.
09/11/2019 Sold 5 COMM Sept 20, 2019 $13.00 Call options at $.40 per share
Note: the price of COMM stock was $13.01 when these Calls were sold
9/20/2019 5 COMM Call options expired
11/7/2019 Sold 5 Dec. 20, 2019 $15.00 Call options at $.70 per share to continue existing Covered Calls position.
12/20/2019 5 Dec 20th, 2019 Call options expired with stock below $15.00 strike price.
12/26/2019 Sold 500 CommScope shares at $14.08

The overall performance result (including commissions) for this CommScope Holdings Covered Calls position was as follows:
Covered Calls Cost Basis: $7,508.30
= $15.00 *500 shares + $8.30 commission

Net Profit Components:
(a) Options Income: +$946.65
= ($.80 +$.40 +$.70) * 500 shares - $3.35 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation: -$460.00
=($14.08-$15.00)* 500 shares

Total Net Profit: +$486.65

= (+$946.65 options income +$0.00 dividend income -$460.00 capital appreciation)

Absolute Return: +6.5%

= +$486.65/$7,508.30

Annualized Return: +14.0%

= (+$486.65/$7,508.30)*(365/169 days)

2.  Marathon Petroleum Corp. (MPC) -- Closed Position

The transactions were:
11/14/2019 Bought 200 Marathon Petroleum shares @ $64.65
11/14/2019 Sold 2 MPC 12/20/2019 $62.50 Call options @ $3.40
Note: a simultaneous buy/write transaction was executed and the implied volatility in the option was 31.3.  
11/19/2019 Upcoming quarterly ex-dividend of $.53 per share
12/20/2019 2 Dec 20th, 2019 Call options expired with stock below $62.50 strike price.
12/26/2019 Sold 200 Marathon Petroleum Corp. shares at $61.1432

The overall performance result (including commissions) for this Marathon Petroleum Covered Calls position was as follows:
Covered Calls Cost Basis: $12,250.00
= ($64.65 - $3.40) *200 shares

Net Profit Components:
(a) Options Income: +$678.66
= ($3.40 *200 shares) - $1.34 commissions
(b) Dividend Income: +$106.00
= ($.53 dividend per share x 200 shares)

(c) Capital Appreciation: -$701.36
+($61.1432 -$64.65)*200 shares

Total Net Profit: +$83.30

= (+$678.66 options income +$106.00 dividend income -$701.36 capital appreciation)

Absolute Return: +0.7%

= +$83.30/$12,250.00

Annualized Return: +5.9%

= (+$83.30/$12,250.00)*(365/42 days)

December 20th, 2019 Monthly Options Expiration Results

The Covered Calls Advisor Portfolio had three positions with December 20th, 2019 monthly options expiration date and the results at options expiration were:

• One position in Diamondback Energy closed in-the-money on the December 20th options expiration date, so the 200 shares were assigned (sold) at the $85.00 strike price.  The detailed transactions and results are shown below.
• Two positions (CommScope Holdings and Marathon Petroleum Corp.) closed out-of-the-money (stock price below the strike price) at the December 20th, 2019 options expiration.  Therefore, the options expired and the shares owned now remain in the Covered Calls Advisor Portfolio (as shown in the right sidebar).  A decision will be made soon to either sell the shares or to continue with Covered Calls positions by selling Call options against the shares currently held.  As always, the transactions and return-on-investment results for these positions will be posted on this blog site on the same day the transactions occur.

The Covered Calls Advisor's objective is to outperform the S&P 500 benchmark.  So far in calendar year 2019, 51 positions have been closed out at a profit, one was closed out at a loss, and two remain as ongoing open positions.  The weighted average annualized return on investment for the 51 completed positions is +41.5%, which substantially exceeds the +28.5% year-to-date annualized return-on-investment for the S&P 500. 
Note:  the final 2019 results will be posted in early January -- soon after the December 31st end of this calendar year. 




1. Diamondback Energy (FANG) -- Covered Calls Position Closed

The transactions have been as follows:
09/30/2019 Bought 200 shares of Diamondback stock @ $89.61 per share 
09/30/2019 Sold 2 Diamondback October 18th, 2019 $85.00 Call options @ $6.13 per share
Note: this was a simultaneous Buy/Write transaction.  The Implied Volatility of the Call options was 39.5. 
10/18/2019 FANG stock closed at $81.97, so the two Call options expired and the 200 shares of Diamondback Energy were retained in the Covered Calls Advisor portfolio.
10/22/2019 Sold 2 FANG Nov 15th, 2019 $85.00 Call options at $2.99 against the 200 shares of Diamondback stock to continue the FANG Covered Calls position.
Note: the price of FANG was $84.13 today when these Call options were sold.
11/14/2019 Ex-dividend of $37.50 = $.1875 per share x 200 shares
11/15/2019 FANG stock closed at $77.09, so the two Call options expired and the 200 shares of Diamondback Energy were retained in the Covered Calls Advisor portfolio.
12/06/2019 Sold 2 FANG Dec. 20th, 2019 $85.00 Call options at $1.45 against the 200 shares of Diamondback stock to continue the FANG Covered Calls position.
12/20/2019 At this options expiration date, the FANG stock price closed above the $85.00 strike price, so the 200 shares were assigned (i.e. sold) at $85.00 per share.


The overall performance results (including commissions) were as follows:
Covered Calls Cost Basis: $16,666.29
= ($89.61 - $6.31) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$1,945.98
= ($6.31 + $2.99 +$1.45) * 200 shares - $2.68 commission
(b) Dividend Income: +$37.50
= $.1875 per share x 200 shares 
(c) Capital Appreciation: -$922.00
= ($85.00 -$89.61) * 200 shares

Total Net Profit: +$1,061.48
= (+$1,945.98 options income +$37.50 dividend income -$922.00 capital appreciation)

Absolute Return: +6.4%= +$1,061.48/$16,666.29
Equivalent Annualized Return: +28.3%
= (+$1,061.48/$16,666.29)*(365/82 days)

Continuation of Diamondback Energy Covered Calls

Upon the November 15th, 2019 options expiration, the Covered Calls position in Diamondback Energy (ticker symbol FANG) expired with the stock price at $77.09, well below the $85.00 strike price.  So, the November Call options expired and the 200 shares of Diamondback Energy stock were retained in the Covered Calls Advisor Portfolio.  Today, with the Diamondback Energy stock price having risen recently, a sell-to-open order was executed (when the stock price was at $83.40 to sell 2 December 20th, 2019 Call options at the $85.00 strike price for $1.45 per share to continue this Covered Calls position.

As detailed below, two potential return-on-investment results for this Diamondback Energy position are: (1) +4.4% absolute return in 82 days (equivalent to a +19.8% annualized return-on-investment) if the stock price is unchanged at $83.40 at the December 20th, 2019 options expiration; or (2) +6.4% absolute return in 82 days (equivalent to a +28.3% annualized return-on-investment) if the stock closes above the $85.00 strike price.

Diamondback Energy (FANG) -- Continuation of Covered Calls Position

The transactions have been as follows:
09/30/2019 Bought 200 shares of Diamondback stock @ $89.61 per share 
09/30/2019 Sold 2 Diamondback October 18th, 2019 $85.00 Call options @ $6.13 per share
Note: this was a simultaneous Buy/Write transaction.  The Implied Volatility of the Call options was 39.5. 
10/18/2019 FANG stock closed at $81.97, so the two Call options expired and the 200 shares of Diamondback Energy were retained in the Covered Calls Advisor portfolio.
10/22/2019 Sold 2 FANG Nov 15th, 2019 $85.00 Call options at $2.99 against the 200 shares of Diamondback stock to continue the FANG Covered Calls position.
Note: the price of FANG was $84.13 today when these Call options were sold.
11/14/2019 Ex-dividend of $37.50 = $.1875 per share x 200 shares
11/15/2019 FANG stock closed at $77.09, so the two Call options expired and the 200 shares of Diamondback Energy were retained in the Covered Calls Advisor portfolio.
12/06/2019 Sold 2 FANG Dec. 20th, 2019 $85.00 Call options at $1.45 against the 200 shares of Diamondback stock to continue the FANG Covered Calls position.

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $16,666.29
= ($89.61 - $6.31) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$1,945.98
= ($6.31 + $2.99 +$1.45) * 200 shares - $2.68 commission
(b) Dividend Income: +$37.50
= $.1875 per share x 200 shares 
(c) Capital Appreciation (If FANG stock is at current $83.40 price at Dec 20th expiration): -$1,242.00
= ($83.40 -$89.61) * 200 shares;  OR
(c) Capital Appreciation (If FANG stock is above $85.00 strike price at Dec 20th expiration): -$922.00
= ($85.00 -$89.61) * 200 shares

Total Net Profit:
(a) If stock price unchanged at $83.40: +$741.48
= (+$1,945.98 options income +$37.50 dividend income -$1,242.00 capital appreciation); OR
(b) If stock is above $85.00 strike price at Dec 20th expiration: +$1,061.48
= (+$1,945.98 options income +$37.50 dividend income -$922.00 capital appreciation)

1. Absolute Return (If stock price unchanged): +4.4%
= +$741.48/$16,666.29
Equivalent Annualized Return: +19.8%
= (+$741.48/$16,666.29)*(365/82 days; OR
2. Absolute Return (If stock price closes above $85.00 strike price at expiration): +6.4%
= +$1,061.48/$16,666.29
Equivalent Annualized Return: +28.3%
= (+$1,061.48/$16,666.29)*(365/82 days)

November 15th, 2019 Monthly Options Expiration Results

The Covered Calls Advisor Portfolio had six positions since the October 18th, 2019 monthly options expiration date.  Five positions (ConocoPhillips, Alexion Pharmaceuticals Inc., Alibaba Group Holding (2 positions), and Citigroup Inc.) were in-the-money at expiration and were therefore closed out profitably.  One position (Diamondback Energy) closed out-of-the-money (stock price below the strike price) at the November 15th, 2019 options expiration, so these shares now remain in the Covered Calls Advisor Portfolio (as shown in the right sidebar).  A decision will be made soon to either sell the Diamondback Energy shares or continue with this Covered Calls position by selling Call options against the shares currently held.  As always, the transactions and return-on-investment results for this position will be posted on this blog site on the same day the transactions occur.

The results for the five closed Covered Calls positions were as follows:

One Covered Calls position in ConocoPhillips had a weekly options expiration on October 25th, 2019, which was after the October 18th monthly expiration but prior to this month's November 15th expiration.  The stock was in-the-money at expiration, so the shares were sold (assigned) and the annualized return-on-investment from this position was +32.5%.  The details of this position were posted on this blog site when the position was closed -- see link.

Four Covered Calls positions closed in-the-money on the November 15th monthly options expiration date.  The detailed transactions and results for each of these positions is provided below.

So far in calendar year 2019, 50 positions have been closed out at a profit, only one was closed out at a loss, and three (CommScope Holdings, Diamondback Energy, and Marathon Petroleum Corp.) remain as ongoing open positions.  The weighted average annualized return on investment for these 51 completed positions is +41.9%, which compares very favorably to the +28.0% year-to-date annualized roi for the S&P 500. 


The detailed transactions and return-on-investment results for the four Covered Calls positions closed out on the November 15th, 2019 monthly options expiration date are as follows:

1.  Alexion Pharmaceuticals Inc. (ALXN) -- Covered Calls Position Closed

The transactions were as follows:
10/22/2019 Bought 200 shares of Alexion stock @ $100.94 per share 
10/22/2019 Sold 2 Alexion November 1st, 2019 $100.00 Call options @ $4.32 per share
Note: this was a simultaneous Buy/Write transaction.
11/01/2019 Roll Out-and-Up:
Bought-to-Close 2 Alexion Nov 1, 2019 $100.50 Call options @ $7.85 per share
Sold-to-Open 2 ALXN Nov 15, 2019 $105.00 Call options @ $4.70 per share
Note: the price of Alexion stock was $107.80 when this Call spread transaction occurred today
11/15/2019 Two ALXN Call options closed in-the-money so the 200 shares were assigned (i.e. sold) at the $105.00 strike price.
Note: the price of Alexion stock was $108.37 at options expiration.
The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $19,325.34
= ($100.94 - $4.32) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$231.32
= ($4.32 -$7.85 +$4.70) * 200 shares - $2.68 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (Alexion stock was above $105.00 strike price at November 15th expiration): +$812.00
= ($105.00 -$100.94) * 200 shares

Total Net Profit: +$1,043.32
= (+$231.32 options income +$0.00 dividend income +$812.00 capital appreciation)

Absolute Return: +5.4%
= +$1,043.32/$19,325.34
Equivalent Annualized Return: +78.8%
= (+$1,043.32/$19,325.34)*(365/25 days)


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

The transactions have been as follows:
09/26/2019 Bought 200 shares of Alibaba stock @ $175.09 per share 
09/26/2019 Sold 2 Alibaba October 18th, 2019 $170.00 Call options @ $8.25 per share
Note: this was a simultaneous Buy/Write transaction.  The Implied Volatility of the Call options was 30.1 when this transaction was executed.
10/18/2019 BABA stock closed at $169.13, so the two Call options expired and the 200 shares of BABA were retained in the Covered Calls Advisor portfolio
10/22/2019 Sold 2 BABA Nov 15th, 2019 $172.50 Call options against the 200 shares of BABA stock to continue the BABA Covered Calls position.
Note: the price of BABA was $174.85 today when these Call options were sold.
11/15/2019 Two BABA Call options closed in-the-money so the 200 shares were assigned (i.e. sold) at the $172.50 strike price.
Note: the price of Alibaba stock was $185.49 at options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $33,374.29
= ($175.09 - $8.25) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$3,108.66
= ($8.25 + $7.30) * 200 shares - $1.34 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (BABA stock was above $172.50 strike price at Nov 15th expiration): -$518.00
= ($172.50 -$175.09) * 200 shares

Total Net Profit: +$2,590.66
= (+$3,108.66 options income +$0.00 dividend income -$518.00 capital appreciation)

Absolute Return: +7.8%
= +$2,590.66/$33,374.29
Equivalent Annualized Return: +55.6%
= (+$2,590.66/$33,374.29)*(365/51 days)


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

The transactions were as follows:
11/01/2019 Bought 200 shares of Alibaba stock @ $176.60 per share 
11/01/2019 Sold 2 Alibaba November 15th, 2019 $182.50 Call options @ $3.25 per share
Note: The price of Alibaba stock was $180.75 when these Calls were sold and the Implied Volatility of the Call options was 27.1.
11/15/2019 Two BABA Call options closed in-the-money so the 200 shares were assigned (i.e. sold) at the $182.50 strike price.
Note: the price of Alibaba stock was $185.49 at options expiration.

The overall performance results (including commissions) was as follows:
Covered Calls Cost Basis: $34,676.29
= ($176.60 - $3.25) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$650.00
= ($3.25 * 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (BABA stock was above $182.50 strike price at November 15th expiration): +$1,180.00
= ($182.50 -$176.60) * 200 shares

Total Net Profit: +$1,830.00
= (+$650.00 options income +$0.00 dividend income +$1,180.00 capital appreciation)

Absolute Return (BABA stock was above $182.50 strike price at November 15th expiration): +5.3%= +$1,830.00/$34,676.29
Equivalent Annualized Return: +128.4%
= (+$1,830.00/$34,676.29)*(365/15 days)


4.  Citigroup Inc. (C) -- Covered Calls Position Closed
The transactions were:
10/30/2019 Bought 300 Citigroup shares @ $72.54
10/30/2019 Sold 3 Citigroup 11/15/2019 $70.00 Call options @ $2.76
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was very large at 10,098 contracts (so there is a nice, tight bid/ask spread) and given that their is no intervening quarterly earnings prior to the Nov. 15th options expiration, the Implied Volatility was also at an attractive level (25.3) for Citigroup when this position was established.
11/01/2019 $153.00 ex-dividend (300 shares x $.51 per share)
11/15/2019 Three Citigroup Inc. Call options closed in-the-money so the 200 shares were assigned (i.e. sold) at the $70.00 strike price.
Note: the price of Citi stock was $74.40 at options expiration.

The overall performance results (including commissions) for this
Citigroup Covered Calls position were as follows:
Covered Calls Cost Basis: $20,936.01
= ($72.54 - $2.76) *300 + $2.01 commission

Net Profit Components:
(a) Options Income: +$828.00
= ($2.76*300 shares)
(b) Dividend Income: +$153.00
= ($.51 dividend per share x 300 shares)

(c) Capital Appreciation (Citi shares assigned at $70.00 strike price at options expiration): -$762.00
+($70.00-$72.54)*300 shares

Total Net Profit: +$219.00

= (+$828.00 +$153.00 -$762.00)

Absolute Return (Citigroup shares assigned at $70.00 at Nov 15, 2019 expiration): +1.0%

= +$219.00/$20,936.01

Equivalent Annualized Return: +22.5%

= (+$219.00/$20,936.01)*(365/17 days)

Established Covered Calls Position in Marathon Petroleum Corp.

Today, a Covered Calls position was established in Marathon Petroleum Corp. (ticker symbol MPC) with a December 20th, 2019 expiration and at the $62.50 strike price.  This position has an upcoming quarterly ex-dividend on November 19th of $.53 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the Dec 20th options expiration date.  3rd Quarter, 2019 earnings were reported two weeks ago, so the next earnings report won't be for 2 1/2 more months, well after the December 20th expiration date. Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Calls position was established. 

Just prior to establishing this Covered Calls position, a comparison was made to see whether a Covered Calls or a 100% Cash-Secured Puts position would result in a higher annualized return-on-investment result.  As shown in the table below (and is normally the case when there is an intervening ex-dividend date), the Covered Calls position was chosen since it has a slightly higher return-on-investment potential.

Click for larger view






According to Reuters Research, MPC is very highly rated since sixteen of seventeen analysts covering Marathon Petroleum Corp. rate it as either a Buy or Outperform, one rates it as a Hold, and none rate it as Underperform or Sell.


Two potential return-on-investment results are: 

•  +2.0% absolute return (equivalent to +148.2% annualized return for the next 5 days) if the stock is assigned early (business day prior to November 19th ex-date); OR 

• +2.9% absolute return (equivalent to +28.6% annualized return over the next 37 days) if the stock is assigned on the December 20th options expiration date.

Marathon Petroleum Corp. (MPC) -- New Covered Calls Position

Although very unlikely, if the current time value (i.e. extrinsic value) of $1.25 [$3.40 options premium - ($64.65 stock price - $62.50 strike price)] remaining in the short call options decays substantially by November 18th (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 Marathon Petroleum shares away to capture the dividend payment.

The transactions were:
11/14/2019 Bought 200 Marathon Petroleum shares @ $64.65
11/14/2019 Sold 2 MPC 12/20/2019 $62.50 Call options @ $3.40
Note: a simultaneous buy/write transaction was executed and the implied volatility in the option was 31.3.  
11/19/2019 Upcoming quarterly ex-dividend of $.53 per share


Two possible overall performance results (including commissions) for this Marathon Petroleum Covered Calls position are as follows:
Covered Calls Cost Basis: $12,250.00
= ($64.65 - $3.40) *200 shares

Net Profit Components:
(a) Options Income: +$678.66
= ($3.40 *200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on Nov 18th, the business day prior to Nov 19th ex-div date): +$0.00; or
(b) Dividend Income (If MPC assigned at Dec 20th, 2019 expiration): +$106.00
= ($.53 dividend per share x 200 shares)

(c) Capital Appreciation (If MPC assigned early on Nov 18th): -$430.00
+($62.50 -$64.65)*200 shares; or
(c) Capital Appreciation (If shares assigned at $62.50 strike price at options expiration): -$430.00
+($62.50-$64.65)*200 shares

1. Total Net Profit [If option exercised on Nov 18th (business day prior to Nov 19th ex-dividend date)]: +$248.66

= (+$678.66 options income +$0.00 dividend income -$430.00 capital appreciation); or

2. Total Net Profit (If Marathon Petroleum shares assigned at $62.50 at Dec 20th, 2019 expiration): +$354.66

= (+$678.66 +$106.00 -$430.00)

1. Absolute Return [If option exercised on Nov 18th (business day prior to ex-dividend date)]: +2.0%

= +$248.66/$12,250.00

Annualized Return (If option exercised early): +148.2%

= (+$248.66/$12,250.00)*(365/5 days); or

2. Absolute Return (If Marathon Petroleum shares assigned at $62.50 at Dec 20th, 2019 options expiration): +2.9%

= +$354.66/$12,250.00

Annualized Return (If MPC shares assigned at $62.50 at Dec 20th, 2019 expiration): +28.6%

= (+$354.66/$12,250.00)*(365/37 days)

Either outcome provides an attractive return-on-investment result for this Marathon Petroleum investment.  These returns will be achieved as long as the stock is above the $62.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $60.72 ($64.65 -$3.40 -$.53) provides a substantial 6.1% downside protection below today's stock purchase price.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the Dec 20th, 2019 options expiration) for this Marathon Petroleum Covered Calls position is 64.8%, so the expected value annualized ROI of this investment (if held until expiration) is +18.5% (+28.6% * 64.8%), a satisfactory return for this in-the-money Covered Calls position.

As shown in the table below for the Covered Calls Advisor's Dividend Capture Strategy spreadsheet, all eleven criteria are achieved for this MPC Covered Calls position.

Continuation of Covered Calls Position in CommScope Holdings Co. Inc.

Today, the Covered Calls position in CommScope Holdings Co. Inc. (ticker symbol COMM) was continued by selling 5 Dec. 20th, 2019 $15.00 Calls at $.70 per share against the 500 shares of CommScope shares currently held.

As detailed below, the overall return-on-investment result for this CommScope Holdings Co. Inc. position if the stock is in-the-money (i.e. above the $15.00 strike price) at expiration is +12.6% absolute return in 164 days (equivalent to a +28.1% annualized return-on-investment).  


CommScope Holdings Co. Inc. (COMM) -- Continuation Covered Calls Position
The transactions to-date are as follows:
07/10/2019  Sold 5 COMM August 16th, 2019 $15.00 100% Cash-Secured Put options @ $.80
Note: the price of CommScope stock was $15.56 when this transaction was executed.
08/16/2019 Stock was below strike price at expiration, so 5 Put options expired and 500 shares of CommScope were purchased at $15.00 per share.
09/11/2019 Sold 5 COMM Sept 20, 2019 $13.00 Call options at $.40 per share
Note: the price of COMM stock was $13.01 when these Calls were sold
9/20/2019 5 COMM Call options expired
11/7/2019 Sold 5 Dec. 20, 2019 $15.00 Call options to continue existing Covered Calls position.

A possible overall performance result (including commissions) for this CommScope Holdings Covered Calls position is as follows:
Covered Calls Cost Basis: $7,508.30
= $15.00 *500 shares + $8.30 commission

Net Profit Components:
(a) Options Income: +$946.65
= ($.80 +$.40 +$.70) * 500 shares - $3.35 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If COMM shares assigned at $15.00 strike price at options expiration): +$0.00
=($15.00-$15.00)* 500 shares

Total Net Profit (If CommScope shares assigned at $15.00 at Dec 20, 2019 expiration): +$946.65

= (+$946.65 +$0.00 +$0.00)

Absolute Return: +12.6%

= +$946.65/$7,508.30

Annualized Return: +28.1%

= (+$946.65/$7,508.30)*(365/164 days)

Established Covered Calls Position in Alibaba Group Holding Ltd.

Today, a second Covered Calls position was established in Alibaba Group Holding Ltd. with a November 15th, 2019 options expiration date.  Alibaba issued their quarterly earnings report early this morning and they were stellar and above expectations, with sales and earnings both increasing 40% compared with the same quarter last year.  Surprisingly to the Covered Calls Advisor, in the pre-market trading Alibaba was trading below yesterday's closing price, so I did something I have never done before and when over a million shares had already been traded in the pre-market, 200 shares were purchased at $176.60 in the Covered Calls Advisor's Portfolio.  After the market opened at 9:30am, the stock price began to increase and at 10:00am with the price at $180.75, 2 November 15th, 2019 Call options were sold at the $182.50 strike price against the 200 shares purchased in the pre-market, which established the Covered Calls position.        

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.  For this fundamental/value investor, Alibaba continues to be a very attractive investment opportunity.  The current quarter's +40.0% growth rate is excellent for this very large e-commerce company now with 785 million mobile MAUs (monthly active users).  

Alibaba continues to be an exceptional value.  In comparison with the four FANG stocks, it has a higher current growth rate than all of them yet its current P/E ratio of 26.4 is lower than all of them.  Analysts are also overwhelmingly bullish on Alibaba.  According to Reuters, twenty-three analysts rate Alibaba stock as a 'Buy', twenty-three more as an 'Outperform', only one is at 'Neutral', and no one rates it as a 'Sell'.  Their average price target is $220 (24.6% above the current price).     

As shown below, two potential return-on-investment results are: 
(1) +1.9% absolute return in 15 days (equivalent to a +45.6% annualized return-on-investment) if BABA stock is unchanged at $176.60 purchase price at Nov. 15th expiration; OR 
(2) +5.3% absolute return in 15 days (equivalent to a +128.4% annualized return-on-investment) if BABA stock rises and is above the $182.50 strike price at Nov. 15th expiration.


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

The transactions were as follows:
11/01/2019 Bought 200 shares of Alibaba stock @ $176.60 per share 
11/01/2019 Sold 2 Alibaba November 15th, 2019 $182.50 Call options @ $3.25 per share
Note: The price of Alibaba stock was $180.75 when these Calls were sold and the Implied Volatility of the Call options was 27.1.

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $34,676.29
= ($176.60 - $3.25) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$650.00
= ($3.25 * 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is unchanged at $176.60 purchase price at Nov. 15th expiration): +$0.00
= ($176.60 -$176.60) * 200 shares; OR
(c) Capital Appreciation (If BABA stock is above $182.50 strike price at November 15th expiration): +$1,180.00
= ($182.50 -$176.60) * 200 shares

1. Total Net Profit (If BABA stock is unchanged at $176.60 purchase price at Nov. 15th expiration): +$650.00
= (+$650.00 options income +$0.00 dividend income +$0.00 capital appreciation); OR
2. Total Net Profit (If BABA stock is above $182.50 strike price at November 15th expiration): +$1,830.00
= (+$650.00 options income +$0.00 dividend income +$1,180.00 capital appreciation)

1. Absolute Return (If BABA stock is unchanged at $176.60 purchase price at Nov. 15th expiration): +1.9%
= +$650.00/$34,676.29
Equivalent Annualized Return: +45.6%
= (+$650.00/$34,676.29)*(365/15 days); OR
2. Absolute Return (If BABA stock is above $182.50 strike price at November 15th expiration): +5.3%
= +$1,830.00/$34,676.29
Equivalent Annualized Return: +128.4%
= (+$1,830.00/$34,676.29)*(365/15 days)

Roll Out-and-Up -- Alexion Pharmaceuticals Inc. Covered Calls

Today is the options expiration date for the initial Covered Calls position in Alexion Pharmaceuticals Inc. (ticker ALXN).  The stock price was well in-the-money and with the time value having declined to $.05, the Covered Calls Advisor decided to roll out the two Alexion November 1st, 2019 $100.00 Call options to November 15th  and up to the $105.00 strike price today when the stock price was trading at $107.80.  The original Covered Calls position was established when the price of ALXN was $100.94 and the subsequent quarterly earnings report exceeded analysts' expectations, so the stock price has risen substantially since then.

A Call options roll out-and-up limit order was placed today at a net debit of $3.15 per share.  The simultaneous rollout transaction was soon executed as follows:
Bought-to-Close 2 Alexion Nov 1st, 2019 Call options @ $7.85
Sold-to-Open 2 Alexion Nov 15th, 2019 Call options    @$4.70
Net Debit Cost per Share                                                  $3.15

As detailed below, a potential investment result is +5.4% absolute return in 25 days (which is equivalent to a +78.8% annualized return-on-investment) if Alexion stock closes above the $105.00 strike price on the November 15th options expiration date.


Alexion Pharma Inc. (ALXN) -- Continuation of Covered Calls Position

The transactions were as follows:
10/22/2019 Bought 200 shares of Alexion stock @ $100.94 per share 
10/22/2019 Sold 2 Alexion November 1st, 2019 $100.00 Call options @ $4.32 per share
Note: this was a simultaneous Buy/Write transaction.
11/01/2019 Roll Out-and-Up:
Bought-to-Close 2 Alexion Nov 1, 2019 $100.50 Call options @ $7.85 per share
Sold-to-Open 2 ALXN Nov 15, 2019 $105.00 Call options @ $4.70 per share
Note: the price of Alexion stock was $107.80 when this Call spread transaction occurred today

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $19,325.34
= ($100.94 - $4.32) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$231.32
= ($4.32 -$7.85 +$4.70) * 200 shares - $2.68 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Alexion stock is above $105.00 strike price at November 15th expiration): +$812.00
= ($105.00 -$100.94) * 200 shares

Total Net Profit: +$1,043.32
= (+$231.32 options income +$0.00 dividend income +$812.00 capital appreciation)

Absolute Return: +5.4%
= +$1,043.32/$19,325.34
Equivalent Annualized Return: +78.8%
= (+$1,043.32/$19,325.34)*(365/25 days)

Covered Calls Position Established in Citigroup Inc.

Today, a Covered Calls position was established in Citigroup Inc. (ticker symbol C) with the purchase of 300 shares at $72.54 per share and three November 15th, 2019 Call options were sold for $2.76 at the $70.00 strike price.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, a slightly in-the-money Covered Calls positions was established. 

This position continues the implementation of the Covered Calls Advisor's dividend capture strategy of monthly Covered Calls on money center bank stocks.  Using good timing, as dictated using this advisor's Dividend Capture Strategy worksheet, selling in-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).

The goal of these monthly Covered Calls in the money center banks is to both capture the quarterly dividend payment and for the stock prices to remain above the strike price at options expiration, therefore achieving the maximum possible return-on-investment result for the position.  So far, this approach has provided higher annualized return results than would be achieved with either: (1) Covered Calls in these same stocks during their non-ex-dividend months; or (2) A simple buy-and-hold stock purchase of these bank stocks.    Hopefully, the outperformance results achieved to-date using this strategy will continue with this November 15th Citigroup Covered Calls position.

A potential return-on-investment result is +0.3% absolute return (equivalent to +57.5% annualized return for the next 2 days) if the stock is assigned early [prior to close of business tomorrow (Thursday) which is the last business day prior to Friday's ex-dividend date]; OR +1.0% absolute return (equivalent to +22.5% annualized return over the next 17 days) if the stock is assigned on the November 15th options expiration date. 

These potential return-on-investment results for this position is detailed below and includes the possibility of early exercise by an owner of these Call options.  Fortunately, Citigroup reported their quarterly earnings two weeks ago, so the next earnings report is not until mid-January of 2020, well after the options expiration date for this position.



Citigroup Inc. (C) -- New Covered Calls Position
It is unlikely, but if the current time value (i.e. extrinsic value) of $.22 [$2.76 Call options price - ($72.54 stock price - $70.00 strike price)] remaining in the three short Call options decays substantially (down to about $.10 or less) by close of business tomorrow (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 300 Citigroup shares away to capture the dividend payment.

The transactions were:
10/30/2019 Bought 300 Citigroup shares @ $72.54
10/30/2019 Sold 3 Citigroup 11/15/2019 $70.00 Call options @ $2.76
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was very large at 10,098 contracts (so there is a nice, tight bid/ask spread) and given that their is no intervening quarterly earnings prior to the Nov. 15th options expiration, the Implied Volatility was also at an attractive level (25.3) for Citigroup when this position was established.
11/01/2019 Upcoming quarterly ex-dividend of $.51 per share

Two possible overall performance results (including commissions) for this
Citigroup Covered Calls position are as follows:
Covered Calls Cost Basis: $20,936.01
= ($72.54 - $2.76) *300 + $2.01 commission

Net Profit Components:
(a) Options Income: +$828.00
= ($2.76*300 shares)
(b) Dividend Income (If option exercised early on October 31st, the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If Citi shares assigned at Nov 15th, 2019 expiration): +$153.00
= ($.51 dividend per share x 300 shares)

(c) Capital Appreciation (If Citigroup shares assigned early on October 31st): -$762.00
+($70.00-$72.54)*300 shares; or
(c) Capital Appreciation (If Citi assigned at $70.00 strike price at options expiration): -$762.00
+($70.00-$72.54)*300 shares

1. Total Net Profit [If option exercised on Oct 31st (business day prior to Nov 1st ex-dividend date)]: +$66.00

= (+$828.00 +$0.00 -$762.00); or

2. Total Net Profit (If Citi shares assigned at $70.00 at Nov 15th, 2019 expiration): +$219.00

= (+$828.00 +$153.00 -$762.00)

1. Absolute Return [If Citigroup options exercised on Jan 31st (business day prior to ex-dividend date)]: +0.3%

= +$66.00/$20,936.01

Annualized Return (If option exercised early): +57.5%

= (+$66.00/$20,936.01)*(365/2 days); or

2. Absolute Return (If Citigroup shares assigned at $70.00 at Nov 15, 2019 expiration): +1.0%

= +$219.00/$20,936.01

Annualized Return (If Citi stock assigned at $70.00 at Nov 15th expiration): +22.5%

= (+$219.00/$20,936.01)*(365/17 days)

Either outcome would provide a good return-on-investment result.  These returns will be achieved as long as the stock is above the $70.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $69.27 ($72.54 -$2.76 -$.51) provides 4.5% 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, ten of the eleven criteria are achieved for this Citigroup Inc. Covered Calls position.

October 25, 2019 Options Expiration Result -- ConocoPhillips Covered Calls Position Closed

The Covered Calls Advisor Portfolio (CCAP) contained a Covered Calls position in ConocoPhillips Company with an October 25, 2019 options expiration.  Today, with the stock price closing at $56.35, the $55.00 Call options expired in-the-money; so the 200 shares of COP stock were assigned (i.e. sold) at the $55.00 strike price.  The absolute return-on-investment (ROI) was +2.3% (equivalent to +32.5% annualized return) for the 26 days holding period, which is detailed below. 


ConocoPhillips (COP) -- Covered Calls Position Assigned at Options Expiration

The transactions were:
09/30/2019 Bought 200 ConocoPhillips shares @ $57.07
09/30/2019 Sold 2 COP 10/25/2019 $55.00 Call options @ $2.91
Note: A simultaneous buy/write transaction was executed.   The Implied Volatility was attractive at 31.2 when this position was established.
10/16/2019 Quarterly ex-dividend of $.42 per share
Note: After this Covered Calls position was established, ConocoPhillips declared a dividend amount of $.42 for its 10/16/2019 ex-dividend date, a pleasant surprise since this was a 38% increase from prior dividends of $.305 per share.
10/25/2019 Two COP Call options expired in-the-money so 200 ConocoPhillips shares sold at $55.00 strike price.
Note 1: the share price closed in-the-money at $56.35.
Note 2: the weekly 10/25/2019 Call options were sold instead of the usual monthly (Nov. 15, 2019) Call options in order avoid the uncertainty of holding the position during ConocoPhillips's next quarterly earnings report (which occurs this upcoming Tuesday -- 10/29/2019).


The overall performance result (including commissions) for this ConocoPhillips Covered Calls position were as follows:
Covered Calls Cost Basis: $10,838.29
= ($57.07 - $2.91) *200 shares + $6.29 commissions

Net Profit Components:
(a) Options Income: +$582.00
= ($2.91 * 200 shares)

(b) Dividend Income: +$84.00
= ($.42 dividend per share x 200 shares)

(c) Capital Appreciation: -$415.34
+($55.00 -$57.07) * 200 shares- $1.34 commission

Total Net Profit: +$250.66

= (+$582.00 +$84.00 -$415.34)

Absolute Return: +2.3%

= +$250.66/$10,838.29

Annualized Return (If COP stock assigned at $55.00 at Oct 25, 2019 expiration): +32.5%

= (+$250.66/$10,838.29)*(365/26 days)

Established Covered Calls Position in Alexion Pharmaceuticals Inc.

A new short-term Covered Calls position was established in Alexion Pharma Inc. (ticker symbol ALXN) with a November 1st, 2019 options expiration date and at the $100.00 strike price when Alexion shares were priced at $100.94.  This position was established the day prior to the quarterly earnings report.  Since a quarterly earnings report beat was expected and the implied volatility had spiked up to 51.9 prior to the report, this position provides an extraordinary return-on-investment potential as long as the stock is above the $100 strike price at the market close on the November 1st options expiration date.   

As shown below, the potential return-on-investment result is +3.5% absolute return in 11 days (equivalent to a +116.1% annualized return-on-investment).


Alexion Pharma Inc. (ALXN) -- New Covered Calls Position

The transactions were as follows:
10/22/2019 Bought 200 shares of Alexion stock @ $100.94 per share 
10/22/2019 Sold 2 Alexion November 1st, 2019 $100.00 Call options @ $4.32 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: $19,325.34
= ($100.94 - $4.32) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$864.00
= ($4.32 * 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Alexion stock is above $100.00 strike price at Novermber 1st expiration): -$188.00
= ($100.00 -$100.94) * 200 shares

Total Net Profit: +$676.00
= (+$864.00 options income +$0.00 dividend income -$188.00 capital appreciation)

Absolute Return: +3.5%
= +$676.00/$19,325.34
Equivalent Annualized Return: +116.1%
= (+$676.00/$19,325.34)*(365/11 days)

The downside 'breakeven price' at expiration is at $96.62 ($100.94 - $4.32), which is 4.3% below the current market price of $100.94.

Continuation of Diamondback Energy Covered Calls

Upon the October 18th, 2019 options expiration, the Covered Calls position in Diamondback Energy (ticker symbol FANG) expired with the stock price at $81.97, well below the $85.00 strike price.  So, the October Call options expired and the 200 shares of Diamondback Energy stock were retained in the Covered Calls Advisor Portfolio.  Today, with the price of Diamondback Energy stock having risen in the past two trading days to $84.13, a sell-to-open order was executed to sell 2 November 15th, 2019 Call options at the $85.00 strike price for $2.99 per share to continue this Covered Calls position.

As detailed below, two potential return-on-investment results for this Diamondback Energy position are: (1) +4.6% absolute return in 47 days (equivalent to a +35.5% annualized return-on-investment) if the stock price is unchanged at $84.13 at the November 15th, 2019 options expiration; or (2) +5.6% absolute return in 47 days (equivalent to a +43.6% annualized return-on-investment) if the stock closes above the $85.00 strike price.

Diamondback Energy (FANG) -- Continuation of Covered Calls Position

The transactions have been as follows:
09/30/2019 Bought 200 shares of Diamondback stock @ $89.61 per share 
09/30/2019 Sold 2 Diamondback October 18th, 2019 $85.00 Call options @ $6.13 per share
Note: this was a simultaneous Buy/Write transaction.  The Implied Volatility of the Call options was 39.5. 
10/18/2019 FANG stock closed at $81.97, so the two Call options expired and the 200 shares of Diamondback Energy were retained in the Covered Calls Advisor portfolio
10/22/2019 Sold 2 FANG Nov 15th, 2019 $85.00 Call options at $2.99 against the 200 shares of Diamondback stock to continue the FANG Covered Calls position.
Note: the price of FANG was $84.13 today when these Call options were sold.

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $16,666.29
= ($89.61 - $6.31) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$1,858.66
= ($6.31 + $2.99) * 200 shares - $1.34 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If FANG stock is at current $84.13 price at Nov 15th expiration): -$1,096.00
= ($84.13 -$89.61) * 200 shares;  OR
(c) Capital Appreciation (If FANG stock is above $85.00 strike price at Nov 15th expiration): -$922.00
= ($85.00 -$89.61) * 200 shares

Total Net Profit:
(a) If stock price unchanged at $84.13: +$762.66
= (+$1,858.66 options income +$0.00 dividend income -$1,096.00 capital appreciation); OR
(b) If stock is above $85.00 strike price at Nov 15th expiration: +$936.66
= (+$1,858.66 options income +$0.00 dividend income -$922.00 capital appreciation)

1. Absolute Return (If stock price unchanged): +4.6%
= +$762.66/$16,666.29
Equivalent Annualized Return: +35.5%
= (+$762.66/$16,666.29)*(365/47 days; OR
2. Absolute Return (If stock price closes above $85.00 strike price at expiration): +5.6%
= +$936.66/$16,666.29
Equivalent Annualized Return: +43.6%
= (+$936.66/$16,666.29)*(365/47 days)

Continuation of Alibaba Group Covered Calls

Upon the October 18th, 2019 options expiration, the Covered Calls position in Alibaba Group Holding Ltd. (ticker symbol BABA) expired with the stock price at $169.13, just below the $170.00 strike price.  So, the October Call options expired and the 200 shares of Alibaba stock were retained in the Covered Calls Advisor Portfolio.  Today, with the price of Alibaba stock at $174.85, a sell-to-open order was executed to sell 2 November 15th, 2019 Call options at the $172.50 strike price for $7.30 per share to continue this Covered Calls position.

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. 

As detailed below, a potential return-on-investment for this Alibaba position is +7.8% absolute return in 51 days (equivalent to a +55.6% annualized return-on-investment).  

Alibaba has an upcoming quarterly earnings report on November 1st.  Since this is prior to the November 15 expiration date, the Implied Volatility was elevated at 32.4 when the two Nov 15th $172.50 Call options were sold to continue this Covered Calls position.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, a slightly in-the-money Covered Calls position was established.

Alibaba Group Holding Ltd. (BABA) -- Continuation of Covered Calls Position

The transactions have been as follows:
09/26/2019 Bought 200 shares of Alibaba stock @ $175.09 per share 
09/26/2019 Sold 2 Alibaba October 18th, 2019 $170.00 Call options @ $8.25 per share
Note: this was a simultaneous Buy/Write transaction.  The Implied Volatility of the Call options was 30.1 when this transaction was executed.
10/18/2019 BABA stock closed at $169.13, so the two Call options expired and the 200 shares of BABA were retained in the Covered Calls Advisor portfolio
10/22/2019 Sold 2 BABA Nov 15th, 2019 $172.50 Call options against the 200 shares of BABA stock to continue the BABA Covered Calls position.
Note: the price of BABA was $174.85 today when these Call options were sold.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $33,374.29
= ($175.09 - $8.25) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$3,108.66
= ($8.25 + $7.30) * 200 shares - $1.34 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is above $172.50 strike price at Nov 15th expiration): -$518.00
= ($172.50 -$175.09) * 200 shares

Total Net Profit: +$2,590.66
= (+$3,108.66 options income +$0.00 dividend income -$518.00 capital appreciation)

Absolute Return: +7.8%
= +$2,590.66/$33,374.29
Equivalent Annualized Return: +55.6%
= (+$2,590.66/$33,374.29)*(365/51 days)

October 18th, 2019 Monthly Options Expiration Results

The Covered Calls Advisor Portfolio had four positions with October 18th, 2019 monthly options expiration date and the results at options expiration were:

• Two Covered Calls positions (Alexion Pharma Inc. and Cigna Corp.) closed in-the-money on the October 18th options expiration date, so for both positions their shares were assigned (sold) at their strike prices.  The details of each of these closed position are shown below.
• Two positions (Alibaba Group Holdings Ltd. and Diamondback Energy) closed out-of-the-money (stock price below the strike price) at the October 18th, 2019 options expiration.  Therefore, the options expired and the shares owned now remain in the Covered Calls Advisor Portfolio (as shown in the right sidebar).  A decision will be made soon to either sell the shares or to continue with Covered Calls positions by selling Call options against the shares currently held.  As always, the transactions and return-on-investment results for these positions will be posted on this blog site on the same day the transactions occur.

The Covered Calls Advisor's objective is to outperform the S&P 500 benchmark.  So far in calendar year 2019, 45 positions have been closed out at a profit, one was closed out at a loss, and three remain as ongoing open positions.  The weighted average annualized return on investment for the 46 completed positions is +40.1%, which compares very favorably to the +26.2% year-to-date annualized return-on-investment for the S&P 500. 




1. Alexion Pharma Inc. (ALXN) -- Covered Calls Position Closed

The transactions were as follows:
10/01/2019 Bought 200 shares of Alexion stock @ $97.44 per share 
10/01/2019 Sold 2 Alexion October 18th, 2019 $95.00 Call options @ $4.59 per share
Note: this was a simultaneous Buy/Write transaction.
10/18/2019 Two ALXN Call options expired in-the-money so 200 Alexion shares sold at $95.00 strike price.
Note: the share price closed in-the-money at $98.41

The overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $18,576.29
= ($97.44 - $4.59) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$918.00
= ($4.59 * 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (Alexion stock was above $95.00 strike price at October 18th expiration): -$492.95
= ($95.00 -$97.44) * 200 shares - $4.95 commission

Total Net Profit: +$425.05
= (+$918.00 options income +$0.00 dividend income -$492.95 capital appreciation)

Absolute Return: +2.3%
= +$425.05/$18,576.29
Equivalent Annualized Return: +46.4%
= (+$425.05/$18,576.29)*(365/18 days)


2.  Cigna Corp. (CI) -- Covered Calls Position Closed

The transactions were as follows:
09/26/2019 Bought 200 shares of Cigna stock @ $149.92 per share 
09/26/2019 Sold 2 Cigna Oct 18th, 2019 $145.00 Call options @ $7.68 per share
Note: this was a simultaneous Buy/Write transaction
10/18/2019 Two Cigna Call options expired in-the-money so 200 Cigna shares sold at $145.00 strike price.
Note: the share price closed well in-the-money at $166.88

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $28,454.29
= ($149.92 - $7.68) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$,1536.00
= ($7.678 * 200 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Cigna stock was above $145.00 strike price at Oct 18th expiration): -$988.95
= ($145.00 -$149.92) * 200 shares - $4.95 commission

Total Net Profit: +$547.05
= (+$1,536.00 options income +$0.00 dividend income -$988.95 capital appreciation)

Absolute Return: +1.9%
= +$547.05/28,454.29
Equivalent Annualized Return: +30.5%
= (+$547.05/28,454.29)*(365/23 days)

Overall Market Meter Remains "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 remains at 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).

The rating for each of these factors is not subjective.  Each factor is calculated using objective, quantifiable measures.  As an example, the Covered Calls Advisor will briefly explain how the first macro metric (Bank Lending) is determined.  The Federal Reserve Board conducts a quarterly survey via questionnaire of U.S. banks in which they measure both supply and demand information.  For corporate America, the supply side represents the banks' availability of capital to make loans to large commercial and industrial clients and also whether the trend is improving (greater funds availability) or deteriorating (tightening funds availability).  On the demand side, the survey provides information on both the volume and trend (rate of change) of large commercial and industrial companies loan applications.  Currently, the banks liquidity to make loans (supply side) is Slightly Bullish, but the value of large companies loan applications are now declining somewhat which is Slightly Bearish.  So, the current overall result for the Bank Lending metric, as shown below, is Neutral (the average value between Slightly Bullish and Slightly Bearish).   

The current Market Meter average of 2.71 (see blue line at the bottom of the chart above) is unchanged from the prior analysis six months ago, so the Overall Market Meter remains in the Slightly Bearish range (Note: the Slightly Bearish range is from 2.35 to 3.09). 

So what is our current Covered Calls investing strategy?  Based on the Covered Calls Advisor's "Slightly Bearish" Overall Market Meter (see right sidebar), the corresponding strategy is to "on-average sell 1% in-the-money Covered Calls for the next options expiration month".    

As always, your comments or questions regarding this post are welcomed. Email me at the address shown in the upper-right sidebar.

Regards and Godspeed,
Jeff

Established Covered Calls Position in Alexion Pharmaceuticals Inc.

A new monthly Covered Calls position was established in Alexion Pharma Inc. (ticker symbol ALXN) with an October 18th, 2019 options expiration date and at the $95.00 strike price when Alexion shares were priced at $97.44.  There are no earnings reports or ex-dividends prior to the options expiration date. 

As shown below, the potential return-on-investment result is +2.3% absolute return in 18 days (equivalent to a +46.4% annualized return-on-investment).


Alexion Pharma Inc. (ALXN) -- New Covered Calls Position

The transactions were as follows:
10/01/2019 Bought 200 shares of Alexion stock @ $97.44 per share 
10/01/2019 Sold 2 Alexion October 18th, 2019 $95.00 Call options @ $4.59 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: $18,576.29
= ($97.44 - $4.59) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$918.00
= ($4.59 * 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Alexion stock is above $95.00 strike price at October 18th expiration): -$492.95
= ($95.00 -$97.44) * 200 shares - $4.95 commission

Total Net Profit: +$425.05
= (+$918.00 options income +$0.00 dividend income -$492.95 capital appreciation)

Absolute Return: +2.3%
= +$425.05/$18,576.29
Equivalent Annualized Return: +46.4%
= (+$425.05/$18,576.29)*(365/18 days)

The downside 'breakeven price' at expiration is at $92.85 ($97.44 - $4.59), which is 4.7% below the current market price of $97.44.

Covered Calls Established in ConocoPhillips Using Dividend Capture Strategy

Today, a Covered Calls position was established in ConocoPhillips (ticker symbol COP) with a October 25, 2019 expiration and at the $55.00 strike price.  Although the next ex-dividend date and amount has not yet been declared, based on its historic trend, a quarterly ex-dividend of $.305 per share is expected on October 18th, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the October 25th, 2019 options expiration date.  At the $55.00 strike price, the annual dividend yield is 2.1%.  The next quarterly earnings report will be on October 29th which is just after the options expiration date. 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 +1.5% absolute return (equivalent to +30.5% annualized return for the next 18 days) if the stock is assigned early (business day prior to the expected October 18th ex-date); OR +2.1% absolute return (equivalent to +29.0% annualized return over the next 26 days) if the stock is assigned on the October 25th options expiration date.


ConocoPhillips (COP) -- New Covered Calls Position

If the current time value (i.e. extrinsic value) of $.84 [$2.91 options premium - ($57.07 stock price - $55.00 strike price) remaining in the two short Call options decays substantially (down to about $.15 or less) by October 17th (the last 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 ConocoPhillips shares away to capture the dividend payment.

The transactions were:
09/30/2019 Bought 200 ConocoPhillips shares @ $57.07
09/30/2019 Sold 2 COP 10/25/2019 $55.00 Call options @ $2.91
Note: A simultaneous buy/write transaction was executed.   The Implied Volatility was attractive at 31.2.
10/18/2019 Expected upcoming quarterly ex-dividend of $.305 per share

Two possible overall performance results (including commissions) for this ConocoPhillips Covered Calls position are as follows:
Covered Calls Cost Basis: $10,838.29
= ($57.07 - $2.91) *200 shares + $6.29 commissions

Net Profit Components:
(a) Options Income: +$582.00
= ($2.91 * 200 shares)
(b) Dividend Income (If option exercised early on the business day prior to Oct 18th ex-div date): +$0.00; or
(b) Dividend Income (If ConocoPhillips shares assigned at Oct 25th, 2019 expiration): +$61.00
= ($.305 dividend per share x 200 shares)

(c) Capital Appreciation (If COP assigned early on Oct 17th): -$418.95
+($55.00 -$57.07) * 200 shares - $4.95 commissions; or
(c) Capital Appreciation (If COP assigned at $55.00 strike price at options expiration): -$418.95
+($55.00 -$57.07) * 200 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Oct 17th (business day prior to Oct 18th ex-dividend date)]: +$163.05

= (+$582.00 +$0.00 -$418.95); or

2. Total Net Profit (If ConocoPhillips shares assigned at $55.00 at Oct 25th, 2019 expiration): +$224.05

= (+$582.00 +$61.00 -$418.95)

1. Absolute Return [If COP options exercised on business day prior to ex-dividend date]: +1.5%

= +$163.05/$10,838.29

Annualized Return (If option exercised early): +30.5%

= (+$163.05/$10,838.29)*(365/18 days); or

2. Absolute Return (If ConocoPhillips shares assigned at $55.00 at Oct 25, 2019 expiration): +2.1%

= +$224.05/$10,838.29

Annualized Return (If COP stock assigned at $55.00 at Oct 25, 2019 expiration): +29.0%

= (+$224.05/$10,838.29)*(365/26 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $55.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $53.855 ($57.07 -$2.91 -$.305) provides 5.6% 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 ConocoPhillips Covered Calls position.

Establish Covered Calls Position in Diamondback Energy

A new monthly Covered Calls position was established in Diamondback Energy (ticker symbol FANG) with an October 18th, 2019 options expiration date and at the $85.00 strike price when Diamondback Energy was priced at $89.61.  There are no earnings reports or ex-dividends prior to the options expiration date. 

Remarkably, analysts are universally bullish on Diamondback Energy.  According to Reuters, all thirty-four analysts rating Diamondback's stock have it as either a 'Buy' or 'Outperform'.  None rate it as 'Neutral', 'Underperform', or 'Sell'.  Their average price target is 60% above its current price (one of the highest potential increases in the S&P 500).         

As shown below, the potential return-on-investment result is +2.0% absolute return in 19 days (equivalent to a +38.6% annualized return-on-investment).


Diamondback Energy (FANG) -- New Covered Calls Position

The transactions were as follows:
09/30/2019 Bought 200 shares of Diamondback stock @ $89.61 per share 
09/30/2019 Sold 2 Diamondback October 18th, 2019 $85.00 Call options @ $6.13 per share
Note: this was a simultaneous Buy/Write transaction.  The Implied Volatility of the Call options was 39.5. 

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $16,666.29
= ($89.61 - $6.31) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$1,262.00
= ($6.31 * 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If FANG stock is above $85.00 strike price at October 18th expiration): -$926.95
= ($85.00 -$89.61) * 200 shares - $4.95 commission

Total Net Profit: +$335.05
= (+$1,262.00 options income +$0.00 dividend income -$926.95 capital appreciation)

Absolute Return: +2.0%
= +$335.05/$16,666.29
Equivalent Annualized Return: +38.6%
= (+$335.05/$16,666.29)*(365/19 days)

The downside 'breakeven price' at expiration is at $83.30 ($89.61 - $6.31), which is 7.0% below the current market price of $89.61.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the October 19, 2019 options expiration) for this Diamondback Covered Calls position is 73.4%, so the expected value annualized ROI of this investment (if held until expiration) is +28.3% (+38.6% * 73.4%), a very good 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 $91.31 = $89.61 + [$6.31 - ($89.61 - $85.00)].
This is the price at expiration above which it would have been more profitable to simply buy-and-hold Diamondback Energy stock until the October 18th, 2019 options expiration date rather than establishing this Covered Calls position.

Covered Calls Established in Alibaba Group and Cigna Corp.

Two new Covered Calls positions have been established in Alibaba Group Holding (ticker BABA) and Cigna Corp. (CI) with October 18th, 2019 options expiration dates. Two Alibaba Call options were sold at $8.25 for the $170.00 strike price when the stock price was $175.09 and 200 shares of Cigna were purchased at $149.92 while two Calls were sold at $7.68 at the $145.00 strike price.  Neither company has an earnings report prior to the expiration date.

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

• Alibaba Group Holding : +1.9% absolute return in 23 days (equivalent to a +29.8% annualized return-on-investment); and

• Cigna Corp. : +1.9% absolute return in 23 days (equivalent to a +30.5% annualized return-on-investment) 

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

The transactions were as follows:
09/26/2019 Bought 200 shares of Alibaba stock @ $175.09 per share 
09/26/2019 Sold 2 Alibaba October 18th, 2019 $170.00 Call options @ $8.25 per share
Note: this was a simultaneous Buy/Write transaction.  The Implied Volatility of the Call options was 30.1 when this transaction was executed.  As detailed below, this high Implied Volatility provides for an immediate generous income credit of $3,720 from selling these 2.9% in-the-money Call options.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $33,374.29
= ($175.09 - $8.25) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$1,650.00
= ($8.25 * 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is above $170.00 strike price at Oct 18th expiration): -$1,022.95
= ($170.00 -$175.09) * 200 shares - $4.95 commission

Total Net Profit: +$627.05
= (+$1,650.00 options income +$0.00 dividend income -$1,022.95 capital appreciation)

Absolute Return: +1.9%
= +$627.05/$33,374.29
Equivalent Annualized Return: +29.8%
= (+$627.05/$33,374.29)*(365/23 days)

The downside 'breakeven price' at expiration is at $166.84 ($175.09 - $8.25), which is 4.7% below the current market price of $175.09.

Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the October 18, 2019 options expiration) for this Alibaba Covered Calls position is 67.0%, so the expected value annualized ROI of this investment (if held until expiration) is +20.0% (+29.8% * 67.0%), a good 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 $178.25 = $175.09 + [$8.25 - ($175.09 - $170.00)].
This is the price at expiration above which it would have been more profitable to simply buy-and-hold Alibaba stock until the Oct. 18th, 2019 options expiration date rather than establishing this Covered Calls position.


2.  Cigna Corp. (CI) -- New Covered Calls Position

Of 23 analysts covering Cigna, 19 rate it as either Buy or Outperform, 4 rate it a Hold, and 0 rate it as either Underperform or Sell.  The 1-year target price of these analysts is $214 which is 42% above the current stock price.  Both Morgan Stanley and Citigroup came out today with Buy recommendations on Cigna and with $208 and $203 price targets respectively.  Both highlighted that Cigna's recent price decline is overdone and a reversal to higher price levels is expected.

The transactions were as follows:
09/26/2019 Bought 200 shares of Cigna stock @ $149.92 per share 
09/26/2019 Sold 2 Cigna Oct 18th, 2019 $145.00 Call options @ $7.68 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: $28,454.29
= ($149.92 - $7.68) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$,1536.00
= ($7.678 * 200 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Cigna stock is above $145.00 strike price at Oct 18th expiration): -$988.95
= ($145.00 -$149.92) * 200 shares - $4.95 commission

Total Net Profit: +$547.05
= (+$1,536.00 options income +$0.00 dividend income -$988.95 capital appreciation)

Absolute Return: +1.9%
= +$547.05/28,454.29
Equivalent Annualized Return: +30.5%
= (+$547.05/28,454.29)*(365/23 days)

The downside 'breakeven price' at expiration is at $142.24 ($149.92 - $7.68), which is 5.1% below the current market price of $149.92.