Established Covered Call Position in General Dynamics Corp. Using Dividend Capture Strategy

Early this afternoon, a buy/write limit order in General Dynamics Corp. (ticker GD) was executed at the Covered Calls Advisors' net debit price of $133.10 per share. One hundred shares were purchased at $138.16 and one October 16th, 2020 Call option was sold for $5.06 at the $135.00 strike price, therefore a time value of $1.90 = [$5.06 option premium - ($138.16 stock price - $135.00 strike price)] per share.  

This position uses the Covered Calls Advisor's Dividend Capture Strategy.  General Dynamics has an upcoming quarterly ex-dividend of $1.10 per share on October 8th which is prior to the October 16th options expiration.  This is equivalent to an absolute annualized dividend yield of 3.2% (at the current $138.16 stock price) and an equivalent annualized dividend yield of 18.2% = [($1.10/$138.16) x (365/16 days to expiration)].  This dividend is included in the detailed return-on-investment calculations below.  Either an early assignment on the day prior to the ex-dividend date or on the October 16th expiration date would be desirable to the Covered Calls Advisor given the high annualized return-on-investment upon assignment for either outcome.

General Dynamics is one of the top five leading defense contractors.  Seventy-five percent of its revenue is defense and twenty-five percent is its leading position in business jets via its Gulfstream brand.  The defense divisions include a duopoly position in shipbuilding and marine systems (23%), tanks and submarines (18%), DoD information systems (22%), and mission-critical command and control systems (12%).  Defense is a low growth business, but General Dynamics is expected to have slightly higher revenues and earnings-per-share next year (2021) than they did in 2019.  Compared to averages of four other primary DoD contractors (Lockheed Martin, Raytheon, Northrop Grumman, and L3 Harris), General Dynamics rates better on the fundamental financial metrics of Price-to-Estimated-Fiscal-Year-Forward-Earnings (11.7 vs. 14.2) and Price-to-Sales (1.1 vs. 1.7).  Finally, 21 analysts' average rating is Outperform and their current average one-year target price is $172.26 which is a 24.7% increase above the current price.

Important to the Covered Calls Advisor's analysis, all nine criteria of the  Dividend Capture Strategy (see table at end of this post) are met with this position.  The Covered Calls Advisor's current Overall Market Meter outlook remains cautious, so the appropriate Covered Calls strategy is to sell in-the-money strike prices.     

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

•  +1.4% absolute return (equivalent to +65.1% annualized return for the next 8 days) if the stock is assigned early (business day prior to the October 8th ex-dividend date); OR 

• +2.3% absolute return (equivalent to +51.4% annualized return over the next 16 days) if the stock is assigned on the October 16th options expiration date.

General Dynamics Corp. (GD) -- New Covered Call Position
The buy/write transaction was:
09/29/2020 Bought 100 General Dynamics Corp. shares @ $138.16
09/29/2020 Sold 1 GD 10/16/2020 $135.00 Call option @ $5.06
Note: Implied Volatility of the Call options was 27.1 when this position was transacted and the Delta (approximately the probability of assignment at expiration) was 64.8.
10/08/2020 Upcoming quarterly ex-dividend of $1.10 per share

Two possible overall performance results (including commissions) for this General Dynamics Covered Call position are as follows:
Covered Calls Cost Basis: $13,310.67
= ($138.16 - $5.06) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$506.00
= ($5.06 * 100 shares)
(b) Dividend Income (If option exercised early on October 7th, the business day prior to the October 8th ex-div date): +$0.00; or
(b) Dividend Income (If GD stock assigned at October 16th, 2020 options expiration): +$110.00
= ($1.10 dividend per share x 100 shares)

(c) Capital Appreciation (If GD Call option assigned early on Oct. 7th): -$316.00
+($135.00 - $138.16) * 100 shares; or
(c) Capital Appreciation (If shares assigned at $135.00 strike price at options expiration): -$316.00
+($135.00 - $138.16) * 100 shares

1. Total Net Profit [If option exercised on October 7th (business day prior to the October 8th ex-dividend date)]: +$190.00

= (+$506.00 options income +$0.00 dividend income -$316.00 capital appreciation); or

2. Total Net Profit (If GD shares assigned at $135.00 at Oct 16th, 2020 expiration): +$300.00

= (+$506.00 +$110.00 -$316.00)

1. Absolute Return [If option exercised on business day prior to ex-dividend date]: +1.4%

= +$190.00/$13,310.67

Annualized Return (If option exercised early): +65.1%

= (+$190.00/$13,310.67)*(365/8 days); or

2. Absolute Return (If General Dynamics shares assigned on Oct. 16th options expiration date): +2.3%

= +$300.00/$13,310.67

Annualized Return (If GD shares assigned at $135.00 at Oct 16th, 2020 expiration): +51.4%

= (+$300.00/$13,310.67)*(365/16 days)

Either outcome provides a very attractive return-on-investment result for this General Dynamics investment.  These returns will be achieved as long as the stock is above the $135.00 strike price at assignment.  However, if the stock declines below the strike price, the breakeven price of $132.00 ($138.16 -$5.06 -$1.10) provides 4.5% downside protection below today's stock purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  All nine criteria are achieved for this General Dynamics Covered Call position.

Closed Position in Goldman Sachs Group Inc.

On August 18th, 2020, a Covered Call position was initiated in Goldman Sachs Group Inc. (ticker symbol GS) at the Sept 4th, 2020 $197.50 strike price.  When Goldman Sachs shares had increased beyond $207.00 per share on August 28th, a decision was made to roll-up-and-out the short Call to the $205.00 strike price at the September 18th expiration date. Subsequently, Goldman Sachs stock declined and on the September 18th, 2020 options expiration date, the Covered Call position in Goldman Sachs expired with the stock price at $194.86, well below the $205.00 strike price. This morning, when the price of Goldman Sachs stock moved higher along with the overall stock market, the Covered Calls Advisor sold the 100 shares at $199.57 to close out this Goldman Sachs position in the Covered Calls Advisor Portfolio. 

As detailed below, the return-on-investment result for this Goldman Sachs Group Inc. Covered Call position was +1.1% absolute return in 41 days (equivalent to a +9.8% annualized return-on-investment).  Thus, this Covered Calls position that was at a small net loss as of the September 18th options expiration date was repaired so that an overall small profit was achieved when it was closed out today.

Goldman Sachs Group Inc. (GS) -- Covered Call Position Closed Out

The buy/write transaction was as follows:
08/18/2020 Bought 100 shares of Goldman Sachs stock @ $201.36 per share 
08/18/2020 Sold 1 Sept 4th, 2020 $197.50 Call option @ $6.68 per share
Note: The Implied Volatility of the Call option was 24.8.
08/28/2020 Bought-to-Close 1 GS 9/04/2020 $197.50 Call option @ $11.68 per share
08/28/2020  Sold-to-Open 1 GS 9/18/2020 $205.00 Call option @ $7.73 per share
Note: this was a simultaneous roll-up-and-out transaction
08/31/2020 Quarterly ex-dividend of $1.25 per share
09/18/2020 GS Call option expired with stock price at $194.86, well below the $205.00 strike price. So the 100 GS shares were retained in the Covered Calls Advisor Portfolio.
09/28/2020 Sold 100 shares of GS stock at $199.57 per share.

The overall performance result (including commissions) for this Goldman Sachs Covered Call position was as follows:
Covered Call Cost Basis: $19,468.67
= ($201.36 - $6.68) * 100 shares + $0.67 commission

Net Profit Components:
(a) Options Income: +$268.31
= ($6.68 - $11.68 + $7.73) * 100 shares - $4.69 commissions
(b) Dividend Income: +$125.00
= ($1.25 dividend per share x 100 shares)

(c) Capital Appreciation: -$179.00
+($199.57 - $201.36) * 100 shares

Total Net Profit: +$214.31

= (+$268.31 options income +$125.00 dividend income -$179.00 capital appreciation)

Absolute Return: +1.1%

= +$214.31/$19,468.67

Annualized Return: +9.8%

= (+214.31/$19,468.67)*(365/41 days)

Established Covered Calls in KB Home

Today a new Covered Calls position was established in KB Home (ticker KBH) with an October 16th, 2020 options expiration date.  A buy/write transaction was made with 400 shares purchased at $35.98 and four Calls sold at the $34.00 strike price for $3.02 per share.

KB Home is a home builder with high exposure to entry-level built-to-order homes, a good niche in the current market environment.  In this regard, there are three primary circumstances that provide the most conducive environment for homebuilders' success: demographics, low interest rates, and current Monthly Supply of Houses in the U.S.(Source: Federal Reserve Bank of St. Louis). All three of these factors are currently very positive for homebuilders. In terms of demographics, ages 26-32 are the prime ages for first-time buyers and years 2020 to 2024 will see the largest number of young adults in this age category in U.S. history. In terms of interest rates, 10-year Treasury rates below 2.0% provide attractive, affordable financing for new buyers. The current rate is only .66% and mortgage credit is readily available. Finally, the most recent monthly reading of current supply of houses is only 3.5 months which is an all-time (since 1963 when data was first measured) low.  Historically, supply conditions remain attractive to builders until this inventory factor exceeds 7.0 months.  Also in this regard, the NAHB Housing Market Index surveys homebuilders monthly on their current (and their estimates about the next 6 months) sentiment (from 0 to 100).  This month's index is at an all-time high (since 1985) of 83 (Note: The lowest rating of 8 was in January 2009).  So we are definitely now in a strong "sellers' market".   The Covered Calls Advisor will continue to track these factors and will likely remain invested in monthly Covered Calls in companies in this industry as long as all three of these metrics remain positive.

Despite the pandemic, this year's earnings are likely to be very close to last year's, but 2021 earnings are likely to be substantially above the good earnings that were achieved last year (2019).  This is a metric the Covered Calls Advisor is currently looking for in companies to consider investing in.  Another positive feature is the location of its geographic markets -- almost half are in California and the remainder are in other states throughout the Sunbelt.  KB Home was originally identified by the Covered Calls Advisor when it recently appeared in the top 2% of companies identified by my acquirers multiple stock screener, a good indication of its current valuation.  Its financials are also attractive based on its current score of 8 on the Piotroski F-score, thus ranking it in the top 5% of all U.S. public companies on that metric.  

The 54.4 Implied Volatility for these KB Home Call options was very attractive to the Covered Calls Advisor since it is almost twice the current S&P 500 Volatility Index (VIX) of 28.5.  KB Home exceeded analysts estimates for both revenue and earnings when it reported its 2nd quarter results after the market close this past Tuesday.  The Covered Calls Advisor considers the decline in the stock from $40.50 when earnings were released to $35.98 today to be unwarranted given its earnings results.  In addition, nine of ten analysts have raised their price target estimates in the past 3 days and the average target price  now $43.64 (+21.3% above today's purchase price).  

As detailed below, the potential return-on-investment result is +3.2% absolute return in 22 days (equivalent to a +52.3% annualized return-on-investment).

KB Home (KBH) -- New Covered Calls Position
The Buy/Write transaction today was as follows:
09/25/2020 Bought 400 shares of KB Home stock @ $35.98 per share 
09/25/2020 Sold 4 KB Home October 16th, 2020 $34.00 Call options @ $3.02 per share
Note: the Delta was 67.9 when this transaction was executed.

A possible overall performance results (including commissions) if the stock price is above the $34.00 strike price at expiration would be as follows:
Covered Call Cost Basis: $13,186.68
= ($35.98 - $3.02) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,208.00
= ($3.02 * 400 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If KB Home stock is above $34.00 strike price at the Oct 16th expiration): -$792.00
= ($34.00 - $35.98) * 400 shares

Total Net Profit: +$416.00
= (+$1,208.00 options income +$0.00 dividend income -$792.00 capital appreciation)

Absolute Return: +3.2%
= +$416.00/$13,186.68
Equivalent Annualized Return: +52.3%
= (+$416.00/$13,186.68)*(365/22 days)

The downside 'breakeven price' at expiration is at $32.96 ($35.98 - $3.02), which is 8.4% below the current market price of $35.98.

Established Covered Calls in Micron Technology Inc.

Today, a buy/write limit order in Micron Technology Inc. (ticker MU) was executed at the Covered Calls Advisors' net debit price of $43.58 per share. Three hundred shares were purchased at $47.81 and three October 16th, 2020 Call options were sold for $4.23 at the $45.00 strike price, therefore a time value of $1.42 = [$4.23 option premium - ($47.81 stock price - $45.00 strike price)] per share. Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Calls position was established -- the Delta was 69.6 which closely approximates the probability that the Call options will be in-the-money on the options expiration date.

As detailed below, the potential return-on-investment result is +3.3% absolute return in 22 days (equivalent to a +54.1% annualized return-on-investment).

The Implied Volatility of the Call options sold was very high at 53.7. This elevated level reflects the fact that Micron's 4th quarter earnings report is next Tuesday and the uncertainty related to how the stock might react to the report contributes to this this temporarily inflated volatility.  Normally, the Covered Calls Advisor avoids investing in companies with intervening earnings reports.  But Micron has been forthright in its communication to the investment community since its last earnings report and it is likely that the realized volatility between now and the Oct 16th options expiration date will be less than it was today when this Micron Covered Calls position was established. 

 

Micron Technology Inc. (MU) -- New Covered Calls Position

The Buy/Write transaction was as follows:
09/25/2020 Bought 300 shares of Micron Technology Inc. stock @ $47.81 per share 
09/25/2020 Sold 3 Micron October 16th, 2020 $45.00 Call options @ $4.23 per share

A possible overall performance results (including commissions) if the stock price is above the $45.00 strike price at expiration would be as follows:
Covered Call Cost Basis: $13,076.01
= ($47.81 - $4.23) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$1,269.00
= ($4.23 * 300 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Micron stock is above $45.00 strike price at October 16th expiration): -$843.00
= ($45.00 - $47.81) * 300 shares

Total Net Profit: +$426.00
= (+$1,269.00 options income +$0.00 dividend income -$843.00 capital appreciation)

Absolute Return: +3.3%
= +$426.00/$13,076.01
Equivalent Annualized Return: +54.1%
= (+$426.00/$13,076.01)*(365/22 days)

The downside 'breakeven price' at expiration is at $43.58 ($47.81 - $4.23), which is 8.8% below the current market price of $47.81.

Established Covered Calls Position in Lincoln National Corp. Using Dividend Capture Strategy

Today, a buy/write limit order in Lincoln National Corp. (ticker LNC) was executed at the Covered Calls Advisors' net debit price of $26.88 per share. Three hundred shares were purchased at $30.05 and three October 16th, 2020 Call options were sold for $3.17 at the $27.50 strike price, therefore a time value of $.62 = [$3.17 option premium - ($30.05 stock price - $27.50 strike price)] per share.  This position uses the Covered Calls Advisor's dividend capture strategy and as so it mirrors the LNC dividend capture position last quarter (i.e. 3 months ago) when LNC last went ex-dividend.  FYI, Lincoln Financial Group is the marketing group for LNC and its subsidiaries.

Lincoln National has an upcoming quarterly ex-dividend of $.40 per share on October 8th which is prior to the October 16th options expiration.  This is equivalent to an absolute annualized dividend yield of 5.8% (at the $27.50 strike price) and an equivalent annualized dividend yield of 21.1% = [($.40/$30.05) x (365/23 days to expiration)].  This dividend is included in the detailed return-on-investment calculations below.  Either an early assignment on the day prior to the ex-dividend date or on the October 16th expiration date would be desirable to the Covered Calls Advisor given the high annualized return on investment for either outcome.

The Implied Volatility (IV) of these Call options was 52.6 when this buy/write transaction was executed -- a nice IV given that the next earnings report on November 4th is after the October 16th options expiration date.  Consequently, this position provides a very attractive potential annualized return-on-investment (aroi) of +60.2% at expiration.  This aroi is especially impressive since: (1) Lincoln National is a Fortune 250 mid-cap sized and well-diversified insurance company whose market cap is $5.9 billion; and (2) A relatively conservative in-the-money Covered Calls position was established with a delta (which provides a good approximation of the probability of assignment at expiration) of 73.9%.    

Although the 2nd quarter earnings report was disappointing since it missed expected revenue and earnings per share estimates, the stock price has declined accordingly.  LNC's current fundamental value is attractive (especially on a price-to-book value ratio), and LNC appears on the Covered Calls Advisor's 'Financial Sector Value Screen'.    

Although the Covered Calls Advisor depends primarily on fundamental valuation and competitive position factors in deciding what stocks to purchase, a minor consideration is given to technical factors.  In that regard, LNC stock was down another 1.3% today from yesterday's closing price and the 2-day relative strength index [i.e. RSI(2)] is well into short-term oversold territory and declined to a very low 2.2 reading today when this buy/write limit order was executed.  Note: below 30 is considered 'oversold' and above 70 is considered 'overbought'.

Importantly to the Covered Calls Advisor's analysis, all nine criteria of the  Dividend Capture Strategy (see table at end of this post) are met with this position.  The Covered Calls Advisor's current Overall Market Meter outlook remains cautious, so the appropriate Covered Calls strategy is to sell in-the-money strike prices.  Even if the stock market declines during the next month, hopefully the decline will be a moderate one and the stock price of Lincoln National Corp. will not decline below the $27.50 strike price at closing on the October 16th options expiration date, in which case the maximum potential profit in this LNC position would be achieved.   

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

•  +2.3% absolute return (equivalent to +60.1% annualized return for the next 14 days) if the stock is assigned early (business day prior to the October 8th ex-dividend date); OR 

• +3.8% absolute return (equivalent to +60.2% annualized return over the next 23 days) if the stock is assigned on the October 16th options expiration date.

Lincoln National Corp. (LNC) -- New Covered Calls Position
The buy/write transaction was:
09/24/2020 Bought 300 Lincoln National shares @ $30.05
09/24/2020 Sold 3 LNC 10/16/2020 $27.50 Call options @ $3.17
Note: Implied Volatility of the Call options was 52.6 when this position was transacted.
10/08/2020 Upcoming quarterly ex-dividend of $.40 per share

Two possible overall performance results (including commissions) for this Lincoln National Covered Calls position are as follows:
Covered Calls Cost Basis: $8,066.01
= ($30.05 - $3.17) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$951.00
= ($3.17 * 300 shares)
(b) Dividend Income (If option exercised early on October 7th, the business day prior to the October 9th ex-div date): +$0.00; or
(b) Dividend Income (If LNC stock assigned at October 16th, 2020 options expiration): +$120.00
= ($.40 dividend per share x 300 shares)

(c) Capital Appreciation (If LNC Call options assigned early on Oct. 7th): -$765.00
+($30.05 - $27.50) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $27.50 strike price at options expiration): -$765.00
+($27.50 - $30.05) * 300 shares

1. Total Net Profit [If option exercised on October 7th (business day prior to the October 8th ex-dividend date)]: +$186.00

= (+$951.00 options income +$0.00 dividend income -$765.00 capital appreciation); or

2. Total Net Profit (If LNC shares assigned at $27.50 at Oct 16th, 2020 expiration): +$306.00

= (+$951.00 +$120.00 -$765.00)

1. Absolute Return [If option exercised on business day prior to ex-dividend date]: +2.3%

= +$186.00/$8,066.01

Annualized Return (If option exercised early): +60.1%

= (+$186.00/$8,066.01)*(365/14 days); or

2. Absolute Return (If LNC shares assigned on Oct. 16th options expiration date): +3.8%

= +$306.00/$8,066.01

Annualized Return (If LNC shares assigned at $27.50 at Oct 16th, 2020 expiration): +60.2%

= (+$306.00/$8,066.01)*(365/23 days)

Either outcome provides a very attractive return-on-investment result for this Lincoln National investment.  These returns will be achieved as long as the stock is above the $27.50 strike price at assignment.  However, if the stock declines below the strike price, the breakeven price of $26.48 ($30.05 -$3.17 -$.40) provides 11.9% downside protection below today's stock purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  All nine criteria are achieved in this LNC Covered Calls position.

Established Covered Calls Position in JPMorgan Chase & Co.

Today a Covered Calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) when the Covered Calls Advisor's buy/write limit order at $88.60 executed -- 200 shares were purchased at $93.82 and two Oct 16th, 2020 $90.00 Call options were sold at $5.22.  This is a conservative in-the-money position since it is 4.2% above the $90.00 strike price. 

Two potential return-on-investment results for this position are highlighted below and includes the possibility of early assignment since a quarterly $.90 per share ex-dividend on October 5th is prior to the October 16th options expiration date.   An additional consideration in this position is that the next quarterly earnings report is on October 13th which is prior to the October 16th options expiration date.  Prior to the earnings report, the Covered Calls Advisor will be monitoring this position closely every day since closing out the position after the ex-dividend date but prior to the earnings date is a likely possibility.
  
As detailed below, two potential return-on-investment results are: 

•  +1.6% absolute return (equivalent to +48.1% annualized return for the next 12 days) if the stock is assigned early (business day prior to the October 5th ex-dividend date); OR 

• +2.6% absolute return (equivalent to +39.5% annualized return over the next 24 days) if the stock is assigned on the October 16th options expiration date.

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

Although unlikely, if the current time value (i.e. extrinsic value) of $1.40 [$5.22 option premium - ($93.82 stock price - $90.00 strike price)] remaining in the short call options decays substantially (down to about $.20 or less) by Oct 4th (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 JPM shares away to capture the dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be the most desired outcome since its +    % annualized return-on-investment (aroi) would substantially exceed the +    % aroi if assigned on the 10/16/2020 options expiration date.

The buy/write transaction was:
09/23/2020 Bought 200 JPM shares @ $93.82
09/23/2019 Sold 2 JPM 10/16/2020 $90.00 Call options @ $5.22
10/05/2020 Upcoming quarterly ex-dividend of $.90 per share

Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost: $17,721.34
= ($93.82 - $5.22) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,044.00
= ($5.22 *200 shares)
(b) Dividend Income (If option exercised early on Oct. 4th, the business day prior to October 5th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at October 16th, 2020 expiration): +$180.00
= ($.90 dividend per share x 200 shares)

(c) Capital Appreciation (If JPM assigned early): -$764.00
+($90.00 -$93.82)*200 shares; or
(c) Capital Appreciation (If JPM assigned at $90.00 strike price at expiration): -$764.00
+($90.00-$93.82) * 200 shares

1. Total Net Profit [If option exercised on October 4th (business day prior to Oct 5th ex-dividend date)]: +$280.00

= (+$1,044.00 options income +$0.00 dividend income -$764.00 capital appreciation); or

2. Total Net Profit (If JPM assigned at $90.00 at Oct 16th, 2020 expiration): +$460.00

= (+$1,044.00 options income +$180.00 dividend income -$764.00 capital appreciation)

1. Absolute Return (If option exercised on business day prior to ex-dividend date): +1.6%

= +$280.00/$17,721.34

Annualized Return (If option exercised early): +48.1%

= (+$280.00/$17,721.34)*(365/12 days); or

2. Absolute Return (If JPM assigned at $90.00 at October 16th, 2020 expiration): +2.6%

= +$460.00/$17,721.34

Annualized Return (If JPM assigned at $90.00 at Oct 16th 2020 expiration): +39.5%

= (+$460.00/$17,721.34)*(365/24 days)

Either outcome provides a very good return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $90.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $87.70 ($93.82 -$5.22 -$.90) provides 6.5% downside protection below today's purchase price.

There is a 69.2% probability that the Calls will be above the $90.00 strike price at options expiration.  If so, the +39.5%  annualized roi profit detailed above would be achieved.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  Eight of the nine criteria are achieved in this case.

Continuation of GoHealth Inc. Covered Calls

Upon the September 18th, 2020 options expiration last Friday, the Covered Calls position in GoHealth Inc. (ticker symbol GOCO) expired with the stock price at $13.88, well below the $15.00 strike price.  So, the September Call options expired and the 400 shares of GoHealth Inc. stock were retained in the Covered Calls Advisor Portfolio.  Today, with the GoHealth stock price having risen recently, a sell-to-open order was executed (when the stock price was at $14.54) to sell 4 October 16th, 2020 Call options at the $15.00 strike price for $.80 per share to continue this Covered Calls position.

As detailed below, two potential return-on-investment results for this GoHealth Inc. position are: (1) +10.0 absolute return in 54 days (equivalent to a +67.3% annualized return-on-investment) if the stock price is unchanged at $14.54 at the October 16th, 2020 options expiration; or (2) +13.3% absolute return in 54 days (equivalent to a +89.6% annualized return-on-investment) if the stock closes above the $15.00 strike price.

GoHealth Inc. (GOCO) -- Continuation of Covered Calls Position
The Buy/Write transaction was as follows:
08/24/2020 Bought 400 shares of GoHealth Inc. stock @ $15.00 per share 
08/24/2020 Sold 4 GoHealth Sept 18th, 2020 $15.00 Call options @ $1.05 per share
Note: the Implied Volatility of these Calls was very high at 61.6 today when this transaction was made.
09/18/2020 GOCO Call options expired since stock closed below the strike price
09/23/2020 Sold 4 GOCO Oct 16th, 2020 $15.00 Call options at $.80 against the 400 shares of GoHealth stock to continue the GoHealth Covered Calls position.
Note: the price of GOCO was $14.54 today when these Call options were sold.

Two possible overall performance results (including commissions) are as follows:
Covered Call Cost Basis: $5,582.68
= ($15.00 - $1.05) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$740.00
= ($1.05 + $.80) * 400 shares
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If GoHealth stock is unchanged at $14.54 at Oct 16th expiration): -$184.00
= ($14.54 - $15.00) * 400 shares; OR
(c) Capital Appreciation (If GoHealth stock is above $15.00 strike price at Oct 18th expiration): +$0.00
= ($15.00 - $15.00) * 400 shares

1. Total Net Profit (If GOCO stock unchanged at $14.54 at options expiration): +$556.00
= (+$740.00 options income +$0.00 dividend income -$184.00 capital appreciation)
2. Total Net Profit (If GOCO stock closes above $15.00 at Oct 16th options expiration): +$740.00
= (+$740.00 options income +$0.00 dividend income +$0.00 capital appreciation)

1. Absolute Return (If GoHealth stock unchanged): +10.0%
= +$556.00/$5,582.68
Equivalent Annualized Return: +67.3%
= (+$556.00/$5,582.68)*(365/54 days)
2. Absolute Return (If stock closes above $15.00 strike price at options expiration): +13.3%
= +$740.00/$5,582.68
Equivalent Annualized Return: +89.6%
= (+$420.00/$5,582.68)*(365/54 days)

Established Covered Calls Position in Medtronic PLC Using the Dividend Capture Strategy

Today a Covered Calls position was established in Medtronic PLC (ticker symbol MDT) when the Covered Calls Advisor's buy/write limit order was executed -- 200 shares were purchased at $103.41 and 2 October 2nd, 2020 Call options were sold at $4.03 at the $100.00 strike price.   Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Calls position was established -- the Delta was 76.3 which closely approximates the probability that the Call options will be in-the-money on the options expiration date. In addition, there is an upcoming ex-dividend of $.58 per share on September 24th which provides an annual dividend yield of 2.2% at the current stock price of $103.41.  Potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the October 2nd options expiration date.

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

•  +0.6% absolute return (equivalent to +75.9% annualized return-on-investment for the next 3 days) if the stock is assigned early (business day prior to the September 24th ex-dividend date); OR 

• +1.2% absolute return (equivalent to +36.7% annualized return over the next 12 days) if the stock is assigned on the October 2nd options expiration date. 
  

Medtronic PLC (MDT) -- New Covered Calls Position
The buy/write transaction was:
09/21/2020 Bought 200 Medtronic PLC shares @ $103.41
09/21/2020 Sold 2 MDT 10/02/2020 $100.00 Call options @ $4.03
Note 1: the Implied Volatility of the Calls was 25.0 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.62 per share = [$4.03 Call options premium - ($103.41 stock price - $100.00 strike price)]
09/24/2020 Upcoming quarterly ex-dividend of $.58 per share

Two possible overall performance results (including commissions) for this Medtronic Covered Calls position are as follows:
Covered Calls Cost Basis: $19,877.34
= ($103.41 - $4.03) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$806.00
= ($4.03 * 200 shares)
(b) Dividend Income (If option exercised early on Sept 23rd, the business day prior to the Sept 24th ex-div date): +$0.00; or
(b) Dividend Income (If Medtronic stock assigned at Oct. 2nd, 2020 expiration): +$116.00
= ($.58 dividend per share x 200 shares)

(c) Capital Appreciation (If Medtronic Call options assigned early on Sept 23rd): -$682.00
+($100.00 - $103.41) * 200 shares; or
(c) Capital Appreciation (If MDT shares assigned at $100.00 strike price at options expiration): -$682.00
+($100.00 - $103.41) * 200 shares

1. Total Net Profit [If option exercised on Sept 23rd (business day prior to Sept 24th ex-dividend date)]: +$124.00

= (+$806.00 options income +$0.00 dividend income -$682.00 capital appreciation); or

2. Total Net Profit (If Medtronic shares assigned at $100.00 strike price at Oct 2nd, 2020 expiration): +$240.00

= (+$806.00 +$116.00 dividend income -$682.00)

1. Absolute Return (If two MDT Call options exercised early on Sept 23rd): +0.6%

= +$124.00/$19,877.34

Annualized Return (If options assigned early): +75.9%

= (+$124.00/$19,877.34)*(365/3 days); or

2. Absolute Return (If Medtronic shares assigned at $100.00 at Oct 2nd, 2020 options expiration): +1.2%

= +$240.00/$19,877.34

Annualized Return (If MDT shares assigned at $100.00 at Oct 2nd, 2020 expiration): +36.7%
= (+$240.00/$19,877.34)*(365/12 days)

Either outcome provides an attractive return-on-investment result for this Medtronic investment.  These returns will be achieved as long as the stock is above the $100.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $98.80 ($103.41 -$4.03 -$.58) provides 4.5% downside protection below today's stock purchase price.

At least eight of the nine 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 Medtronic position, all nine criteria were met.

September 18th, 2020 Monthly Options Expiration Results

The Covered Calls Advisor Portfolio had fourteen positions (ten Covered Calls and four Cash-Secured Puts) since last month's (August 21st, 2020) monthly options expiration date.  The Covered Calls Advisor is pleased that twelve of the fourteen positions have been closed out profitably.  A summary of the results to-date for each of these fourteen positions is shown on the table below.  

As shown in the bottom line of the table, the weighted average absolute return-on-investment of +1.5% (equivalent to +33.7% annualized roi) of the Covered Calls Advisor Portfolio beat the S&P 500 benchmark index performance of -2.6% (equivalent to -32.7% annualized roi) for the past month by a wide margin.  The two primary factors responsible for this substantial outperformance are: (1) good individual stock selection (Job #1 for us Covered Calls investors); and (2) selling options with strike prices moderately below the stock price when the position was established.  These results (remaining profitable during a period when the overall market is declining) provide a good example of the relative advantage Covered Calls investing can have during Neutral and especially during more Bearish time periods.   

 

 

You can reach me at partlow@cox.net if you have any questions related to this post or to anything else related to Covered Calls investing. 

Best Wishes and Godspeed,
Jeff Partlow

Closed Covered Calls Position in American International Group Inc.

Today this Covered Calls Advisor decided to close out the Covered Calls position in American International Group Inc.  The 300 shares of AIG stock owned had increased to $29.83 and the September 25th, 2020 $28.00 Call options were at $2.05 when the net credit liquidation order at $27.78 ($.22 time value remaining in the Call options) was executed.  The stock went ex-dividend today @ $.32 per share, so the dividend was captured in the Covered Calls Advisor's Portfolio which is shown in the return-on-investment results below.   

As detailed below, the return-on-investment result for this American International Group Covered Calls position was +2.3% absolute return in 6 days (equivalent to a +141.7% annualized return-on-investment).  This result is preferable than the +71.4% annualized roi that would have been achieved if the stock would have remained above the $28.00 strike price and therefore instead been assigned on the Sept. 25th options expiration date.

American International Group Inc. (AIG) -- Covered Calls Position Closed
The buy/write transaction was:

09/10/2020 Bought 300 American International Group shares @ $28.81 per share
09/10/2020 Sold 3 AIG 9/25/2020 $28.00 Call options @ $1.35
Note: The Implied Volatility of the Call options was 36.7 when this position was transacted.
09/16/2020 Quarterly ex-dividend of $.32 per share
09/16/2020 Closed AIG Covered Calls position by simultaneously selling 300 AIG shares @ $29.83 and buying-to-close 3 AIG 9/25/2020 $28.00 Call options @ $2.05 per share.

The overall performance result (including commissions) for this American International Group Covered Calls position was as follows:
Covered Calls Cost Basis: $8,240.01
= ($28.81 - $1.35) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: -$210.00
= ($1.35 - $2.05) * 300 shares
(b) Dividend Income: +$96.00
= ($.32 dividend per share x 300 shares)

(c) Capital Appreciation (AIG shares sold at $29.83 market price): +$306.00

= +($29.83 - $28.81) * 300 shares

 Total Net Profit: +$192.00

= (-$210.00 options income +$96.00 dividend income +$306.00 capital appreciation)

 

Absolute Return: +2.3%

= +$192.00/$8,240.01

Annualized Return: +141.7%

= (+$192.00/$8,240.01)*(365/6 days)

Covered Calls Established in American International Group Inc. Using the Dividend Capture Strategy

Today a Covered Calls position was established in American International Group Inc. (ticker symbol AIG) when the Covered Calls Advisor's buy/write limit order was executed -- 300 shares were purchased at $28.81 and three September 25th, 2020 Call options were sold at $1.35 at the $28.00 strike price.

Two potential return-on-investment results for this position are highlighted below and includes the possibility of early assignment since a $.32 per share ex-dividend on September 16th is prior to the September 25th options expiration date.  Importantly to the Covered Calls Advisor's analysis, all nine criteria of the Dividend Capture Strategy (see table at end of this post) are met with this position.  The Covered Calls Advisor's current Overall Market Meter outlook remains cautious, so the appropriate Covered Calls strategy is to sell in-the-money strike prices.  Even if the stock market declines during the next two weeks, hopefully the decline will be a moderate one and the stock price of American International Group will not decline below its $28.00 strike price at closing on the Sept 25th options expiration date, in which case the maximum potential profit in this AIG position would be achieved.   

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

•  +2.0% absolute return (equivalent to +119.6% annualized return for the next 6 days) if the stock is assigned early (business day prior to the September 16th ex-dividend date); OR 

• +3.1% absolute return (equivalent to +71.4% annualized return over the next 16 days) if the stock is assigned on the Sept 25th options expiration date.

American International Group Inc. (AIG) -- New Covered Calls Position
The buy/write transaction was:

09/10/2020 Bought 300 American International Group shares @ $28.81 per share
09/10/2020 Sold 3 AIG 9/25/2020 $28.00 Call options @ $1.35
Note: The Implied Volatility of the Call options was 36.7 when this position was transacted.
09/16/2020 Upcoming quarterly ex-dividend of $.32 per share
Note: the annual dividend yield at the purchase price is 4.4%.

Two possible overall performance results (including commissions) for this American International Group Covered Calls position are as follows:
Covered Calls Cost Basis: $8,240.01
= ($28.81 - $1.35) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$405.00
= ($1.35 * 300 shares)
(b) Dividend Income (If option exercised early on Sept 15th, the business day prior to the Sept 16th ex-div date): +$0.00; or
(b) Dividend Income (If AIG stock assigned at Sept 25th, 2020 options expiration): +$96.00
= ($.32 dividend per share x 300 shares)

(c) Capital Appreciation (If AIG Call options assigned early on Sept 15th): -$243.00
= +($28.00 - $28.81) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $28.00 strike price at options expiration): -$243.00
= +($28.00 - $28.81) * 300 shares

1. Total Net Profit [If option exercised on Sept 15th (business day prior to the ex-dividend date)]: +$162.00

= (+$405.00 options income +$0.00 dividend income -$243.00 capital appreciation); or

2. Total Net Profit (If AIG shares assigned at $28.00 strike price at Sept 25th, 2020 expiration): +$258.00

= (+$405.00 +$96.00 -$243.00)

1. Absolute Return (If option exercised on Sept 15th): +2.0%

= +$162.00/$8,240.01

Annualized Return (If option exercised early): +119.6%

= (+$162.00/$8,240.01)*(365/6 days); or

2. Absolute Return (If AIG shares assigned at $28.00 at Sept 25th, 2020 options expiration): +3.1%

= +$258.00/$8,240.01

Annualized Return (If AIG shares assigned at $28.00 at Sept 25th, 2020 expiration): +71.4%

= (+$258.00/$8,240.01)*(365/16 days)

Either outcome provides a very attractive return-on-investment result for this AIG investment.  These returns will be achieved as long as the stock is above the $28.00 strike price at assignment.  There is a 63.6% probability that the Calls will be above the $28.00 strike price at options expiration and thus the maximum potential profit would be achieved. However, if the stock declines below the strike price, the breakeven price of $27.14 ($28.81 -$1.35 -$.32) provides 5.8% downside protection below today's stock purchase price.

At least eight of the nine 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 American International Group position, all nine criteria are met.

Covered Call Position Established in Travelers Companies Inc.

A short-term (11 calendar days) Covered Call position was established this morning in Travelers Companies Inc. (ticker TRV), with a September 18th, 2020 options expiration date.  One hundred shares of Travelers stock was purchased at $113.23 and one Call option was sold at $4.35 per share at the $110.00 strike price.  Important to the Covered Calls Advisor, there is no intervening earnings prior to the options expiration date as Traveler's next quarterly earnings report is scheduled for October 20th.

There is an ex-dividend date tomorrow (9/09) of $.85 per share (2.9% annual dividend yield), so capturing this dividend is included in the potential return-on-investment results detailed below.  The time value obtained when this position was established was $1.12 per share [$4.35 Call option premium - ($113.23 stock price - $110.00 strike price)].       

As detailed below, a potential return-on-investment result if this position closes in-the-money at the September 18th options expiration date is +1.8% absolute return in 11 days (equivalent to a +60.0% annualized return-on-investment).  

Travelers Companies Inc. (TRV) -- New Covered Call Position
The buy/write transactions was as follows:
09/08/2020 Bought 100 shares of Travelers @ $113.23 per share 
09/08/2020 Sold 1 Travelers Sept 18th, 2020 $110.00 Call option @ $4.35 per share
09/09/2020 Ex-dividend at $.85 per share

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $10,888.67
= ($113.23 - $4.35) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$435.00
= ($4.35 * 100 shares)
(b) Dividend Income: +$85.00
= $.85 per share x 100 shares 
(c) Capital Appreciation (If Travelers stock is above $110.00 strike price at the Sept 18th options expiration date): -$323.00
= ($110.00 -$113.23) * 100 shares

Total Net Profit: +$197.00
= (+$435.00 options income +$85.00 dividend income -$323.00 capital appreciation)

Absolute Return: +1.8%
= +$197.00/$10,888.67
Equivalent Annualized Return: +60.0%
= (+$197.00/$10,888.67)*(365/11 days)

These returns will be achieved if the stock is above the $110.00 strike price at the market closing on the September 18th, 2020 options expiration date.  If the stock declines below the strike price, the breakeven price of $108.03 ($113.23 -$4.35 -$.85) provides 4.6% downside breakeven protection below today's stock purchase price.

Email me at partlow@cox.net if you have any questions related to this post or to anything else related to Covered Calls investing.

Jeff Partlow

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

Today a Covered Calls position was established in Devon Energy Corp. (ticker symbol DVN) when the Covered Calls Advisor's buy/write limit order was executed -- 600 shares were purchased at $10.44 and 6 September 18th, 2020 Call options were sold at $.89 at the $9.74 strike price.   Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Calls position was established -- the Delta was 65.7, which closely approximates the probability that the Call options will be in-the-money on the options expiration date. In addition, there is an upcoming ex-dividend of $.11 per share on September 11th which provides an annual dividend yield of 4.2% at the current stock price of $10.44.  Potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the September 18th options expiration date.

Devon Energy has a strong balance sheet and has no major debt maturities in the next five years.  At its current stock price it is undervalued relative to its Energy sector Exploration and Production (E&P) peers.  According to Reuters, the average rating of 29 analysts covering Devon is 'Buy' and their average one-year target price is $16.32 (+56.3% above the current stock price).  

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

•  +2.0% absolute return (equivalent to +103.7% annualized return-on-investment for the next 7 days) if the stock is assigned early (business day prior to the September 11th ex-dividend date); OR 

• +3.1% absolute return (equivalent to +76.4% annualized return over the next 15 days) if the stock is assigned on the September 18th options expiration date.  The Covered Calls Advisor noticed that although there are two weeks until this expiration date, there are only 9 trading days.
  

Devon Energy Corp. (DVN) -- New Covered Calls Position
The buy/write transaction was:
09/04/2020 Bought 600 Devon Energy Corp. shares @ $10.44
09/04/2020 Sold 6 DVN 9/18/2020 $9.74 Call options @ $.89
Note 1: the Implied Volatility of the Calls was 55.9 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.19 per share = [$.89 Call options premium - ($10.44 stock price - $9.74 strike price)]
09/11/2020 Upcoming quarterly ex-dividend of $.11 per share

Two possible overall performance results (including commissions) for this Devon Energy Covered Calls position are as follows:
Covered Calls Cost Basis: $5,734.02
= ($10.44 - $.89) * 600 shares + $4.02 commission

Net Profit Components:
(a) Options Income: +$534.00
= ($.89 * 600 shares)
(b) Dividend Income (If option exercised early on Sept 10th, the business day prior to the Sept 11th ex-div date): +$0.00; or
(b) Dividend Income (If Devon Energy stock assigned at Sept 18th, 2020 expiration): +$66.00
= ($.11 dividend per share x 600 shares)

(c) Capital Appreciation (If Devon Energy Corp. Call options assigned early on Sept 10th): -$420.00
+($9.74 - $10.44) * 600 shares; or
(c) Capital Appreciation (If DVN shares assigned at $9.74 strike price at options expiration): -$420.00
+($9.74 - $10.44) * 600 shares

1. Total Net Profit [If option exercised on Sept 10th (business day prior to Sept 11th ex-dividend date)]: +$114.00

= (+$534.00 options income +$0.00 dividend income -$420.00 capital appreciation); or

2. Total Net Profit (If Devon Energy shares assigned at $9.74 strike price at September 18th, 2020 expiration): +$180.00

= (+$534.00 +$66.00 -$420.00)

1. Absolute Return (If six DVN Call options exercised early on Sept 10th): +2.0%

= +$114.00/$5,734.02

Annualized Return (If options assigned early): +103.7%

= (+$114.00/$5,734.02)*(365/7 days); or

2. Absolute Return (If Devon Energy shares assigned at $9.74 at Sept 18th, 2020 options expiration): +3.1%

= +$180.00/$5,734.02

Annualized Return (If DVN shares assigned at $9.74 at Sept 18th, 2020 expiration): +76.4%
= (+$180.00/$5,734.02)*(365/15 days)

Either outcome provides a very attractive return-on-investment result for this Devon Energy Corp. investment.  These returns will be achieved as long as the stock is above the $9.74 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $9.44 ($10.44 -$.89 -$.11) provides 9.6% downside protection below today's stock purchase price.

At least eight of the nine 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 Devon Energy Corp. position, eight of nine criteria were met.

Established Cash-Secured Puts Position in Apple Inc.

A new position was established in Apple Inc. (ticker AAPL) by selling two September 18th, 2020 100% Cash-Secured Put options at the $102.50 strike price at $2.37 per share when the price of Apple stock was at $112.35 per share (9.6% above the strike price).  This is a conservative position since the probability that the Puts expire worthless on the options expiration date was 80.7% when this position was established. 

The 69.5 Implied Volatility for these Apple Put options was especially attractive to the Covered Calls Advisor since it is well above the current S&P 500 Volatility Index (VIX) of 37.8.  With the steep market sell-off yesterday and today, both Implied Volatility levels are currently more than twice their long-term historic averages.  Apple's stock price has been especially hard hit the past two trading days [RSI(2) = 6.0] declining from its high price on Wednesday of $137.98 to $112.35 (an 18.6% decline) when this transaction was executed today.  So the $472.66 ($2.37 per share x 200 shares - $1.34 commission) is a very nice premium to receive for these out-of-the-money (i.e. strike price below the current stock price) Put options, especially considering that there is 9.6% downside protection to the strike price and only two weeks until the options expiration date.  It is difficult to maintain a calm temperament during a dramatic market decline as experienced these past two days, but the accompanying spike upward in volatility can sometimes be an opportune time to sell options to receive the high premium income available to us option sellers.  Importantly, earnings report uncertainty is not contributing to Apple's current elevated volatility level since they reported 2nd quarter earnings on July 30th, so there will be no earnings report prior to the September 18th options expiration date. 

As detailed below, for this new Apple Inc. Cash-Secured Puts position there is potential for a +2.4% absolute return in 15 days (equivalent to a +57.4% annualized return-on-investment).  

Apple Inc. (AAPL) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
09/04/2020  Sold 2 Apple Inc. September 18th, 2020 $102.50 100% Cash-Secured Put options @ $2.37 per share.

The Covered Calls Advisor does not use margin, so the detailed information on this position and the potential result detailed below reflect that this position was established using 100% cash for the two Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $20,027.34
= ($102.50 - $2.37) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$472.66
= ($2.37 *200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Apple stock is above $102.50 strike price at the September 18th expiration): +$0.00
= ($102.50 - $102.50) *200 shares

Total Net Profit (If Apple stock price is above $102.50 strike price at options expiration): +$358.66
= (+$472.66 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If APPL is above $102.50 strike price at the Sept 18th options expiration) : +2.4%
= +$472.66/$20,027.34
Annualized Return: +57.4%
= (+$472.66/$20,027.34)*(365/15 days)

The downside 'breakeven price' at expiration is at $100.13 ($102.50 - $2.37), which is 10.9% below the current market price of $112.35.

Early Assignment of Bank of America Corp. Covered Calls

This morning the Covered Calls Advisor was notified by Schwab that the four Bank of America Corp. September 11th, 2020 $24.50 Call options were exercised early on the day prior to today's (September 3rd) ex-dividend date. There was no time value remaining in the Call options, so the owner of the Calls decided to exercise their right to buy the 400 shares of BAC at the $24.50 strike price and capture today's $.18 dividend.  This is a not an unfavorable outcome for the Covered Calls Advisor -- in fact it is a good outcome since the +35.6% annualized return-on-investment (aroi) achieved is slightly better than the +32.7% maximum possible aroi that might have been achieved later at the options expiration date if the stock was still the $24.50 strike price on the September 11th options expiration date.  As detailed below, a net profit of $76.00 was achieved in 8 days since the full $540.00 income (profit) received from selling the options exceeded the $464.00 loss in the stock price.

For any Covered Calls position where there is an ex-dividend date prior to the options expiration date, the Covered Calls Advisor usually prefers to have the stock called away (assigned) early, normally the last business day prior to the ex-div date.  The reason is that the Covered Calls Advisor's Dividend Capture Strategy spreadsheet was designed to identify positions where the aroi from early assignment is greater than what might be achieved if the stock is instead assigned at the options expiration date -- see items #8 and #9 below.  Note: this is the spreadsheet that was completed on August 26th prior to transacting this Bank of America Covered Calls position.

Bank of America Corp. (BAC) -- Covered Calls Position Closed by Early Assignment

The buy/write transaction was as follows:
08/26/2020 Bought 400 shares of Bank of America Corp. stock @ $25.66 per share 
08/26/2020 Sold 4 BAC Sept 11th, 2020 $24.50 Call options @ $1.35 per share
Note: The Open Interest in these Calls was 241 contracts and the Implied Volatility was 27.7
09/02/2020 Early Exercise of BAC 9/11/2020 $24.50 Call options, so 400 shares of BAC were assigned (sold) at the $24.50 strike price.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $9,726.68
= ($25.66 - $1.35) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$540.00
= ($1.35 * 400 shares)
(b) Dividend Income (BAC shares assigned on 9/02/2020, the business day prior to the ex-dividend date): = +$0.00
(c) Capital Appreciation: -$464.00
= ($24.50 -$25.66) * 400 shares

Net Profit: +$76.00
= (+$540.00 options income +$0.00 dividend income - $464.00 capital appreciation)

Absolute Return: +0.8%
= +$76.00/$9,726.68
Equivalent Annualized Return on Investment: +35.6%
= (+$76.00/$9,726.68)*(365/8 days)

Roll-Up-and-Out Micron Technology Inc. Covered Calls

Since establishing this Covered Calls position in Micron Technology Inc. (ticker MU) on August 12th, 2020, there has been a significant negative news event and then yesterday a significant positive news event.
The recent swift decline in Micron's stock price resulted from the announcement by the CFO that next quarter's revenue is likely to be below the guidance previously provided because of a current slowdown in enterprise demand for its chips.
But the stock rebounded today with Micron's announcement that it has developed the world's fastest graphics memory solution which will power NVIDIA's leading edge Graphics Processing Units (GPUs) for its gaming technology. 

The current Covered Calls Advisor decided to roll up the Micron Covered Calls position from the $44.00 strike with an options expiration date this Friday (9/4/2020) to the $47.00 strike price at the Sept 18th, 2020 options expiration date.  With the stock price at $47.82 today, there was only $.06 [$3.88 Call options price - ($47.82 share price - $44.00 strike price)] of time value remaining in the Sept 4th $44.00 Call options and the option premium received from selling the five Sept 18th $47.00 Calls was $2.33 per share.  As shown below, these transactions could enable a losing position to recover to breakeven by the September 18th options expiration date if Micron's stock price is above the $47.00 strike price.

A potential return-on-investment result for this Micron Technology Covered Calls since its inception on August 12th, 2020  is -0.0% absolute return in 38 days (equivalent to a -0.0% annualized return-on-investment).  

Micron Technology Inc. (MU) -- Continuation of Covered Calls Position

The transactions to-date are as follows:
08/12/2020 Bought 500 shares of Micron Technology Inc. stock @ $48.34 per share 
08/12/2020 Sold 5 Micron Aug 21st, 2020 $47.00 Call options @ $1.96 per share
08/21/2020 5 MU 8/21/2020 Calls expired
08/24/2020 5 MU 9/4/2020 $44.00 Calls sold @ $.95 per share to continue Covered Calls position in Micron
9/2/2020 Bought-to-Close 5 MU 9/4/2020 $44.00 Calls @ $3.88 per share
9/2/2020 Sold-to-Open 5 MU 9/18/2020 $47.00 Calls @ $2.33 per share
Note: this was a simultaneous rollout transaction

A possible overall performance result (including commissions) if the stock price is above the $47.00 strike price at the Sept 18th options expiration would be:
Covered Call Cost Basis: $23,193.35
= ($48.34 - $1.96) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$669.95
= ($1.96 + $.95 - $3.88 +$2.33) * 500 shares - $10.05 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Micron stock is above $47.00 strike price at Sept 18th expiration): -$670.00
= ($47.00 - $48.34) * 500 shares

Total Net Profit: -$0.05
= (+$669.95 options income +$0.00 dividend income -$670.00 capital appreciation)

Absolute Return: -0.0%
= -$0.05/$23,193.35
Equivalent Annualized Return: -0.0%
= (-$0.05/$23,193.35)*(365/38 days)

Established Cash-Secured Puts Position in KB Home

A new position was established in KB Home (ticker KBH) by selling three September 18th, 2020 100% Cash-Secured Put options at the $34.00 strike price at $.75 when the price of KB Home stock was at $36.02 per share (5.9% above the strike price).  This is a moderately in-the-money position since the probability of assignment on the options expiration date was 72.5% when this position was established.

KB Home is a home builder with high exposure to entry-level built-to-order homes, a good niche in the current market environment.  This year's earnings are likely to be only slightly below last year's, but 2021 earnings are likely to be substantially above the good earnings that were achieved last year (2019), which is a metric the Covered Calls Advisor is currently looking for in companies to consider investing in.  Another positive feature is the location of its geographic markets -- almost half are in California and the remainder are in other states throughout the Sunbelt.  KB Home was originally identified by the Covered Calls Advisor when it recently appeared in the top 2% of companies identified by my acquirers multiple stock screener, a good indication of its current valuation.  Its financials are also attractive based on its current score of 8 on the Piotroski F-score, thus ranking it in the top 5% of all U.S. public companies on that metric.  

The 48.8 Implied Volatility for these KB Home Put options was very attractive to the Covered Calls Advisor since it is well above the current S&P 500 Volatility Index (VIX) of 26.0.   So the $222.99 ($.75 per share x 300 shares - $2.01 commission) is a nice premium to receive for these out-of-the-money (i.e. strike price below the current stock price) Put options.  The next earnings report on September 24th is after the September 18th options expiration date.

As detailed below, for this new KB Home Cash-Secured Puts position there is potential for a +2.2% absolute return in 18 days (equivalent to a +45.3% annualized return-on-investment).  


KB Home (KBH) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
09/01/2020  Sold 3 KB Home September 18th, 2020 $34.00 100% Cash-Secured Put options @ $.75 per share.

The Covered Calls Advisor does not use margin, so the detailed information on this position and the potential result detailed below reflect that this position was established using 100% cash securitization for the three Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $9,977.01
= ($34.00 - $.75) * 300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$222.99
= ($.75 * 300 shares) - $2.01 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If KBH is above the $34.00 strike price at the Sept 18th expiration): +$0.00
= ($34.00 - $34.00) * 300 shares

Total Net Profit (If  KB Home stock price is above $34.00 strike price at options expiration): +$222.99
= (+$222.99 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If KBH stock price is above $34.00 strike price at the Sept 18th options expiration): +2.2%
= +$229.99/$9,977.01
Annualized Return: +45.3%
= (+$229.99/$9,977.01)*(365/18 days)

The downside 'breakeven price' at expiration is at $33.25 ($34.00 - $.75), which is 7.7% below the current market price of $36.02.