Roll-Out-and-Up of Alibaba Group Holdings Ltd. Covered Calls

The price of Alibaba Group Holdings Ltd. (ticker BABA) spiked upward by over $9 per share today in response to its positive quarterly earnings report.  As a result, the time value remaining in the February 15th, 2019 Call options was reduced to only $.64 [$21.83 Feb 15th $145.00 Calls option value - ($166.19 share price - $145.00 strike price)] with 17 days remaining until the expiration date.  Alibaba is a core holding in the Covered Calls Advisor Portfolio, so a roll-out-and-up transaction to the March 15th, 2019 $155.00 Calls was transacted today with a net debit of $6.95 per share ($21.83 - $14.88).

As detailed below, a potential year-to-date return on investment for Alibaba (Position #2) is +12.6% absolute return in 74 days (equivalent to a +62.3% annualized return-on-investment).  

Alibaba Group Holdings Ltd. (Position #2) (BABA) -- Continuation Covered Calls Position
1/1/2019 200 Alibaba (Position #2) shares market value was $137.07
1/7/2019 Sold 2 BABA February 15, 2019 $145.00 Call options @ $6.40
Note: Price of BABA shares was $140.94 today when these Call options were sold
1/30/2019 Bought-to-Close 2 BABA Feb 15, 2019 $145.00 Call options @ $21.83
1/30/2019 Sold-to-Open 2 BABA March 15, 2019 $155.00 Call options @ $14.88
Note: this was a simultaneously executed roll-out-and-up transaction executed when BABA was at $166.19 per share.

A possible overall performance result (including commissions) for this Alibaba Covered Calls position is as follows:
Covered Calls Cost Basis: $27,414.00
= $137.07 per share *200 shares

Net Profit Components:
(a) Option Income: -$116.29
= ($6.40 -$21.83 +$14.88) * 200 shares - $6.29 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BABA shares are above $155.00 strike price at Mar 15th expiration): +$3,581.05
= ($155.00 -$137.07) * 200 shares - $4.95 commission

Total Net Profit (If BABA shares assigned at expiration): +$3,464.76
= (-$116.29 options income +$0.00 dividend income +$3581.05 capital appreciation)

Absolute Return: +12.6%
= +$3,464.76/$27,414.00
Equivalent Annualized Return: +62.3%
= (+$3,464.76/$27,414.00)*(365/74 days)

Position Closed in Lam Research Corp.

Yesterday, Lam Research reported their 2nd quarter 2019 earnings. They beat consensus earnings and revenue and also provided a positive outlook on their prospects. The market responded this morning with a large upward price spike and when the stock reached $157.43 ($18.10 above yesterday's closing price), the Covered Calls Advisor closed the position by simultaneously selling the 200 LRCX shares and buying back the two shorted Feb15th, 2019 $145.00 Call options.

As detailed below, this Lam Research position achieved a return-on-investment result of +9.2% absolute return in 24 days (equivalent to a +140.6% annualized return-on-investment).


Lam Research Corp. (LRCX) -- Covered Calls Position Closed
The transactions were as follows:
01/01/2019 200 LRCX shares owned at $136.17 per share
01/07/2019 Sold 2 LRCX Feb 15, 2019 $145.00 Call options at $5.35 per share
01/24/2019 Closed LRCX Covered Calls position by selling 200 LRCX shares at $157.43 and simultaneously buying back the 2 Feb 15th $145.00 Calls at $14.43 per share.  


The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $26,164.00
= ($136.17 - $5.35) * 200 shares

Net Profit Components:
(a) Option Income: -$1,828.58
= ($5.35 -$14.43) * 200 shares - 2*$6.29 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$4,247.05
= ($157.43 -$136.17) * 200 shares - $4.95 commission

Total Net Profit: +$2,418.47
= (-$1,828.58 options income +$0.00 dividend income +$4,247.05 capital appreciation)

Absolute Return: +9.2%
= +$2,418.47/$26,164.00
Equivalent Annualized Return: +140.6%
= (+$2,418.47/$26,164.00)*(365/24 days)

Early Assignment of CVS Health Corp. Covered Calls Position

This morning, the Covered Calls Advisor received notification from my broker (Schwab) that 2 CVS Health Corp. (ticker symbol CVS) February 15th, 2019 Call options were exercised early, so the 200 shares of CVS stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $60.00 strike price.

As you might recall, two Covered Calls positions were established in CVS with Feb 15th expirations  (shown here).  The first position was at the $60.00 strike price and the second was at the $62.50 strike price.  CVS Health's stock price was $66.33 at yesterday's market close.  Today, CVS goes ex-dividend at $.50 per share.  Early exercise by the owners of these $60.00 strike price Call options was expected since there was virtually $0.00 time value remaining in these Call options.  So, the Call owners exercised their option to purchase 200 CVS shares at $60.00 and today and they will capture the $.50 dividend.  The Covered Calls Advisor expected assignment and was willing to let this outcome happen since the annualized return-on-investment result achieved of +44.3% exceeds the +22.1% that would occur if the stock price remains above the $60.00 strike at the Feb 15th options expiration date.

In comparison, the second CVS Feb 15th Covered Calls position is at the $62.50 strike price.  These Calls were not exercised by the Call owners yesterday.  The time value remaining in these Calls is $.22 = [$62.50 strike price - ($66.11 current stock price - $3.83 Call option value (midpoint of $3.75/$3.90 bid/ask spread))].  The owner of these Calls decided not to immediately forego the remaining $.22 per share time value in order to obtain the stock and therefore also capture today's dividend.

As detailed below, the actual return-on-investment result achieved for this CVS Health position is a +1.1% absolute return (equivalent to +44.3% annualized return) for the 9 days this position was held.  The Covered Calls Advisor will retain the cash received in the Covered Calls Advisor Portfolio until a new Covered Calls position is established, the transactions details of which will be posted on this blog site the same day they occur.

CVS Health Corp. (CVS) -- Covered Calls Position Closed by Early Assignment
The transactions were:
01/15/2019 Bought 200 CVS shares @ $63.20
01/15/2019 Sold 2 CVS 02/15/2019 $60.00 Call options @ $3.88
Note: A simultaneous buy/write transaction was executed.  
01/23/2019 Early assignment of 2 CVS Feb 15th $60.00 Call options, so 200 shares of CVS stock sold at $60.00 strike price

The overall performance result (including commissions) for this CVS Covered Calls position was as follows:
Covered Calls Cost Basis: $11,868.95
= ($63.20 - $3.88) *200 + $4.95 commission

Net Profit Components:
(a) Options Income: +$774.66
= ($3.88*200 shares) - $1.34 commissions
(b) Dividend Income (CVS option exercised early on Jan 23rd, the business day prior to the ex-div date): +$0.00

(c) Capital Appreciation (CVS assigned early on Jan 23rd, 2019): -$644.95
+($60.00-$63.20)*200 shares - $4.95 commissions

Total Net Profit: +$129.71

= (+$774.66 +$0.00 -$644.95)

Absolute Return: +1.1%

= +$129.71/$11,868.95

Annualized Return on Investment: +44.3%

= (+$129.71/$11,868.95)*(365/9 days)

Two Covered Calls Positions Established in Citigroup Inc. and Delta Air Lines Inc. Using Dividend Capture Strategy

Today, two Covered Calls positions were established in Citigroup Inc. (ticker symbol C) and Delta Air Lines Inc. (symbol DAL).  Both positions included the purchase of 300 shares ($62.24 per share for Citi and $47.01 for Delta) and three February 15th, 2019 Call options were sold for $2.85 at the $60.00 strike price for Citigroup while three March 15th, 2019 Call options were sold for $3.19 at the $45.00 strike price for Delta.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, two in-the-money Covered Calls positions were established. 

Both positions have ex-dividends prior to their options expiration dates, so the potential return-on-investment results for these positions as detailed below includes the possibility of early exercise by an owner of these Call options.  Fortunately, both companies reported their quarterly earnings last week, so the next earnings report is not until mid-April, well after the options expiration dates for both positions.


1.  Citigroup Inc. (C) -- New Covered Calls Position

A potential return-on-investment result is +1.0% absolute return (equivalent to +39.6% annualized return for the next 9 days) if the stock is assigned early (business day prior to February 1st ex-date); OR +1.7% absolute return (equivalent to +26.4% annualized return over the next 24 days) if the stock is assigned on the February 15th options expiration date. 

It is unlikely, but if the current time value (i.e. extrinsic value) of $.61 [$2.85 Call options price - ($62.24 stock price - $60.00 strike price)] remaining in the three short Call options decays substantially (down to about $.15 or less) by January 31st (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.

This February monthly Covered Calls position is the third consecutive month where the Covered Calls Advisor has utilized the dividend capture strategy on a money center bank stock.  Using good timing as dictated with 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) should provide higher annualized return results than would be achieved with Covered Calls in these same stocks during their non-ex-dividend months.  For the December 2018 monthly options expiration, a Bank of America Covered Calls position was established (BAC Position Link), and a JPMorgan Chase & Co. Covered Calls position was established (JPM Position Link) for the January 2019 monthly options expiration.  In both cases, the dividend was captured and the stocks were profitably assigned at expiration.  Hopefully, these outcomes will be replicated with this February 15th Citigroup Covered Calls position. 

The transactions were:
01/23/2019 Bought 300 Citigroup shares @ $62.24
01/23/2019 Sold 3 Citigroup 02/15/2019 $60.00 Call options @ $2.85
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was very large at 14,920 contracts (so there is a nice, tight bid/ask spread) and the Implied Volatility was also at an attractive level (27.5) for Citigroup.
02/01/2019 Upcoming quarterly ex-dividend of $.45 per share

Two possible overall performance results (including commissions) for this
Citi Covered Calls position are as follows:
Covered Calls Cost Basis: $17,821.95
= ($62.24 - $2.85) *300 + $4.95 commission

Net Profit Components:
(a) Options Income: +$850.99
= ($2.85*300 shares) - $4.01 commissions
(b) Dividend Income (If option exercised early on Jan 31st, the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If Citi shares assigned at Feb 15th, 2019 expiration): +$135.00
= ($.45 dividend per share x 300 shares)

(c) Capital Appreciation (If Citigroup shares assigned early on Jan 31st): -$676.95
+($60.00-$62.24)*300 shares - $4.95 commissions; or
(c) Capital Appreciation (If Citi assigned at $60.00 strike price at options expiration): -$676.95
+($60.00-$62.24)*300 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Jan 31st (business day prior to Feb 1st ex-dividend date)]: +$174.04

= (+$850.99 +$0.00 -$676.95); or

2. Total Net Profit (If Citi shares assigned at $60.00 at Feb 15th, 2019 expiration): +$309.04

= (+$850.99 +$135.00 -$676.95)

1. Absolute Return [If Citigroup options exercised on Jan 31st (business day prior to ex-dividend date)]: +1.0%

= +$174.04/$17,821.95

Annualized Return (If option exercised early): +39.6%

= (+$174.04/$17,821.95)*(365/9 days); or

2. Absolute Return (If Citigroup shares assigned at $60.00 at Feb 15, 2019 expiration): +1.7%

= +$309.04/$17,821.95

Annualized Return (If Citi stock assigned at $60.00 at Feb 15th expiration): +26.4%

= (+$309.04/$17,821.95)*(365/24 days)

Either outcome would provide a good return-on-investment result.  These returns will be achieved as long as the stock is above the $60.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $58.94 ($62.24 -$2.85 -$.45) provides 5.3% 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 eleven criteria are achieved for this Citigroup Inc. Covered Calls position.

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

A potential return-on-investment result is +2.6% absolute return (equivalent to +31.9% annualized return for the next 30 days) if the stock is assigned early (business day prior to estimated February 22nd ex-date); OR +3.4% absolute return (equivalent to +24.0% annualized return over the next 52 days) if the stock is assigned on the March 15th, 2019 options expiration date. 

If the current time value (i.e. extrinsic value) of $1.18 [$3.19 Call options price - ($47.01 stock price - $45.00 strike price)] remaining in the three short Call options decays substantially (down to about $.15 or less) by February 21st (the business day prior to the estimated ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 300 Delta shares away to capture the dividend payment.  Delta has not yet declared their ex-dividend date or amount but the ex-dividend date was February 22nd the past 2 years so for calculation purposes below, that date is assumed here.  Also, the $.35 ex-dividend amount is consistent with Delta's current dividend rate and is very likely to remain at this level for the February ex-dividend. 

The transactions were:
01/23/2019 Bought 300 Delta Air Lines shares @ $47.01
01/23/2019 Sold 3 DAL 03/15/2019 $45.00 Call options @ $3.19
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was 1,551 contracts and the Implied Volatility was 31.3.
02/22/2019 Estimated upcoming quarterly ex-dividend date at $.35 per share

Two possible overall performance results (including commissions) for this
Delta Covered Calls position are as follows:
Covered Calls Cost Basis: $13,150.95
= ($47.01 - $3.19) *300 + $4.95 commission

Net Profit Components:
(a) Options Income: +$952.99
= ($3.19*300 shares) - $4.01 commissions
(b) Dividend Income (If option exercised early on Feb 21st, the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If DAL shares assigned at March 15th, 2019 expiration): +$105.00
= ($.35 dividend per share x 300 shares)

(c) Capital Appreciation (If DAL assigned early on Feb 21st): -$607.95
+($45.00-$47.01)*300 shares - $4.95 commissions; or
(c) Capital Appreciation (If DAL assigned at $45.00 strike price at options expiration): -$607.95
+($45.00-$47.01)*300 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Feb 21st (business day prior to Feb 22nd ex-dividend date)]: +$345.04

= (+$952.99 +$0.00 -$607.95); or

2. Total Net Profit (If DAL shares assigned at $45.00 at Mar 15th, 2019 expiration): +$450.04

= (+$952.99 +$105.00 -$607.95)

1. Absolute Return [If Delta option exercised on Feb 21 (business day prior to ex-dividend date)]: +2.6%

= +$345.04/$13,150.95

Annualized Return (If option exercised early): +31.9%

= (+$345.04/$13,150.95)*(365/30 days); or

2. Absolute Return (If DAL shares assigned at $45.00 at Mar 15, 2019 expiration): +3.4%

= +$450.04/$13,150.95

Annualized Return (If DAL stock assigned at $45.00 at Feb 15, 2019 expiration): +24.0%

= (+$450.04/$13,150.95)*(365/52 days)

Either outcome would provide a good return-on-investment result.  These returns will be achieved as long as the stock is above the $45.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $43.47 ($47.01 -$3.19 -$.35) provides 7.5% downside protection below today's purchase price.

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

Covered Calls Established in Boeing Co. Using Dividend Capture Strategy

Today, a Covered Calls position was established in Boeing Co. (ticker symbol BA) with a February 15th, 2019 expiration and at the $345.00 strike price.  This position has an expected upcoming quarterly ex-dividend on February 7th of $2.055 per share, so the potential returns for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the Feb 15th, 2019 options expiration date.  4th quarter earnings will be reported on January 30th, so the implied volatility in the Call options is elevated reflecting both today's large decline for both the overall market and also Boeing's stock as well as the uncertainty associated with this upcoming earnings release.  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 +2.0% absolute return (equivalent to +42.7% annualized return for the next 17 days) if the stock is assigned early (business day prior to February 7th ex-date); OR +2.7% absolute return (equivalent to +40.1% annualized return over the next 25 days) if the stock is assigned on the February 15th options expiration date.  
Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $345.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $335.965 ($356.41 -$18.39 -$2.055) provides 5.7% downside protection below today's purchase price.


Boeing Co. (BA) -- New Covered Calls Position

This position was established today when the Dow Jones Average was down about 350 points and Boeing was down 2.28% ($8.32 from yesterday's close).  If the current time value (i.e. extrinsic value) of $6.98 [$18.39 Call option price -($356.41 stock price - $345.00 strike price)] remaining in the short Call option decays substantially (down to about $.30 or less) by Feb 6th (the business day prior to the ex-dividend date), there is a possibility that the Boeing Call option owner would exercise early and therefore call the 100 Boeing shares away to capture the dividend payment.

The transactions were:
01/22/2019 Bought 100 Boeing shares @ $356.41
01/22/2019 Sold 1 Boeing 02/15/2019 $345.00 Call option @ $18.39
Note: A simultaneous buy/write transaction was executed.   The Open Interest in the Feb 15th $345.00 Calls was sufficiently liquid at 601 contracts and the Implied Volatility was very attractive at 34.4.
02/07/2019 Upcoming quarterly ex-dividend of $2.055 per share

Two possible overall performance results (including commissions) for this Boeing Co. Covered Call position are as follows:
Covered Calls Cost Basis: $33,806.95
= ($356.41 - $18.39) *100 + $4.95 commission

Net Profit Components:
(a) Options Income: +$1,868.33
= ($18.39*100 shares) - $0.67 commissions
(b) Dividend Income (If option exercised early on Feb 6th, the business day prior to Feb 7th ex-div date): +$0.00; or
(b) Dividend Income (If Boeing shares assigned at Feb 15th, 2019 expiration): +$205.50
= ($2.055 dividend per share x 100 shares)

(c) Capital Appreciation (If BA assigned early on Feb 6th): -$1,145.95
+($345.00-$356.41)*100 shares - $4.95 commissions; or
(c) Capital Appreciation (If BA assigned at $345.00 strike price at options expiration): -$1,145.95
+($345.00-$356.41)*100 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Feb 6th (business day prior to Feb 7th ex-dividend date)]: +$717.38

= (+$1,868.33 +$0.00 -$1,145.95); or

2. Total Net Profit (If Boeing shares assigned at $345.00 at Feb 15th, 2019 expiration): +$922.88

= (+$1,868.33 +$205.50 -$1,145.95)

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

= +$717.38/$33,806.95

Annualized Return (If option exercised early): +45.5%

= (+$717.38/$33,806.95)*(365/17 days); or

2. Absolute Return (If Boeing shares assigned at $345.00 at Feb 15th, 2019 expiration): +2.7%

= +$922.88/$33,806.95

Annualized Return (If BA stock assigned at $67.50 at Feb 15th, 2019 expiration): +39.9%

= (+$922.88/$33,806.95)*(365/25 days)

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 Boeing Co. Covered Call position.

January 18th, 2019 Options Expiration Results

The Covered Calls Advisor Portfolio had eleven positions with January 18th, 2019 options expirations.  Nine of these positions were closed (i.e. completed) so far this calendar year by yesterday's January monthly options expiration date:

• Seven positions (Anadarko Petroleum Corp., Bank of America Corp., Commercial Metals Co., Fluor Corp., JPMorgan Chase & Co. (2 positions), and Occidental Petroleum Corp.) closed in-the-money at the January 18th, 2019 options expiration, so those shares were assigned (sold) at their respective strike prices. 
• One position with a Jan 18th expiration (Caterpillar Inc.) was assigned early.  The results of this position were posted previously here.
• One position (U.S. Steel) was slightly out-of-the-money and the position was closed during market trading on the Jan 18th options expiration date. 
• Two positions (Alibaba Group Holding and Alphabet Inc.) were rolled out from Jan 18th expirations to Feb 15th expirations.

Just as for calendar year 2018 (link), overall return-on-investment (roi) results will be determined for calendar year 2019 (Jan 1st through Dec 31st).  The roi calculations for each of the nine closed positions so far this year are detailed below.  A summary of roi results for these nine closed positions is as follows:

• Anadarko Petroleum Corp.:  +10.9% absolute return (+220.2% annualized return) in 18 days
• Bank of America Corp.:  +7.3% absolute return (+148.4% annualized return) in 18 days 
• Caterpillar Inc.:  +2.3% absolute return (+46.2% annualized return) in 18 days
• Commercial Metals Co.:  +1.8% absolute return (+64.7% annualized return) in 10 days
• Fluor Corp.:  +10.5% absolute return (+213.7% annualized return) in 18 days 
• JPMorgan Chase & Co. position #1:  +5.0% absolute return (+101.3% annualized return) in 18 days
• JPMorgan Chase & Co. position #2:  +4.9% absolute return (+99.7% annualized return) in 18 days
• Occidental Petrolem Corp.:  +7.6% absolute return (+153.2% annualized return) in 18 days 
• U.S. Steel Corp.:  +18.0% absolute return (+365.6% annualized return) in 18 days

The cash now available in the Covered Calls Advisor Portfolio from the closing of these nine positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new position(s) established with this available cash will be posted on this site on the same day the transactions occur.  The majority of 4th quarter earnings reports will be issued between now and the February monthly options expiration, so most new positions will be established in companies in order to avoid their earnings release dates and their associated uncertainties.   

The remaining two positions (Alibaba Position #1 and Alphabet Inc.) were in-the-money yesterday.  Since these are core positions in the Covered Calls Advisor Portfolio, both positions were continued by rolling them out and up ("out" to the Feb 15th expiration date and "up" to a higher strike price) during the final hour of trading yesterday.  These transactions were done close to market close to squeeze out almost all of the time value remaining in their January 18th Call options prior to continuing these positions by rolling out to the February 15th options expirations.  These two positions are included in the current Covered Calls Advisor Portfolio shown in the right sidebar of this blog along with the six other February 15th, 2019 Covered Calls positions (Alibaba Group Holding position #2, Blackstone Group L.P., CVS Health Corp. position #1, CVS Health Corp. position #2, Lam Research Corp., and Lowes Companies Inc.) currently held in the Covered Calls Advisor Portfolio.  The details for these two positions year-to-date are:

1.  Alibaba Position #1 (BABA) -- Continuing Covered Calls Position

The transactions were as follows:
01/01/2019 200 BABA shares owned at $137.07 per share
01/07/2019 2 Jan 18, 2019 $145.00 short Call options sold at $2.09 per share
01/18/2019 Bought-to-Close 2 Jan 18th $145.00 Calls @ $11.22
01/18/2019 Sold-to-Open 2 Feb 15th, 2019 $155.00 Calls @ $7.47
Note: the price of BABA stock was $156.24 when this roll out and up transaction occurred.

2.  Alphabet Inc. (GOOGL) -- Continuing Covered Calls Position

The transactions were as follows:
01/01/2019 100 GOOGL shares owned at $1,044.96 per share
01/01/2019 1 Jan 18th, 2019 $1,085.00 short Call option valued at $19.80 per share
01/18/2019  Bought-to-Close 1 Jan 18th $1,085.00 Call option @ $19.25
01/18/2019 Sold-to-Open 1 Feb 15th, 2019 $1,095.00 Call @ $41.70
Note: the price of GOOGL stock was $1,104.73 when this roll out and up transaction occurred.

------------------

The detailed transactions and results for the nine 2019 year-to-date closed positions are as follows:

1.  Anadarko Petroleum Corp. (APC) -- Covered Calls Position Closed

The transactions were as follows:
01/01/2019 300 APC shares owned at $43.84 per share
01/07/2019 Sold 3 APC Jan 18, 2019 $47.50 Call options at $1.14 per share
01/18/2019 3 APC Call options closed in-the-money and stock assigned (i.e. sold) at $47.50 strike price
Note: Closing price of APC stock was $48.67 upon Jan 18th options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $13,152.00
= $43.84 * 300 shares

Net Profit Components:
(a) Option Income: +$335.04
= ($1.14 * 300 shares) - $6.96 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (APC was above $47.50 strike price at Jan 18th expiration): +$1,093.05
= ($47.50 -$43.84) * 300 shares - $4.95 commission

Total Net Profit (APC shares assigned at expiration): +$1,428.09
= (+$335.04 options income +$0.00 dividend income +$1,093.05 capital appreciation)

Absolute Return: +10.9%
= +$1,428.09/$13,152.00
Equivalent Annualized Return: +220.2%
= (+$1,428.09/$13,152.00)*(365/18 days)


2.  Bank of America Corp. (BAC) -- Covered Calls Position Closed

The transactions were as follows:
01/01/2019 1,000 BAC shares owned at $24.64 per share
01/04/2019 Sold 10 BAC Jan 18, 2019 $26.00 Call options at $0.46 per share
Note: price of BAC shares was $25.51 when these Call options were sold
01/18/2019 10 BAC Call options closed in-the-money and stock assigned (i.e. sold) at $26.00 strike price
Note: Closing price of BAC stock was $29.30 upon Jan 18th options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $24,640.00
= $24.64 * 1,000 shares

Net Profit Components:
(a) Option Income: +$448.35
= ($.46 * 1,000 shares) - $11.65 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (BAC was above $26.00 strike price at Jan 18th expiration): +$1,355.05
= ($26.00 -$24.64) * 1,000 shares - $4.95 commission

Total Net Profit (BAC shares assigned at expiration): +$1,803.40
= (+$448.35 options income +$0.00 dividend income +$1,355.05 capital appreciation)

Absolute Return: +7.3%
= +$1,803.40/$24,640.00
Equivalent Annualized Return: +148.4%
= (+$1,428.09/$12,810.00)*(365/18 days)


3.  Caterpillar Inc. (CAT) -- Covered Calls Position Closed by Early Assignment

The transactions were as follows:
01/01/2019 100 CAT shares owned at $127.07 per share
01/01/2019 Owned 1 short CAT Jan 18, 2019 $115.00 Call option at $14.68 per share
01/18/2019 1 CAT Call option exercised early so stock assigned (i.e. sold) at $115.00 strike price

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $11,239.00
= ($127.07 - $14.68) * 100 shares

Net Profit Components:
(a) Option Income: +$1,468.00
= ($14.68 * 100 shares) 
(b) Dividend Income: +$0.00
(c) Capital Appreciation (APC was above $47.50 strike price at Jan 18th expiration): -$1,211.95
= ($115.00 -$127.07) * 100 shares - $4.95 commission

Total Net Profit: +$256.05
= (+$1,468.00 options income +$0.00 dividend income -$1,211.95 capital appreciation)

Absolute Return: +2.3%
= +$256.05/$11,239.00
Equivalent Annualized Return: +46.2%
= (+$256.05/$11,239.00)*(365/18 days)


4.  Commercial Metals Co. (CMC) -- Covered Calls Position Closed

The transactions were:
01/09/2019 Bought 300 shares of Commercial Metals Co. stock @ $15.83 per share 
01/09/2019 Sold 3 CMC Jan 18th, 2019 $15.00 Call options @ $.99 per share
01/14/2019 Ex-dividend of $36.00 ($.12 per share x 300 shares)
01/18/2019 2 CMC Call options closed in-the-money and stock assigned (i.e. sold) at $15.00 strike price
Note: Closing price of CMC stock was $17.00 upon Jan 18th options expiration.

The overall performance result (including commissions) was:
Covered Calls Cost Basis: $4,458.96
= ($15.83 - $.99)* 300 shares + $6.96 commissions

Net Profit Components:
(a) Options Income: +$297.00
= ($.99* 300 shares)
(b) Dividend Income: +$36.00
= $.12 per share * 300 shares 
(c) Capital Appreciation (Commercial Metals Co. stock was above $15.00 strike price at Jan 18th expiration): -$253.95
= ($15.00 -$15.83)* 300 shares - $4.95 commission

Total Net Profit (CMC stock assigned at expiration): +$79.05
= (+$297.00 options income +$36.00 dividend income -$253.95 capital appreciation)

Absolute Return: +1.8%
= +$79.05/$4,458.96
Equivalent Annualized Return: +64.7%
= (+$79.05/$4,458.96)*(365/10 days)



5.  Fluor Corp. (FLR) -- Covered Calls Position Closed

The transactions were as follows:
01/01/2019 200 FLR shares owned at $32.20 per share
01/04/2019 Sold 2 FLR Jan 18, 2019 $35.00 Call options at $0.65 per share
Note: price of FLR shares was $33.96 when these Call options were sold
01/18/2019 2 FLR Call options closed in-the-money and stock assigned (i.e. sold) at $35.00 strike price
Note: Closing price of FLR stock was $38.53 upon Jan 18th options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $6,440.00
= $32.20 * 200 shares

Net Profit Components:
(a) Option Income: +$123.71
= ($.65 * 200 shares) - $6.29 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (FLR was above $35.00 strike price at Jan 18th expiration): +$555.05
= ($35.00 -$32.20) * 200 shares - $4.95 commission

Total Net Profit (If assigned at expiration): +$678.76
= (+$123.71 options income +$0.00 dividend income +$555.05 capital appreciation)

Absolute Return: +10.5%
= +$678.76/$6,440.00
Equivalent Annualized Return: +213.7%
= (+$678.76/$6,440.00)*(365/18 days)


6.  JPMorgan Chase & Co. (JPM) Position #1 -- Covered Calls Position Closed

The transactions were as follows:
01/01/2019 200 JPM shares owned at $97.62 per share
01/04/2019 Sold 2 JPM Jan 18, 2019 $100.00 Call options at $2.52 per share
Note: price of JPM stock was $100.08 when Call options were sold
01/18/2019 2 JPM Call options exercised early so stock assigned (i.e. sold) at $100.00 strike price
Note: price of JPM stock was $104.59 at Jan 18th options expiration

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $19,524.00
= $97.62 * 200 shares

Net Profit Components:
(a) Option Income: +$504.00
= ($2.52 * 200 shares) 
(b) Dividend Income: +$0.00
(c) Capital Appreciation (JPM was above $100.00 strike price at Jan 18th expiration): +$471.05
= ($100.00 -$97.62) * 200 shares - $4.95 commission

Total Net Profit: +$975.05
= (+$504.00 options income +$0.00 dividend income +$471.05 capital appreciation)

Absolute Return: +5.0%
= +$975.05/$19,524.00
Equivalent Annualized Return: +101.3%
= (+$975.05/$19,524.00)*(365/18 days)

7.  JPMorgan Chase & Co. (JPM) Position #2 (JPM) -- Covered Calls Position Closed

The transactions were as follows:
01/01/2019 300 JPM shares owned at $97.62 per share
01/01/2019 Owned 3 short JPM Jan 18, 2019 $100.00 Call options at $1.58 per share
01/03/2019 Ex-dividend of $240.00 ($.80 per share x 300 shares) 
01/18/2019 3 JPM Call options closed in-the-money and stock assigned (i.e. sold) at $100.00 strike price
Note: Closing price of JPM stock was $104.59 upon Jan 18th options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $28,812.00
= (97.62 - $1.58) * 300 shares

Net Profit Components:
(a) Option Income: +$467.04
= ($1.58 * 300 shares) - $6.96 commissions
(b) Dividend Income: +$240.00 ex-dividend = $.80 per share x 300 shares
(c) Capital Appreciation (JPM was above $100.00 strike price at Jan 18th expiration): +$709.05
= ($100.00 -$97.62) * 300 shares - $4.95 commission

Total Net Profit (300 JPM shares assigned at expiration): +$1,416.09
= (+$467.04 options income +$240.00 dividend income +$709.05 capital appreciation)

Absolute Return: +4.9%
= +$1,416.09/$28,812.00
Equivalent Annualized Return: +99.7%
= (+$1,428.09/$13,152.00)*(365/18 days)


8.  Occidental Petroleum Corp. (OXY) -- Covered Calls Position Closed

The transactions were as follows:
01/01/2019 200 OXY shares owned at $61.38 per share
01/01/2019 Owned 2 short OXY Jan 18, 2019 $65.00 Call options at $0.97 per share

01/18/2019 2 OXY Call options closed in-the-money and stock assigned (i.e. sold) at $65.00 strike price
Note: Closing price of OXY stock was $67.03 upon Jan 18th options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $12,082.00
= ($61.38 - $.97) * 200 shares

Net Profit Components:
(a) Option Income: +$194.00
= ($.97 * 200 shares) 
(b) Dividend Income: +$0.00
(c) Capital Appreciation (OXY was above $65.00 strike price at Jan 18th expiration): +$719.05
= ($65.00 -$61.38) * 200 shares - $4.95 commission

Total Net Profit (OXY shares assigned at expiration): +$913.05
= (+$194.00 options income +$0.00 dividend income +$719.05 capital appreciation)

Absolute Return: +7.6%
= +$913.05/$12,082.00
Equivalent Annualized Return: +153.2%
= (+$913.05/$12,082.00)*(365/18 days)


9.  U.S. Steel Corp. (X) -- Covered Calls Position Closed

The transactions were as follows:
01/01/2019 400 X shares owned at $18.24 per share
01/04/2019 Sold 4 X Jan 18, 2019 $22.00 Call option at $.22 per share
Note: price of U.S. Steel stock was $20.29 when Calls were sold
01/18/2019 Bought-to-Close 4 X Jan 18th $22.00 Call options @ $.03 per share
01/18/2019 Sold 400 U.S. Steel shares @ $21.37

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $7,296.00
= $18.24 * 400 shares

Net Profit Components:
(a) Option Income: +$68.37
= ($.22 - $.03) * 400 shares - $7.63 commissions 
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$1,247.05
= ($21.37 -$18.24) * 400 shares - $4.95 commission

Total Net Profit: +$1,315.42
= (+$68.37 options income +$0.00 dividend income +$1,247.05 capital appreciation)

Absolute Return: +18.0%
= +$1,315.42/$7,296.00
Equivalent Annualized Return: +365.6%
= (+$1,315.42/$7,296.00)*(365/18 days)

Early Assignment of Caterpillar Inc. Covered Calls Position

Early this morning, the Covered Calls Advisor received notification from my broker (Schwab) that the Caterpillar Inc. (ticker symbol CAT) February 15th, 2019 Call option was exercised early, so the 100 shares of Caterpillar stock in the Covered Calls Advisor Portfolio was assigned (i.e. sold) at the $115.00 strike price. 

Caterpillar stock was $134.54 at yesterday's market close.  The Covered Calls Advisor is pleased that the Call option owner decided to exercise their option early (one day prior to CAT's ex-dividend date since there was still $.76 time value [$20.30 midpoint of Call option bid/ask price - ($134.54 current stock price - $115.00 strike price)] remaining in these Call options.  The Call owner was willing to immediately forego the remaining $0.76 per share (by exercising their option to buy the shares) in order to capture today's $.86 per share ex-dividend.  The per share stock price had increased from $121.68 when this Caterpillar position was originally established on December 22nd, 2018 to $134.54 (17.0% in-the-money) at yesterday's market close.

As detailed below, the actual return-on-investment result achieved for this Caterpillar position a +4.6% absolute return (equivalent to +62.4% annualized return) for the 27 days this position was held.  The Covered Calls Advisor will retain the cash received in the Covered Calls Advisor Portfolio until a new Covered Calls position is established, the transactions details of which will be posted on this blog site the same day they occur.

Caterpillar Inc. (CAT) -- New Covered Calls Position
The transactions were:
12/22/2018 Bought 100 Caterpillar shares @ $121.68
12/22/2018 Sold 1 CAT 2/15/2019 $115.00 Call option @ $11.82
Note: a simultaneous buy/write transaction was executed.
01/18/2019 Early assignment of 1 Call option, so 100 shares of CAT stock sold at $115.00 strike price

The overall performance result (including commissions) for this Caterpillar Covered Calls position was as follows:
Covered Calls Cost Basis: $10,990.95
= ($121.68 - $11.82) *100 + $4.95 commission

Net Profit Components:
(a) Options Income: +$1,179.99
= ($11.82*100 shares) - $2.01 commissions
(b) Dividend Income: +$0.00

(c) Capital Appreciation (CAT assigned at $115.00 strike price at options expiration): -$672.95
+($115.00-$121.68)*100 shares - $4.95 commissions

Total Net Profit: +$507.04

= (+$1,179.99 Call options income +$0.00 dividend income -$672.95 capital appreciation)

Absolute Return: +4.6%

= +$507.04/$10,990.95

Annualized Return: +62.4%

= (+$507.04/$10,990.95)*(365/27 days)

Covered Calls Established in Lowes Companies Inc.

Today, a Covered Calls position was established in Lowes (ticker symbol LOW) with a Februrary 15, 2019 expiration and at the $90.00 strike price.  This position has an expected upcoming quarterly ex-dividend next Tuesday (Jan. 22nd) of $.48 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 Feb 15th, 2019 options expiration date.  Quarterly earnings will be reported after the Feb 15th 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 +1.7% absolute return (equivalent to +126.1% annualized return for the next 5 days) in the unlikely event that the stock is assigned early (last trading day prior to January 22nd ex-date); OR +2.3% absolute return (equivalent to +27.6% annualized return over the next 30 days) if the stock is assigned on the February 15th options expiration date.


Lowes Companies Inc. (LOW) -- New Covered Calls Position

Although very unlikely, if the current time value (i.e. extrinsic value) of $1.56 = [$3.36 options premium - ($91.80 stock price - $90.00 strike price)] remaining in the two short Call options decays substantially (down to about $.15 or less) by Jan 18th (the last trading day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 Lowes shares away to capture the dividend payment.

The transactions were:
01/17/2019 Bought 200 Lowes shares @ $91.80
01/17/2019 Sold 2 LOW 2/15/2019 $90.00 Call options @ $3.36
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was 467 contracts and the Implied Volatility was 25.4 when this transaction was executed.
01/22/2019 Upcoming quarterly ex-dividend of $.48 per share

Two possible overall performance results (including commissions) for this Lowes Covered Calls position are as follows:
Covered Calls Cost Basis: $17,692.95
= ($91.80 - $3.36) *200 + $4.95 commission

Net Profit Components:
(a) Options Income: +$670.66
= ($3.36*200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on Jan 21st, the business day prior to Jan 22nd ex-div date): +$0.00; or
(b) Dividend Income (If Lowes shares assigned at Feb 15th, 2018 expiration): +$96.00
= ($.48 dividend per share x 200 shares)

(c) Capital Appreciation (If LOW assigned early on Jan 21st): -$364.95
+($90.00-$91.80)*200 shares - $4.95 commissions; or
(c) Capital Appreciation (If LOW assigned at $90.00 strike price at options expiration): -$364.95
+($90.00-$91.80)*200 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Jan 21st (business day prior to Jan 22nd ex-dividend date)]: +$305.71

= (+$670.66 +$0.00 -$364.95); or

2. Total Net Profit (If Lowes shares assigned at $90.00 at Feb 15, 2019 expiration): +$401.71

= (+$670.66 +$96.00 -$364.95)

1. Absolute Return [If LOW option exercised on Jan 21st (business day prior to ex-dividend date)]: +1.7%

= +$305.71/$17,692.95

Annualized Return (If option exercised early): +126.1%

= (+$305.71/$17,692.95)*(365/5 days); or

2. Absolute Return (If Lowes shares assigned at $90.00 at Feb 15, 2019 expiration): +2.3%

= +$401.71/$17,692.95

Annualized Return (If LOW stock assigned at $67.50 at Dec 21, 2018 expiration): +27.6%

= (+$401.71/$17,692.95)*(365/30 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $90.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $87.96 ($91.80 -$3.36 -$.48) provides 4.2% 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 Lowes Covered Calls position.

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).
Note: The rating for each of these factors is not subjective.  Each factor is calculated using objective, quantifiable measures.

The current Market Meter average of 2.71 (see blue line at the bottom of the chart above) increased from the prior analysis two months ago when the average was 2.57, but 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

Two Covered Calls Positions Established in CVS Health Corp. Using Dividend Capture Strategy

Today, two Covered Calls positions were established in CVS Health Corp. (ticker symbol CVS) with February 15th, 2019 expirations.  Each position involved the purchase of 200 shares and  a laddered approach to the strike prices was established by selling Call options at the $60.00 and the $62.50 strike prices.  In early trading today, the price of CVS stock declined in excess of 3.0% as a result of their announcement that they have refused to accept the increased reimbursment rates demanded by Walmart for ongoing inclusion in CVS/Caremark's pharmacy network. In the Covered Calls Advisor's opinion, the market's negative reaction was overdone and provided an opportune time to establish these Covered Calls positions. Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, two in-the-money Covered Calls positions were established. 

CVS has an upcoming quarterly ex-dividend on January 24th of $.50 per share, so the potential returns for these positions detailed below includes the possibility of early exercise since the ex-dividend is prior to the Feb 15th options expiration date.  The next quarterly earnings report will be on February 20th which, fortuitously, is after the options expiration date.

1.  CVS Health Corp. (CVS) -- New Covered Calls -- Position #1

A potential return-on-investment result is +1.1% absolute return (equivalent to +44.3% annualized return for the next 9 days) if the stock is assigned early (business day prior to January 24th ex-date); OR +1.9% absolute return (equivalent to +22.1% annualized return over the next 32 days) if the stock is assigned on the February 15th options expiration date. 

This position is at the Feb 15th $60.00 strike price.  If the current time value (i.e. extrinsic value) of $.68 [$3.88 Call options price - ($63.20 stock price - $60.00 strike price)] remaining in the two short Call options decays substantially (down to about $.10 or less) by January 23rd (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 CVS shares away to capture the dividend payment.

The transactions were:
01/15/2019 Bought 200 CVS shares @ $63.20
01/15/2019 Sold 2 CVS 02/15/2019 $60.00 Call options @ $3.88
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was 316 contracts and the Implied Volatility was attractive at 30.3 considering the large size and relatively good predictability of CVS's business.
01/24/2019 Upcoming quarterly ex-dividend of $.50 per share

Two possible overall performance results (including commissions) for this
CVS Covered Calls position are as follows:
Covered Calls Cost Basis: $11,868.95
= ($63.20 - $3.88) *200 + $4.95 commission

Net Profit Components:
(a) Options Income: +$774.66
= ($3.88*200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on Jan 23rd, the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If CVS shares assigned at Feb 15th, 2019 expiration): +$100.00
= ($.50 dividend per share x 200 shares)

(c) Capital Appreciation (If CVS assigned early on Jan 23rd): -$644.95
+($60.00-$63.20)*200 shares - $4.95 commissions; or
(c) Capital Appreciation (If CVS assigned at $60.00 strike price at options expiration): -$644.95
+($60.00-$63.20)*200 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Jan 23rd (business day prior to Jan 24th ex-dividend date)]: +$129.71

= (+$774.66 +$0.00 -$644.95); or

2. Total Net Profit (If CVS shares assigned at $60.00 at Feb 15th, 2019 expiration): +$229.71

= (+$774.66 +$100.00 -$644.95)

1. Absolute Return [If CVS option exercised on Jan 23rd (business day prior to ex-dividend date)]: +1.1%

= +$129.71/$11,868.95

Annualized Return (If option exercised early): +44.3%

= (+$129.71/$11,868.95)*(365/9 days); or

2. Absolute Return (If Occidental Petroleum shares assigned at $60.00 at Feb 15, 2019 expiration): +1.9%

= +$229.71/$11,868.95

Annualized Return (If OXY stock assigned at $67.50 at Dec 21, 2018 expiration): +22.1%

= (+$229.71/$11,868.95)*(365/32 days)

Either outcome would provide a good return-on-investment result.  These returns will be achieved as long as the stock is above the $60.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $58.82 ($63.20 -$3.88 -$.50) provides 6.9% 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 eleven criteria are achieved for this CVS Health Corp. Covered Calls position.

2.  CVS Health Corp. (CVS) -- New Covered Calls -- Position #2

A potential return-on-investment result is +1.8% absolute return (equivalent to +71.9% annualized return for the next 9 days) in the unlikely case that the stock is assigned early (business day prior to January 24th ex-date); OR +2.6% absolute return (equivalent to +29.5% annualized return over the next 32 days) if the stock is assigned on the February 15th options expiration date. 

This position is at the Feb 15th $62.50 strike price.  It is very unlikely, but if the current time value (i.e. extrinsic value) of $1.12 [$3.01 Call options price - ($64.39 stock price - $62.50 strike price)] remaining in the two short Call options decays substantially (down to about $.10 or less) by January 23rd (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 CVS shares away to capture the dividend payment.

The transactions were:
01/15/2019 Bought 200 CVS shares @ $64.39
01/15/2019 Sold 2 CVS 02/15/2019 $62.50 Call options @ $3.01
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was 1,020 contracts and the Implied Volatility was 29.7.
01/24/2019 Upcoming quarterly ex-dividend of $.50 per share

Two possible overall performance results (including commissions) for this
CVS Covered Calls position are as follows:
Covered Calls Cost Basis: $12,280.95
= ($64.39 - $3.01) *200 + $4.95 commission

Net Profit Components:
(a) Options Income: +$600.66
= ($3.01*200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on Jan 23rd, the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If CVS shares assigned at Feb 15th, 2019 expiration): +$100.00
= ($.50 dividend per share x 200 shares)

(c) Capital Appreciation (If CVS assigned early on Jan 23rd): -$373.05
+($62.50-$64.39)*200 shares - $4.95 commissions; or
(c) Capital Appreciation (If CVS assigned at $62.50 strike price at options expiration): -$373.05
+($62.50-$64.39)*200 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Jan 23rd (business day prior to Jan 24th ex-dividend date)]: +$217.71

= (+$600.66 +$0.00 -$382.95); or

2. Total Net Profit (If CVS shares assigned at $62.50 at Feb 15th, 2019 expiration): +$317.71

= (+$600.66 +$100.00 -$382.95)

1. Absolute Return [If CVS option exercised on Jan 23rd (business day prior to ex-dividend date)]: +1.8%

= +$217.71/$12,280.95

Annualized Return (If option exercised early): +71.9%

= (+$217.71/$12,280.95)*(365/9 days); or

2. Absolute Return (If CVS shares assigned at $62.50 at Feb 15, 2019 expiration): +2.6%

= +$317.71/$12,280.95

Annualized Return (If CVS stock assigned at $62.50 at Feb 15, 2019 expiration): +29.5%

= (+$317.71/$12,280.95)*(365/32 days)

Either outcome would provide a very good return-on-investment result.  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 $60.88 ($64.39 -$3.01 -$.50) provides 5.5% downside protection below today's purchase price.

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

Country Investment Value Rankings

The Covered Calls Advisor has just completed an analysis to determine the relative investing worthiness of twenty-three countries and three regions (Europe, Emerging Markets, and Asia ex Japan) throughout the world.  The "Country Investment Value Rankings" table below is based on a weighted-average ranking system.  The eight indicators used to calculate these rankings are as follows:

Today's ranking, shown in the table below, provides a value-oriented and objective framework that assists this advisor in making decisions regarding overweighting and underweighting specific countries and regions in the Covered Calls Advisor's Portfolio.

From the chart above, the resulting overall market ratings for individual countries and regions are:
Very Bullish (Above 28 total points) -- None
Bullish (22-28 points) -- South Korea and China
Slightly Bullish (17-22 points) -- Russia, Singapore, Asia ex Japan, Hong Kong, Taiwan, Malaysia, Emerging Markets, and Netherlands
Neutral (12-17 points) -- Germany, Switzerland, Sweden, India, Australia, Europe, and Spain
Slightly Bearish (8-12 points) --Canada, France, United Kingdom, and USA
Bearish (2-8 points) -- Italy, Mexico, South Africa, Brazil, and Japan
Very Bearish (below 2 points) -- None

These results will be considered when making future investments in the Covered Calls Advisor Portfolio.  Investments in more highly rated countries/regions will be overweighted relative to lower rated ones. It should also be noted that the U.S. is currently ranked only 21st of the 26 countries/regions and the overall rating for the U.S. is Slightly Bearish [Note: this is the same rating for the U.S. as was determined from this advisor's most recent Overall Market Meter analysis (see right sidebar)].

This Country Value Rankings spreadsheet is detailed in terms of both the methodology used and the resources used to capture the information for each country. Your questions/comments are always welcomed.  If you would like further information or clarification, please email me (at the address in the top right sidebar of this blog).

Hopefully, this information is helpful in your thinking and analysis of your own equities selection methods related to your Covered Calls investing process. 

Regards and Godspeed,
Jeff

Covered Calls Established in Commercial Metals Co.

Today, a Covered Calls position was established in Commercial Metals Co.(ticker CMC) with cash received today from the early exercise of AT&T Inc. A short-term Covered Calls position was established in CMC for the January 18th, 2019 expiration and at the $15.00 strike price when the stock was at $15.83.   Given the Covered Calls Advisor's current Overall Market Meter sentiment of Slightly Bearish, a relatively conservative moderately in-the-money position was established.

There is an upcoming ex-dividend of $.12 on January 14th (a 3.2% dividend yield) which is included in the return-on-investment analysis below.  Hopefully, the stock will close on the January 18th expiration with the stock price above the $15.00 strike price so the maximum potential return-on-investment is achieved. The stock's decline since its quarterly earnings report two days ago seems unwarranted. Also, the implied volatility level currently available in these Call options is substantially higher than their historical average during periods without an upcoming earnings report, so the potential returns are exceptionally high in this instance. In fact, a potential outcome for this investment is +1.8% absolute return-on-investment for the next 10 days (equivalent to +66.4% on an annualized return basis) if Commercial Metals Co. stock closes above the $15.00 strike price on the Jan. 18th options expiration date.

Commercial Metals Co. (CMC) -- New Covered Calls Position
The transactions were:
01/09/2019 Bought 500 shares of Commercial Metals Co. stock @ $15.83 per share 
01/09/2019 Sold 5 CMC Jan 18th, 2019 $15.00 Call options @ $.99 per share
01/14/2019 Upcoming ex-dividend of $.12 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $7,428.30
= ($15.83 - $.99)* 500 shares + $8.30 commission

Net Profit Components:
(a) Options Income: +$495.00
= ($.99* 500 shares)
(b) Dividend Income: +$60.00
= $.12 per share * 500 shares 
(c) Capital Appreciation (If Commercial Metals Co. stock is above $15.00 strike price at Jan 18th expiration): -$419.95
= ($15.00 -$15.83)* 500 shares - $4.95 commission

Potential Total Net Profit (If CMC stock assigned at expiration): +$135.05
= (+$495.00 options income +$60.00 dividend income -$419.95 capital appreciation)

Absolute Return: +1.8%
= +$135.05/$7,428.30
Equivalent Annualized Return: +66.4%
= (+$135.05/$7,428.30)*(365/10 days)

The downside 'breakeven price' at expiration is at $14.72 ($15.83 - $.99 - $.12), which is 7.0% below the current market price of $15.83.  This is very good downside protection given the attractive potential +1.8% absolute return and +66.4% annualized ROI over the next 10 day period.

Early Assignment of AT&T Inc. Covered Calls Position

This morning, the Covered Calls Advisor received notification from my broker (Schwab) that the 5 AT&T Inc. (ticker symbol T) January 18th, 2019 Call options were exercised early, so the 500 shares of AT&T stock in the Covered Calls Advisor Portfolio were assigned (i.e. sold) at the $28.00 strike price. 

AT&T stock was $30.77 at yesterday's market close.  Early exercise by the owners of these Call options was expected since there was less than $.05 time value remaining in these Call options.  So, the Call owners were willing to immediately forego the remaining small time value per share (by exercising their option to buy the shares) in order to capture today's $.51 per share ex-dividend.  The per share stock price had increased from $28.54 at the end of 2018 to $30.77 at yesterday's market close.  Also as shown below, the Call options were at $.32 at the end of 2018.

As detailed below, the actual return-on-investment result achieved for this Las Vegas Sands position a +1.1% absolute return (equivalent to +51.1% annualized return) for the 8 days this position was held.  The Covered Calls Advisor will retain the cash received in the Covered Calls Advisor Portfolio until a new Covered Calls position is established, the transactions details of which will be posted on this blog site the same day they occur.

AT&T Inc. (T) -- New Covered Calls Position
12/31/2018 End-of-Year market value of 500 AT&T shares  was $28.54 per share.
12/31/2018 End-of-Year market value of 5 January 18, 2019 $28.00 AT&T Call options was $.86 each.
01/08/2019 Early assignment of 5 Call options, so 500 shares of AT&T sold at $28.00 strike price.

The overall performance result (including commissions) during calendar year 2019 for this AT&T Covered Calls position was as follows:
Covered Calls Cost Basis: $13,840.00
= ($28.54 - $.86) *500

Net Profit Components:
(a) Options Income: +$430.00
= ($.86*500 shares)
(b) Dividend Income: +$0.00 since position assigned early (i.e. day prior to 1/9/2019 ex-dividend date for AT&T

(c) Capital Appreciation (T shares assigned at $28.00 strike price at options expiration): -$274.95
+($28.00-$28.54)*500 shares - $4.95 commissions

Total Net Profit: +$155.05

= (+$430.00 Call options income +$0.00 dividend income -$274.95 capital appreciation)

Absolute Return: +1.1%

= +$155.05/$13,840.00

Annualized Return: +51.1%

= (+$164.95/$13,840.00)*(365/8 days)

Covered Calls Continued for Five Remaining Positions

For the five remaining long stock positions in the Covered Calls Advisor Portfolio since the January 1st beginning of this new year, Covered Calls positions were continued today by selling Call options against the stock positions held as follows:
1. January 1, 2019 200 Alibaba Group Holdings Ltd. (Position #1) shares market value was $137.07
    January 7, 2019 Sold 2 BABA January 18, 2019 $145.00 Call options @ $2.09
    Note: Price of BABA stock was $140.48 today when these Call options were sold
2. January 1, 2019 200 Alibaba (Position #2) shares market value was $137.07
    January 7, 2019 Sold 2 BABA February 15, 2019 $145.00 Call options @ $6.40
    Note: Price of BABA was $140.94 today when these Call options were sold
3. January 1, 2019 300 Blackstone Group L.P. shares market value was $29.81
    January 7, 2019 Sold 3 BX February 15, 2019 $33.00 Call options @ $.58
    Note: Price of BX shares was $31.06 today when these Call options were sold
4. January 1, 2019 200 Lam Research Corp. shares market value was $136.17
    January 7, 2019 Sold 2 LRCX February 15, 2019 $145.00 Call options @ $5.35
    Note: Price of LRCX stock was $139.18 today when these Call options were sold
5. January 1, 2019 200 Occidental Petroleum Corp. shares market value was $61.38
    January 7, 2019 Sold 2 January 18, 2019 $65.00 Call options @ $.97
    Note: Price of OXY was $63.81 today when these Call options were sold


Since calendar year 2018 results included the market value of all 14 current Covered Calls Advisor Portfolio positions (listed in right sidebar of this blog) at the end of December, those same market values are also used as the starting point for the 5 positions listed above for which Covered Call positions were established today.  This is done so that 2019 results can be calculated correctly from the January 1st, 2019 beginning of this new year. 

Covered Calls positions (with January and February monthlies) are now held for all 14 stocks currently owned in the Covered Calls Advisor Portfolio (see right sidebar for the Current Portfolio).
As always, any changes to the Portfolio will be posted on this blog on the same day the transactions occur.  

Covered Calls Continued for Six Existing Positions

Today, the following six Covered Calls positions were continued, all with January 18th, 2019 Call options expirations:
1. January 1, 2019 100 Alphabet Inc. shares market value was $1,044.96
    January 4, 2019 Sold 1 GOOGL January 18, 2019 $1,085.00 Call option @ $19.80
    Note: Price of GOOGL was $1,072.44 today when this Call option was sold
2. January 1, 2019 300 Anadarko Petroleum Corporation shares market value was $43.84
    January 4, 2019 Sold 3 APC January 18, 2019 $47.50 Call options @ $1.14
    Note: Price of APC was $46.36 today when these Call options were sold
3. January 1, 2019 1,000 Bank of America Corp. shares market value was $24.64
    January 4, 2019 Sold 10 BAC January 18, 2019 $26.00 Call options @ $.46
    Note: Price of BAC shares was $25.51 today when these Call options were sold
4. January 1, 2019 200 Fluor Corp. shares market value was $32.20
    January 4, 2019 Sold 2 FLR January 18, 2019 $35.00 Call options @ $.65
    Note: Price of FLR stock was $33.96 today when these Call options were sold
5. January 1, 2019 200 JPMorgan Chase & Co. (Position #1 of 2 positions) price was $97.62
    January 4, 2019 Sold 2 January 18, 2019 $100.00 Call options @ $2.52
    Note: Price of JPM was $100.08 today when these Call options were sold
6. January 1, 2019 400 U.S. Steel shares market value per share was $18.24
    January 4, 2019 Sold 4 January 18, 2019 $22.00 Call options @ $.22
    Note: Price of U.S. Steel stock (ticker X) was $20.29 today when these Call options were sold


Since calendar year 2018 results included the market value of all 14 current Covered Calls Advisor Portfolio positions (listed in right sidebar of this blog) at the end of December, those same market values are used as the starting point for all 6 positions listed above for which Covered Call positions were established today.  This is done so that 2019 results can be calculated correctly from the January 1st, 2019 start of this new year.     

Calendar Year 2018 Results

2018 was a very good year for the Covered Calls Advisor Portfolio.  Forty-six of fifty-four total positions held this year (85.2%) were profitable.  This result includes the fourteen currently open positions (shown in the right sidebar of this blog) and their market values as of Dec. 31st, 2018.  This exceeds the Covered Calls Advisor's overall long-term goal of having at least two-thirds (67%) of positions closed out at a profit.   

The average annualized return-on-investment for the fifty-four positions was +23.1%, a very strong result given that the S&P 500 index was -6.24% in 2018.  Note: the average holding period for these 54 positions was 37 days.

For calendar year 2019, detailed records will be tracked so that annualized returns will be weighted based on the holding period for each position.