Covered Calls Position Closed in Wells Fargo & Co.

The Covered Calls Advisor decided to close the existing Wells Fargo & Co. (ticker symbol WFC) Covered Calls position prior to the May 15th, 2020 options expiration date.  Wells Fargo went ex-dividend today at $.51 per share, so the dividend was captured in the Covered Calls Advisor Portfolio.

As detailed below, this position was closed at a net loss of $243.00.  The stock price declined below the $27.50 strike price, likely as a direct result of two negative news items related to Wells Fargo that occurred since this position was established one week ago: (1) some analysts indicated they now believe there is a likelihood that Wells Fargo will cut its dividend beginning next quarter; and (2) Wells Fargo has been notified that Federal Government agencies will be conducting a probe into Wells Fargo's management of their portion of the Payroll Protection Program for small businesses.

Rather than trying to repair this Covered Calls position by gradually nursing it back to profitability over the next month or more, the Covered Calls Advisor decided it is better to limit losses by liquidating the position now.  It it unrealistic to expect all positions to end profitably.  The Covered Calls Advisor has learned that significant outperformance of the overall market is achieved when the objective of being profitable on 67% or more of positions is achieved.  Given the current status of the remaining nine positions in the Covered Calls Advisor Portfolio (see right sidebar of this blog), there is a very good likelihood this objective will be achieved once again at this month's options expiration on May 15th.

With the cash now available from selling out of Wells Fargo, consideration is now being given to investing the proceeds in a new Covered Calls position in another large bank stock with a June 19th, 2020 options expiration.  Both Bank of America and Goldman Sachs have already declared upcoming ex-dividend dates that are prior to the June monthly options expiration date, so the Covered Calls Advisor's Dividend Capture Strategy could be used again with one or both of those companies.       

As detailed below, the result from this Wells Fargo position was a -3.0% absolute return-on-investment (equivalent to -155.9% on an annualized basis) for the 7 days this position was held.

Wells Fargo & Co. (WFC) -- Closed Out this Covered Calls Position
The transactions were:

04/30/2020 Bought 300 Wells Fargo Bank shares @ $28.94
04/30/2020 Sold 3 Wells Fargo 5/15/2020 $27.50 Call options @ $1.86
05/07/2020 Quarterly ex-dividend of $.51 per share
05/07/2020 Sold 300 shares WFC stock @ $26.02 per share and simultaneously bought-to-close 3 May 15th, 2020 $27.50 Call options at $.26 per share.

The overall performance result (including commissions) for this Wells Fargo Covered Calls position was as follows:
Covered Calls Cost Basis: $8,126.01
= ($28.94 - $1.86) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$480.00
= (+$1.86 - $.26) * 300 shares
(b) Dividend Income: +$153.00
= ($.51 dividend per share x 300 shares)

(c) Capital Appreciation (WFC shares sold at $26.02): -$876.00
+($26.02 - $28.94) * 300 shares

Total Net Profit (Covered Calls Position liquidated): -$243.00

= (+$480.00 +$153.00 -$876.00)

Absolute Return: -3.0%

= -$243.00/$8,126.01

Annualized Return: -155.9%

= (-$243.00/$8,126.01)*(365/7 days)