As detailed below, the return-on-investment result for this ConocoPhillips Covered Calls position was +0.5% absolute return in 12 days (equivalent to a +16.2% annualized return-on-investment). This result is a good example of the advantage that can accrue from selling in-the-money Covered Calls. Despite the stock declining by 6.8% (from $46.50 purchase price to $43.35 sale price), a small profit was still achieved from this position.
ConocoPhillips (COP) -- New Covered Calls Position
06/10/2020 Bought 300 shares of ConocoPhillips stock @ $46.50 per share
06/10/2020 Sold 3 ConocoPhillips June 19th, 2020 $44.00 Call options @ $3.38 per share
Note: this was a simultaneous Buy/Write transaction. The Open Interest is 1,997 contracts in these Call options and their Implied Volatility was 55.4 when this transaction was executed.
6/19/2020 3 COP 6/19 Calls expired with closing stock price of $43.70 below the $44.00 strike price.
6/22/2020 Sold 300 shares of COP at $43.35 right after market open.
The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $12,938.01
= ($46.50 - $3.38) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$1,014.00
= ($3.38 * 300 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (COP shares sold at $43.35): -$945.00
= ($43.35 -$46.50) * 300 shares
Total Net Profit: +$69.00
= (+$1,014.00 options income +$0.00 dividend income -$945.00 capital appreciation)
Absolute Return: +0.5%
= +$69.00/$12,938.01
Equivalent Annualized Return: +16.2%
= (+$69.00/$12,938.01)*(365/12 days)
