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.