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.

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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)