Established Covered Calls Position in Alexion Pharmaceuticals Inc.

Today, a new monthly Covered Calls position was established in Alexion Pharmaceuticals Inc. (ticker symbol ALXN) with a February 21st, 2020 options expiration date at the $95.00 strike price when Alexion shares were priced at $99.63.  A conservative in-the-money position was established given both the Covered Calls Advisor's current Slightly Bearish Overall Market Outlook and the current increasing volatility in the stock market.  Quarterly earnings were just reported that beat expectations, although forward guidance was below analysts' expectations but still above 2019's results.

Alexion is a biotech company with a small number of drugs using antibody therapies against rare but severe disorders, including autoimmune disease, cardiovascular disease, inflammation, and cancer.  Analysts expectations for the stock price are bullish.  Prior to the earnings, 15 analysts rated the stock as either Buy or Outperform, 5 rated it a Hold, and none rated it either Underperform or Sell, and the average one-year target price for these firms was $150, a 50% increase above the current price.  Seven firms that have so far changed their target price since the latest earnings release have, on average, reduced Alexion's target price by only $2.    

As shown below, the potential return-on-investment result is +1.6% absolute return in 22 days (equivalent to a +26.6% annualized return-on-investment).


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

The transactions were as follows:
1/31/2020 Bought 200 shares of Alexion stock @ $99.63 per share 
1/31/2020 Sold 2 Alexion February 21, 2020 $95.00 Call options @ $6.13 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: $18,701.34
= ($99.63 - $6.13) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,226.00
= ($6.13 * 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Alexion stock is above $95.00 strike price at Feb 21st expiration): -$926.00
= ($95.00 -$99.63) * 200 shares

Total Net Profit: +$300.00
= (+$1,226.00 options income +$0.00 dividend income -$926.00 capital appreciation)

Absolute Return: +1.6%
= +$300.00/$18,701.34
Equivalent Annualized Return: +26.6%
= (+$300.00/$18,701.34)*(365/22 days)

The downside 'breakeven price' at expiration is at $93.50 ($99.63 - $6.13), which is 6.2% below the current market price of $99.63.

Calendar Year 2019 Results

2019 was a very good year for the Covered Calls Advisor Portfolio.  There were a total of fifty-four positions this year with fifty-three closed profitably and only one closed out at a loss.

The weighted average annualized return-on-investment for the fifty-four positions was +40.4%, a very strong result given that the benchmark S&P 500 index was +28.9% during the same 2019 calendar year.

A cautionary note:
As described in this prior post Exploiting Our Covered Calls Investing "Edges" from several years ago, "...a disciplined covered calls investor that is cognizant of the six "edges" described above, and works to take advantage of them might expect (on average over the years), to outperform a buy-and-hold benchmark by about 3% to 5% per year."
So, the outperformance achieved by the Covered Calls Advisor Portfolio in 2019 was exceptional and should not be viewed as the norm.

Best Wishes and Godspeed to All for a Happy and Prosperous 2020,
Jeff