Covered Calls Position Established in Applied Materials Inc.

A new Covered Calls position was established in Applied Materials Inc. (ticker AMAT) with a May 29th, 2020 options expiration date.  Three hundred shares of Applied Materials were purchased at $54.21 and 3 Call options were sold at $2.95 per share at the $52.00 strike price.  These Calls had a good Open Interest of 643 contracts, so the Bid/Ask spread was a reasonably tight $.20 when this Buy/Write transaction was executed.  Given the Covered Calls Advisor's Bearish overall market outlook, a moderately in-the-money Covered Calls position was established with a Delta (a good approximation of the probability of assignment at expiration) of 73.6%.  There is an ex-dividend date tomorrow of $.22 per share, so capturing this dividend is included in the details below.      

A potential return-on-investment result if this position closes in-the-money at the May 29th options expiration date is +1.9% absolute return in 11 days (equivalent to a +62.1% annualized return-on-investment).  


Applied Materials Inc. (AMAT) -- New Covered Calls Position

The transactions were as follows:
05/19/2020 Bought 300 shares of Applied Materials Inc. @ $54.21 per share 
05/19/2020 Sold 3 Applied Materials May 29th, 2020 $52.00 Call options @ $2.95 per share
Note: the Implied Volatility of the Call option was 42.3 and the next quarterly earnings report is after the 5/29/2020 expiration date
05/20/2020 Ex-dividend date at $.22 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $15,380.01
= ($54.21 - $2.95) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$885.00
= ($2.95 * 300 shares)
(b) Dividend Income: +$66.00
= $.22 per share x 300 shares 
(c) Capital Appreciation (If Applied Materials stock is above $52.00 strike price at the May 29th options expiration): -$663.00
= ($52.00 -$54.21) * 300 shares

Total Net Profit: +$288.00
= (+$885.00 options income +$66.00 dividend income -$663.00 capital appreciation)

Absolute Return: +1.9%
= +$288.00/$15,380.01
Equivalent Annualized Return: +62.1%
= (+$288.00/$15,380.01)*(365/11 days)

These returns will be achieved as long as the stock is above the $52.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $51.04 ($54.21 -$2.95 -$.22) provides 5.8% downside breakeven protection below today's purchase price.