Three hundred Borg Warner shares were purchased at $29.32 and three $27.50 Call options were sold at $2.47, a net debit of $26.85 per share. One hundred Goldman Sachs shares were purchased at $178.10 and one $170.00 Call option was sold at $12.06, a net debit of $166.04 per share. Two hundred International Paper shares were purchased at $32.61 and two $30.00 Call options were sold at $2.91, a net debit of $29.70 per share.
As detailed below, the potential return-on-investment results are:
- Borg Warner Inc. : +3.0% absolute return in 29 days (equivalent to a +38.0% annualized return-on-investment);
- Goldman Sachs Group : +3.1% absolute return in 29 days (equivalent to a +39.5% annualized return-on-investment); and
- International Paper Inc. : +2.7% absolute return in 29 days (equivalent to a +34.4% annualized return-on-investment)
1. Borg Warner Inc. (BWA) -- New Covered Calls Position
05/22/2020 Bought 300 shares of Borg Warner stock @ $29.32 per share
05/22/2020 Sold 3 June 19th, 2020 $27.50 Call options @ $2.47 per share
Note: The Open Interest in these Calls was 350 contracts and their Implied Volatility was 42.7
05/29/2020 Ex-dividend of $.17 per share
A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $8,057.01
= ($29.32 - $2.47) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$741.00
= ($2.47 * 300 shares)
(b) Dividend Income: +$51.00
= $.17 per share x 300 shares
(c) Capital Appreciation (If BWA is above $27.50 strike price at June 19th expiration): -$546.00
= ($27.50 -$29.32) * 300 shares
Potential Total Net Profit (If Borg Warner price is above $27.50 strike price at June 19th options expiration): +$246.00
= (+$741.00 options income +$51.00 dividend income - $546.00 capital appreciation)
Absolute Return: +3.0%
= +$246.00/$8,057.01
Equivalent Annualized Return: +38.0%
= (+$246.00/$8,057.01)*(365/29 days)
2. Goldman Sachs Group (GS) -- New Covered Call Position
05/22/2020 Bought 100 shares of Goldman Sachs stock @ $178.10 per share
05/22/2020 Sold 1 June 19th, 2020 $170.00 Call option @ $12.06 per share
Note: The Open Interest in these Calls was 991 contracts and the Implied Volatility was 38.4.
05/29/2020 Ex-dividend of $1.25 per share
A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $16,604.67
= ($178.10 - $12.06) * 100 shares + $.67 commission
Net Profit Components:
(a) Options Income: +$1,206.00
= ($12.06 * 100 shares)
(b) Dividend Income: +$125.00
= $1.25 per share x 100 shares
(c) Capital Appreciation (If GS stock is above $170.00 strike price at the June 19th expiration): -$810.00
= ($170.00 - $178.10) * 100 shares
Total Net Profit: +$521.00
= (+$1,206.00 options income +$125.00 dividend income -$810.00 capital appreciation)
Absolute Return: +3.1%
= +$521.00/$16,604.67
Equivalent Annualized Return: +39.5%
= (+$521.00/$16,604.67)*(365/29 days)
3. International Paper Inc. (IP) -- New Covered Calls Position
05/22/2020 Bought 200 shares of International Paper stock @ $32.61 per share
05/22/2020 Sold 2 June 19, 2020 $30.00 Covered Calls @ $2.91 per share
Note 1: the Implied Volatility of the Call options was 34.3
05/26/2020 Ex-dividend of $.5125 per share
A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $5,941.34
= ($32.61 - $2.91) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$582.00
= ($2.91 * 200 shares)
(b) Dividend Income: +$102.50
= $.5125 per share x 200 shares
(c) Capital Appreciation (If IP stock is above $30.00 strike price at the June 19th expiration): -$522.00
= ($30.00 - $32.61) * 200 shares
Total Net Profit: +$162.50
= (+$582.00 options income +$102.50 dividend income -$522.00 capital appreciation)
Absolute Return: +2.7%
= +$162.50/$5,941.34
Equivalent Annualized Return: +34.4%
= (+$162.50/$5,941.34)*(365/29 days)
