Established Covered Calls Position in Oracle Corp. Using the Dividend Capture Strategy

Today a Covered Calls position was established in Oracle Corp. (ticker symbol ORCL) with an April 17th, 2020 expiration and at the $45.00 strike price.  This position has an upcoming quarterly ex-dividend on April 8th of $.24 per share, so two potential returns-on-investment for this position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the April 17th options expiration date.  The next Oracle earnings report occurs in June (after the April 17th options expiration date). Given the Covered Calls Advisor's current Overall Market Meter outlook of Slightly Bearish, an in-the-money (7.2% downside protection to the strike price) Covered Calls position was established. 


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

•  +2.0% absolute return (equivalent to +93.0% annualized return for the next 8 days) if the stock is assigned early (business day prior to the April 8th ex-dividend date); OR 

• +2.6% absolute return (equivalent to +52.4% annualized return over the next 18 days) if the stock is assigned on the April 17th options expiration date.

Oracle Corp. (ORCL) -- New Covered Calls Position
The transaction was:
03/31/2020 Bought 200 Oracle shares @ $48.72
Note: this stock price was down 3.3% from yesterday's closing price (and the Dow was down about 200 points) this afternoon when this transaction executed.
03/31/2020 Sold 2 Oracle 4/17/2020 $45.00 Call options @ $4.62
Note: a simultaneous buy/write transaction was executed and the options Implied Volatility was 55.
04/08/2020 Upcoming quarterly ex-dividend of $.24 per share

Two possible overall performance results (including commissions) for this Oracle Covered Calls position are as follows:
Covered Calls Cost Basis: $8,826.29
= ($48.72 - $4.62) *200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$924.00
= ($4.62 * 200 shares)
(b) Dividend Income (If option exercised early on Apr 7th, the business day prior to Apr 8th ex-div date): +$0.00; or
(b) Dividend Income (If Oracle stock assigned at Apr 17th, 2020 expiration): +$48.00
= ($.24 dividend per share x 200 shares)

(c) Capital Appreciation (If Oracle assigned early on April 7th): -$744.00
+($45.00 - $48.72) *200 shares; or
(c) Capital Appreciation (If shares assigned at $45.00 strike price at options expiration): -$744.00
+($45.00 - $48.72) * 200 shares

1. Total Net Profit [If option exercised on April 7th (business day prior to April 8th ex-dividend date)]: +$180.00

= (+$924.00 options income +$0.00 dividend income -$744.00 capital appreciation); or

2. Total Net Profit (If Oracle shares assigned at $45.00 at Apr 17th, 2020 expiration): +$228.00

= (+$924.00 +$48.00 -$744.00)

1. Absolute Return [If option exercised on Apr 7th (business day prior to ex-dividend date)]: +2.0%

= +$180.00/$8,826.29

Annualized Return (If option exercised early): +93.0%

= (+$180.00/$8,826.29)*(365/8 days); or

2. Absolute Return (If Oracle shares assigned at $45.00 at Apr 17th, 2020 options expiration): +2.6%

= +$228.00/$8,826.29

Annualized Return (If Oracle shares assigned at $45.00 at Apr 17th, 2020 expiration): +52.4%

= (+$228.00/$8,826.29)*(365/18 days)

Either outcome provides a very attractive return-on-investment result for this Oracle Corp. investment.  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 $43.86 ($48.72 -$4.62 -$.24) provides a substantial 10.0% downside protection below today's stock purchase price.

At least eight of the ten metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position.  As shown below with this Oracle position, all ten criteria are met in this case.

New Positions Established in Alphabet Inc. and Lowes Companies Inc.

Today, new positions were established in Alphabet Inc. (ticker GOOGL) and Lowes Companies Inc. (LOW) with 100% Cash-Secured Puts sold for both positions -- one Alphabet April 17th $1,050 strike Put at $36.50 when the stock price was $1,102.15 and three Lowes April 17th $80.00 Puts at $3.40 when the stock price was $86.03.

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

• Alphabet Inc. : +3.5% absolute return in 17 days (equivalent to a +74.6% annualized return-on-investment); and
• Lowes Companies Inc. : +4.2% absolute return in 17 days (equivalent to a +91.2% annualized return-on-investment)

As with today's investments, additional cash will be invested in Covered Calls (or 100% Cash-Secured Puts) gradually in the days and weeks ahead.  Implied Volatility remains very high (so the options premiums are also very high) and therefore the potential return-on-investment results are very attractive.  I continue to track key coronavirus statistics daily and the chart below gives some encouragement that daily new cases might be beginning to show signs of a possible plateauing:

The Covered Calls Advisor will continue to deploy available cash into additional investments in the weeks ahead as daily new cases shows more definitive signs of peaking and thereafter eventually declining.    


1.  Alphabet Inc. (GOOGL) -- New 100% Cash-Secured Put Position

The transaction was as follows:
03/30/2020 Sold 1 April 17, 2020 $1,050.00 100% Cash-Secured Put option @ $36.50 per share 

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $105,000.73
= $1,050.00 per share * 100 shares + $.73 commission

Net Profit Components:
(a) Options Income: +$3,650.00
= ($36.50 * 100 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Alphabet is above $1,050.00 strike price at Apr 17th expiration): +$0.00
= ($1,050.00 -$1,050.00) * 100 shares

Potential Total Net Profit (If Alphabet price is above $1,050.00 strike price at April 17th options expiration): +$3,650.00
= (+$3,650.00 options income +$0.00 dividend income + $0.00 capital appreciation)

Absolute Return: +3.5%
= +$3,650.00/$105,000.73
Equivalent Annualized Return: +74.6%
= (+$3,650.00/$105,000.73)*(365/17 days)



2. Lowes Companies Inc. (LOW) -- New 100% Cash-Secured Puts Position
The transaction was as follows:
03/30/2020 Sold 3 April 17, 2020 $80.00 100% Cash-Secured Put options @ $3.40 per share 
Note: The Open Interest in these Puts was 2,547 contracts

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $24,002.01
= $80.00 per share * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$1,020.00
= ($3.40 per share * 300 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Lowes Companies stock is above $80.00 strike price at Apr 17th expiration): +$0.00
= ($80.00 -$80.00) * 300 shares

Potential Total Net Profit (If Lowes price is above $80.00 strike price at April 17th options expiration): +$1,020.00
= (+$1,020.00 options income +$0.00 dividend income + $0.00 capital appreciation)

Absolute Return: +4.2%
= +$1,020.00/$24,002.01
Equivalent Annualized Return: +91.2%
= (+$1,020.00/$24,002.01)*(365/17 days)

Established Covered Calls Position in AT&T Inc. Using the Dividend Capture Strategy

Early today, a Covered Calls position was established in AT&T Inc. (ticker symbol T) with a April 17th, 2020 expiration and at the $27.00 strike price.  This position has an upcoming quarterly ex-dividend on April 8th of $.52 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 April 17th options expiration date.  The next AT&T earnings report on April 22nd occurs after the April 17th options expiration date. Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, a moderately in-the-money (8.4% downside protection to the strike price) 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 as is normally the case when there is an intervening ex-dividend date), the Covered Calls position was chosen since it has a higher return-on-investment potential for this April 17th $27.00 options contract.

Click for larger view


Two potential return-on-investment results are: 

•  +1.99% absolute return (equivalent to +80.8% annualized return for the next 9 days) if the stock is assigned early (business day prior to the April 8th ex-dividend date); OR 

• +3.96% absolute return (equivalent to +76.0% annualized return over the next 19 days) if the stock is assigned on the April 17th options expiration date.

AT&T Inc. (T) -- New Covered Calls Position

The transactions were:
03/30/2020 Bought 400 AT&T Inc. shares @ $29.79
03/30/2020 Sold 4 AT&T 4/17/2020 $27.00 Call options @ $3.33
Note: a simultaneous buy/write transaction was executed
04/08/2020 Upcoming quarterly ex-dividend of $.52 per share

Two possible overall performance results (including commissions) for this AT&T Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $10,591.63
= ($29.79 - $3.33) *400 shares + $7.63 commissions

Net Profit Components:
(a) Options Income: +$1,332.00
= ($3.33 *400 shares)
(b) Dividend Income (If option exercised early on Apr 7th, the business day prior to Apr 8th ex-div date): +$0.00; or
(b) Dividend Income (If AT&T stock assigned at Apr 17th, 2020 expiration): +$208.00
= ($.52 dividend per share x 400 shares)

(c) Capital Appreciation (If AT&T assigned early on April 7th): -$1,116.00
+($27.00 - $29.79) *400 shares; or
(c) Capital Appreciation (If shares assigned at $27.00 strike price at options expiration): -$1,116.00
+($27.00 - $29.79) * 400 shares

1. Total Net Profit [If option exercised on April 7th (business day prior to April 8th ex-dividend date)]: +$216.00

= (+$1,332.00 options income +$0.00 dividend income -$1,116.00 capital appreciation); or

2. Total Net Profit (If AT&T Inc. shares assigned at $27.00 at Apr 17th, 2020 expiration): +$424.00

= (+$1,332.00 +$208.00 -$1,116.00)

1. Absolute Return [If option exercised on Apr 7th (business day prior to ex-dividend date)]: +2.0%

= +$216.00/$10,591.63

Annualized Return (If option exercised early): +80.8%

= (+$216.00/$10,591.63)*(365/9 days); or

2. Absolute Return (If AT&T shares assigned at $27.00 at Apr 17th, 2020 options expiration): +4.0%

= +$424.00/$10,591.63

Annualized Return (If AT&T shares assigned at $27.00 at Apr 17th, 2020 expiration): +76.0%

= (+$424.00/$10,591.63)*(365/17 days)

Either outcome provides a very attractive return-on-investment result for this AT&T investment.  These returns will be achieved as long as the stock is above the $27.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $25.94 ($29.79 -$3.33 -$.52) provides a substantial 12.9% downside protection below today's stock purchase price.

At least eight of the ten metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position.  As shown below with this AT&T position, all ten criteria are met in this case.

New Position Established in SPDR S&P 500 ETF

A new 100% Cash-Secured Puts position was established early in the trading session today in the SPDR S&P 500 ETF (SPY). Two April 17th, 2020  $235.00 100% Cash-Secured Puts were sold at $8.85 per share.    Because the Volatility Index (VIX) remains very elevated (currently at about 60), the bid/ask spread for the options on most individual equities is very wide making it much more difficult to execute trades near the midpoint of the spread. However, SPY is the most liquid equity in the options market and the bid/ask spreads there are much tighter.  For example, the Open Interest in the SPY $235 Puts is now very high at 123,399 contracts and there was only a $.07 bid/ask spread when these Puts were sold today in the Covered Calls Advisor Portfolio.  Another anomaly is that the Implied Volatility of SPY options is now higher than it is for the majority of the 500 individual stocks that comprise the SPY index.  So, during this temporary time of very high volatility, potential returns for selling options on SPY are actually higher than doing so for most of the large-cap stocks included in SPY.  When VIX declines to its more historically normal levels, this situation will reverse and individual stocks will then provide higher return-on-investment potential than the SPY ETF, and I will then also revert to my normal preference of investing primarily via individual equities rather than the large ETFs (such as SPY, QQQ, and EEM).  

As always, please email me at partlow@cox.net with any thoughts or questions you might have related to this post or anything related to Covered Calls investing.

As detailed below, the potential return-on-investment result for this SPDR S&P 500 is +3.8% absolute return in 23 days (equivalent to a +59.8% annualized return-on-investment).

SPDR S&P 500 ETF (SPY) -- New 100% Cash-Secured Puts Position

The transaction was as follows:
03/26/2020 Sold 2 April 17, 2020 $235.00 100% Cash-Secured Put options @ $8.85 per share 
Note: The Open Interest in these Puts was 123,399 contracts

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $47,006.29
= $235.00 per share * 200 shares +$6.29 commissions

Net Profit Components:
(a) Options Income: +$1,770.00
= $8.85 * 200 shares
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If SPY is above $235.00 strike price at Apr 17th expiration): +$0.00
= ($235.00 -$235.00) * 200 shares

Potential Total Net Profit (If SPY price is above $235.00 strike price at April 17th options expiration): +$1,770.00
= (+$1,770.00 options income +$0.00 dividend income + $0.00 capital appreciation)

Absolute Return: +3.8%
= +$1,770.00/$47,006.29
Equivalent Annualized Return: +59.8%
= (+$1,770.00/$47,006.29)*(365/23 days)

New Positions Established in iShares MSCI Emerging Markets ETF and SPDR S&P 500 ETF

A famous quote of Warren Buffett is "Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”.
The Volatiliy Index (VIX) is now at very high levels and reflects the current fear that pervades investors as a direct result of the coronavirus and the 30%+ sell-off that has occurred in the past month -- the swiftest 30%+ correction in history. Times like this offer a great opportunity for Covered Calls and Cash-Secured Puts investors like ourselves who sell Options. David Kostin, Chief U.S. Equity Strategist at Goldman Sachs issued a recent note to clients that included these comments: "For those who are comfortable with trading options, this moment in time might well be remembered as a golden age in the options market. In short, when bad things happen to stock investors, good things can happen to options investors."; and also "Yet if you can handle intense uncertainty, and you have the financial resources to weather this storm, selectively harvesting the options market's fear premiums might just help you to successfully navigate one of the nastiest episodes we have ever encountered in our personal and professional lives."

The new positions in the Covered Calls Advisor Portfolio, detailed below, were established in the iShares MSCI Emerging Markets ETF (EEM) and in the SPDR S&P 500 ETF (SPY), both with April 17th, 2020 options expiration dates.  For the iShares MSCI Emerging Markets ETF position, five 100% Cash-Secured Puts were sold at the $32.00 strike at $1.16 per share. The Covered Calls Advisor is increasing Emerging Markets exposure (beyond that of the current Alibaba position).   China, Taiwan, and South Korean companies comprise 59% of EEM and since these countries are much further along in recovering from the coronavirus pandemic and also remain undervalued by most fundamental valuation metrics relative to the U.S., their stock markets are likely to outperform over the next year.
For the SPDR S&P 500 ETF, one Covered Call was established by purchasing 100 shares at $238.29 and selling one Call at the $220.00 strike price for a premium received of $25.52 per share. Average options Implied Volatility (during more normal times) for both EEM and SPY is in the 15 to 20 range, but the current Implied Volatility for both of these positions was in the mid 50s, a very attractive premium received for selling these options.  Given the current market volatility and the Covered Calls Advisor's Slightly Bearish outlook, conservative positions with strike prices moderately below the current ETF prices were established for both positions.    

The recent aggressive actions by the Federal Reserve and the coronavirus legislation Congress is close to completing are very much welcomed to maintain markets liquidity and to address adverse economic impacts from the coronavirus pandemic.  The stock market has responded to these actions with a strong two-day relief rally. But lousy economic news is undoubtedly forthcoming and it begins tomorrow morning with Unemployment Claims.  Further alarming economic news inevitably awaits in the days, weeks, and months ahead and it remains to be seen to what extent this is already priced into the stock market at its current levels.

The Covered Calls Advisor is now about 35% invested (the remaining cash is in a money market fund).  As is the case with both investments today, information will continue to be monitored closely and additional cash will likely be deployed in the days and weeks ahead.  Daily tracking of U.S. new coronavirus cases (see link and the chart displayed below).  Although the number of new cases daily in the U.S. continues to grow substantially, the prior exponential growth is beginning to show signs of plateauing albeit with a large number of new cases each day.    

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

•  iShares MSCI Emerging Markets ETF : +3.6% absolute return in 24 days (equivalent to a +55.1% annualized return-on-investment); and
• SPDR S&P 500 ETF : +3.4% absolute return in 25 days (equivalent to a +49.6% annualized return-on-investment)

1.   iShares MSCI Emerging Markets ETF (EEM) -- New 100% Cash-Secured Puts Position

Fifty-nine percent of holdings in EEM are in three countries (China, Taiwan, and South Korea), each of which is on the tail end of the coronavirus pandemic.
The transaction was as follows:
03/25/2020 Sold 5 April 17, 2020 $32.00 100% Cash-Secured Put options @ $1.16 per share 
Notes: The Open Interest in these Puts was 118,244 contracts and the Implied Volatility was 56.4.  iShares MSCI Emerging Markets ETF was trading at $33.84 today when these Puts were sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $16,003.35
= $32.00 per share * 500 shares + $3.35 commissions

Net Profit Components:
(a) Options Income: +$580.00
= ($1.16 per share * 500 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If EEM is above $32.00 strike price at Apr 17th expiration): +$0.00
= ($32.00 -$32.00) * 500 shares

Potential Total Net Profit (If EEM price is above $32.00 strike price at April 17th options expiration): +$580.00
= (+$580.00 options income +$0.00 dividend income + $0.00 capital appreciation)

Absolute Return: +3.6%
= +$580.00/$16,003.35
Equivalent Annualized Return: +55.1%
= (+$580.00/$16,003.35)*(365/24 days)


2.  SPDR S&P 500 ETF (SPY) -- New Covered Call Position

The transactions were as follows:
03/24/2020 Bought 100 shares of SPDR S&P 500 ETF @ $238.29 per share 
03/24/2020 Sold 1 SPY April 17, 2020 $220.00 Call option @ $25.52 per share
Note 1: the Implied Volatility of the Call option was 58.7 and its Open Interest was 4,739 contracts
Note 2: this was a simultaneous Buy/Write transaction


A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $21,277.67
= ($238.29 - $25.52) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$2,552.00
= ($25.52 * 100 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If SPY is above $220.00 strike price at the April 17th expiration): -$1,829.00
= ($220.00 - $238.29) * 100 shares

Total Net Profit: +$723.00
= (+$2,552.00 options income +$0.00 dividend income -$1,829.00 capital appreciation)

Absolute Return: +3.4%
= +$723.00/$21,277.67
Equivalent Annualized Return: +49.6%
= (+$723.00/$21,277.67)*(365/25 days)

March 20th, 2020 Options Expiration Results

The Covered Calls Advisor continues daily tracking of coronavirus cases and the impact on financial markets.  New cases continue to increase daily in the U.S.:

Also, several projections today have estimated 2 million new unemployment claims could be reported by the U.S. Labor Department at their weekly update next Thursday morning.  This possibility is shocking and will likely cause further declines in the stock markets.  So today, transactions were made in the Covered Calls Advisor Portfolio that further reduced exposure from the already low 25% stocks/75% cash to 13% stocks/87% cash now.  I am primarily a fundamental/value-based investor and as such current available cash will be deployed into new investments more aggressively when U.S. daily new cases in the U.S. (see chart above) show signs of plateauing. Technically, it is generally best to wait for two consecutive solid “up” days in the stock market before adding exposure, and that hasn’t happened since February 12th.

The S&P 500 has declined by 32% from the market top last month but the Covered Calls Advisor Portfolio has declined by only 6%.  This is the result of two primary reasons:

1. The inherent advantage provided by Covered Calls since the income received from the Call options provides downside protection and was further enhanced by selling at moderately in-the-money strike prices (since the Overall Market Meter outlook of the Covered Calls Advisor is Slightly Bearish); and 
2. Maintaining the majority of the total portfolio in cash/money markets during the past month has provided additional protection to the overall portfolio's results.

The Covered Calls Advisor Portfolio held March 20th, 2020 Covered Calls positions in four equities -- Bank of America Corp., Diamondback Energy Inc., Merck & Co. Inc., and the SPDR S&P 500 ETF (SPY).  Early in today's trading, with the market near yesterday's closing prices, the following actions were taken:

• Bank of America Corp. (BAC) --Closed out the two 500 shares Covered Calls positions by simultaneously selling-to-close the 500 shares and buying-to-close the 5 Call options
• Diamondback Energy Inc. (FANG) -- Closed out the 300 shares Covered Calls position
• Merck & Co. Inc. (MRK) -- Rolled out from the March 20th $75.00 to the April 17, 2020 $65.00 Covered Calls when the stock was trading at $71.56 
• SPDR S&P 500 ETF (SPY) --Closed out the 100 shares of one Covered Call position.  The other March 20th $235.00 Covered Call position was rolled out-and-down to the April 3rd, 2020 $220.00 strike price.
• Boeing Co. (BA) -- Bought-to-Close out the two short April 17th, 2020 $90.00 100% Cash-Secured Put options.  A small gain was obtained since these Puts were initially sold at $17.80 per share and bought-to-close out today at $16.70 per share. 

Current positions are shown in the right sidebar of this blog.  Daily monitoring will continue and future transactions will be detailed on this site the same day they occur.  Please consider writing me at the email address shown in the right sidebar with any comments or questions.

Best Wishes and Godspeed to All,
Jeff

Three New Positions Established in Alibaba Group, Boeing Co, and JPMorgan Chase

Today, three new positions were established in Alibaba Group Holdings Ltd. (BABA), Boeing Co. (BA), and JPMorgan Chase & Co. (JPM) all with April 17th, 2020 options expiration dates.  For Alibaba and Boeing, 100% Cash-Secured Puts were sold -- two Alibaba $165 strike Puts at $6.65 when the ADR price was $180.92  and two Boeing $90 strike Puts at $17.80 when the stock price was $103.72.  Two JPMorgan Chase Covered Calls were established by purchasing 200 shares at $88.05 and two Calls were sold at $15.41 at the $80.00 strike price.     

The Covered Calls Advisor is now about 25% invested (the remaining cash being temporarily in a money market fund).  As is the case with these three investments today, additional cash will be invested in Covered Calls (or 100% Cash-Secured Puts) gradually in the days and weeks ahead when the Implied Volatility is high so the options income obtainable from Covered Calls and thus the potential return-on-investment results is very attractive.  I will also continue tracking the Coronavirus statistics daily (link) and will deploy cash into additional investments more aggressively when daily new cases peaks and begins to decline and will further accelerate new investments to the point of being fully invested when daily new cases continue to decline to the point when they are less than daily new recoveries.

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

• Alibaba Group Holdings Ltd. : +4.0% absolute return in 33 days (equivalent to a +44.5% annualized return-on-investment);
• Boeing Co. : +19.8% absolute return in 33 days (equivalent to a +218.7% annualized return-on-investment); and
• JPMorgan Chase & Co. : +11.4% absolute return in 33 days (equivalent to a +125.8% annualized return-on-investment)

1.  Alibaba Group Holdings Ltd. (BABA) -- New 100% Cash-Secured Puts Position

The transaction was as follows:
03/17/2020 Sold 2 April 17, 2020 $165.00 100% Cash-Secured Put options @ $6.65 per share 
Note: The Open Interest in these Puts was 4,287 contracts

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $33,000.00
= $165.00 per share * 200 shares

Net Profit Components:
(a) Options Income: +$1,328.66
= ($6.65 * 200 shares)- $1.34 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Alibaba is above $165.00 strike price at Apr 17th expiration): +$0.00
= ($165.00 -$165.00) * 200 shares

Potential Total Net Profit (If Alibaba price is above $165.00 strike price at April 17th options expiration): +$1,328.66
= (+$1,328.33 options income +$0.00 dividend income + $0.00 capital appreciation)

Absolute Return: +4.0%
= +$1,328.66/$33,000.00
Equivalent Annualized Return: +44.5%
= (+$1,328.66/$33,000.00)*(365/33 days)



2. Boeing Co. (BA) -- New 100% Cash-Secured Puts Position

The transaction was as follows:
03/17/2020 Sold 2 April 17, 2020 $90.00 100% Cash-Secured Put options @ $17.80 per share 
Note: The Open Interest in these Puts was 617 contracts and the Implied Volatility was an extraordinary 208.3.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $18,000.00
= $90.00 per share * 200 shares

Net Profit Components:
(a) Options Income: +$3,558.66
= ($17.80 per share * 200 shares) - $1.34 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Boeing stock is above $90.00 strike price at Apr 17th expiration): +$0.00
= ($90.00 -$90.00) * 200 shares

Potential Total Net Profit (If Boeing price is above $90.00 strike price at April 17th options expiration): +$3,558.66
= (+$3,558.66 options income +$0.00 dividend income + $0.00 capital appreciation)

Absolute Return: +19.8%
= +$3,558.66/$18,000.00
Equivalent Annualized Return: +218.7%
= (+$3,558.66/$18,000.00)*(365/33 days)



3. JPMorgan Chase & Co. (JPM) -- New Covered Calls Position

The transaction was as follows:
03/17/2020 Bought 200 shares of JPMorgan Chase & Co. @ $88.05 per share 
03/17/2020 Sold 2 JPMorgan Chase April 17, 2020 $80.00 Call option @ $15.41 per share
Note 1: the Implied Volatility of the Call option was 109.2
Note 2: this was a simultaneous Buy/Write transaction
04/03/2020 Ex-dividend of $.90 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $14,529.34
= ($88.05 - $15.41) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$3,082.00
= ($15.41 * 200 shares)
(b) Dividend Income: +$180.00
= $.90 per share x 200 shares 
(c) Capital Appreciation (If JPM stock is above $80.00 strike price at the April 17th expiration): -$1,610.00
= ($80.00 - $88.05) * 200 shares

Total Net Profit: +$1,652.00
= (+$3,082.00 options income +$180.00 dividend income -$1,606.00 capital appreciation)

Absolute Return: +11.4%
= +$1,652.00/$14,529.34
Equivalent Annualized Return: +125.8%
= (+$1,652.00/$14,529.34)*(365/33 days)

Covered Call Position Established in Facebook Inc.

This afternoon, when the Dow Jones average was down about 2,100 points, a Covered Call position was established in Facebook Inc. (ticker FB) with an April 17th, 2020 options expiration date.  100 shares of Facebook were purchased at $151.06 and one Call option was sold at $23.32 at the $135.00 strike price.  Given the stock market's sharp decline today and during the past few weeks along with the Covered Calls Advisor's Slightly Bearish overall market outlook, a moderately in-the-money Covered Call was established for this position. 

As detailed below, the potential return-on-investment results is +5.7% absolute return in 33 days (equivalent to a +62.9% annualized return-on-investment).  The details of this position and a potential return-on-investment result are as follows:


Facebook Inc. (FB) -- New Covered Call Position

The transactions were as follows:
03/16/2020 Bought 100 shares of Facebook Inc. @ $151.06 per share 
03/16/2020 Sold 1 Facebook April 17, 2020 $135.00 Call option @ $23.32 per share
Note 1: the Implied Volatility of the Call option was 79.6 and the next quarterly earnings report is after the 4/17/2020 expiration date
Note 2: this was a simultaneous Buy/Write transaction.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $12,774.67
= ($151.06 - $23.32) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$2,332.00
= ($23.32 * 100 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Facebook stock is above $135.00 strike price at the April 17th expiration): -$1,606.00
= ($135.00 -$151.06) * 100 shares

Total Net Profit: +$726.00
= (+$2,332.00 options income +$0.00 dividend income -$1,606.00 capital appreciation)

Absolute Return: +5.7%
= +$726.00/$12,774.67
Equivalent Annualized Return: +62.9%
= (+$726.00/$12,774.67)*(365/33 days)

These returns will be achieved as long as the stock is above the $135.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $127.74 ($151.06 -$23.32) provides 15.4% downside breakeven protection below today's purchase price.

Covered Calls Established in SPDR S&P 500 ETF

Early this morning when the Dow Jones average was up 150 points, a second Covered Call position was established in the SPDR S&P 500 ETF (SPY) with a March 20th, 2020 options expiration date.  100 shares of the SPDR S&P 500 ETF were purchased at $250.45 and one Call option was sold at $23.93 at the $235.00 strike price.  Given the stock market's sharp decline in the past few weeks along with the Covered Calls Advisor's Slightly Bearish overall market outlook, a moderately in-the-money Covered Call was established for this SPY position.

Incredibly, the Implied Volatility of this SPY Call option was at 103.9 and the S&P 500 Volatility Index (VIX) was near its historic high at 74.3.  Therefore this situation provided an especially attractive opportunity for a large return-on-investment result during the next week until the option expiration date.      

As detailed below, the potential return-on-investment results is +3.7% absolute return in 8 days (equivalent to a +170.8% annualized return-on-investment)


SPDR S&P 500 ETF (SPY) -- New Covered Call Position

The transactions were as follows:
03/13/2020 Bought 100 shares of S&P 500 ETF @ $250.45 per share 
03/13/2020 Sold 1 SPDR S&P 500 ETF March 20, 2020 $235.00 Call option @ $23.93 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: $22,652.67
= ($250.45 - $23.93) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$2,393.00
= ($23.93 * 100 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If SPY is above $235.00 strike price at March 20th expiration): -$1,545.00
= ($235.00 -$250.45) * 100 shares

Total Net Profit: +$848.00
= (+$2,393.00 options income +$0.00 dividend income -$1,545.00 capital appreciation)

Absolute Return: +3.7%
= +$848.00/$22,652.67
Equivalent Annualized Return: +170.8%
= (+$848.00/$22,652.67)*(365/8 days)

Covered Calls Established in Merck & Co. Inc. and SPDR S&P 500 ETF

Today, two new Covered Calls positions were established in Merck & Co. Inc. (ticker MRK) and the SPDR S&P 500 ETF (SPY) with March 20th, 2020 options expiration dates. The two Merck Call options were sold at $5.82 for the $75.00 strike price when the stock price was $79.95 and 100 shares of the SPDR S&P 500 ETF were purchased at $292.34 while one Call was sold at $27.84 at the $270.00 strike price.   Both positions were established early in today's trading session when the Dow was down about 800 points.

Merck goes ex-dividend at $.61 per share on March 13th (prior to the March 20th options expiration) and this is included in the potential return-on-investment results shown below.  All ten criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position. 

In the case of the SPDR S&P 500 ETF position, this morning the Implied Volatility of the Call options spiked up to 61.4, an extraordinarily high level for the S&P 500 index.  A more normal, average level for the S&P 500 Volatility Index (VIX) is around 15, so current Coronavirus fears have resulted in this dramatic spike in the Implied Volatility in the options market.  The Covered Calls Advisor is currently less than 20% invested (the remaining cash being temporarily in a money market fund currently yielding 1.34%).  As is the case with these two investments today, additional cash will be invested in Covered Calls (or 100% Cash-Secured Puts) gradually in the weeks ahead and on down days like today when the Implied Volatility spikes higher and the options income obtainable from Covered Calls is very attractive.  I will also continue tracking the Coronavirus statistics daily (link) and will deploy cash into additional investments more aggressively when daily new cases peaks and begins to decline and will further accelerate new investments to the point of being fully invested when daily new cases continue to decline to the point when they are less than daily new recoveries.

Given the stock market's sharp decline in the past few weeks along with the Covered Calls Advisor's Slightly Bearish overall market outlook, moderately in-the-money Covered Calls were established for both of the two new positions established today.
 

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

• Merck & Co. Inc. : +2.0% absolute return in 15 days (equivalent to a +48.6% annualized return-on-investment); and

• SPDR S&P 500 ETF : +2.1% absolute return in 15 days (equivalent to a +50.6% annualized return-on-investment) 

1.  Merck & Co. Inc. (MRK) -- New Covered Calls Position

The transactions were as follows:
03/06/2020 Bought 200 shares of Merck & Co. stock @ $79.95 per share 
03/06/2020 Sold 2 MRK March 20th, 2020 $75.00 Call options @ $5.82 per share
Note: The Open Interest in these Calls was 296 contracts.
03/13/2020 Upcoming ex-dividend of $.61 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $14,827.34
= ($79.95 - $5.82)* 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,164.00
= ($5.82 * 200 shares)
(b) Dividend Income: +$122.00
= $.61 per share * 200 shares 
(c) Capital Appreciation (If Merck stock is above $75.00 strike price at Mar 20th expiration): -$990.00
= ($75.00 -$79.95) * 200 shares

Potential Total Net Profit (If Merck stock assigned at expiration): +$296.00
= (+$1,164.00 options income +$122.00 dividend income -$990.00 capital appreciation)

Absolute Return: +2.0%
= +$296.00/$14,827.34
Equivalent Annualized Return: +48.6%
= (+$296.00/$14,827.34)*(365/15 days)

The downside 'breakeven price' at expiration is at $73.52 ($79.95 - $5.82 - $.61), which is 8.0% below the current market price of $79.95.  This is excellent downside protection given the attractive potential +48.6% annualized ROI for this investment.


2. SPDR S&P 500 ETF (SPY) -- New Covered Call Position

The transactions were as follows:
03/06/2020 Bought 100 shares of S&P 500 ETF @ $292.34 per share 
03/06/2020 Sold 1 SPDR S&P 500 ETF March 20, 2020 $270.00 Call option @ $27.84 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: $26,450.67
= ($292.34 - $27.84) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$2,784.00
= ($27.84 * 100 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If SPY is above $270.00 strike price at March 20th expiration): -$2,234.00
= ($270.00 -$292.34) * 100 shares

Total Net Profit: +$550.00
= (+$2,784.00 options income +$0.00 dividend income -$2,234.00 capital appreciation)

Absolute Return: +2.1%
= +$550.00/$26,450.67
Equivalent Annualized Return: +50.6%
= (+$550.00/$26,450.67)*(365/15 days)

The downside 'breakeven price' at expiration is at $264.50 ($292.34 - $27.84), which is 9.5% below the current market price of $292.34.