New Covered Calls Positions Established in IBM Corp., KB Home, and Constellation Brands Inc.

Today, new Covered Calls positions were established in IBM Corp. (IBM), KB Home (KBH), and Constellation Brands Inc. (STZ).  All three positions are similar to ones previously established this year in these three stocks in months with an intervening ex-dividend date prior to their options expiration date.  So, the possibility of early assignment on the day prior to ex-dividend is included in the potential return-on-investment details provided below for each stock.  As strongly preferred by the Covered Calls Advisor, there are no quarterly earnings reports prior to the November 20th, 2020 options expiration dates for any of these positions.  Also, consistent with the Covered Calls Advisor's cautious outlook, moderately in-the-money Covered Calls were established in all 3 positions.

Two hundred IBM Corp. shares were purchased at $113.40 and two $110.00 November 20th, 2020 Call options were sold at $5.16, a net debit of $108.24 per share.  Three hundred KB Home shares were purchased at $37.08 and three $35.00 November 20th, 2020 Call options were sold at $3.34, a net debit of $33.74 per share.  One hundred Constellation Brands shares were purchased at $179.48 and one Nov 20th, 2020 $170.00 Call option was sold at $12.12 for a net debit of $167.36.


As detailed below, some potential return-on-investment results for these three Covered Calls are: 

• IBM Corp.: (a) +1.6% absolute return in 18 days (equivalent to a +33.0% annualized return-on-investment) if assigned on the day prior to the 11/9/2020 ex-dividend date; OR (b) +3.1% absolute return in 30 days (equivalent to a +38.1% annualized return-on-investment) if assigned on the Nov. 20th, 2020 options expiration date.
• KB Home: (a) +3.7% absolute return in 19 days (equivalent to a +71.7% annualized return-on-investment) if assigned on the last business day prior to the November 10th, 2020 ex-dividend date; OR (b) +4.2% absolute return in 30 days (equivalent to a +50.8% annualized return-on-investment) if assigned on the Nov. 20th, 2020 options expiration date.
• Constellation Brands Inc.: (a) +1.6% absolute return in 14 days (equivalent to a +41.4% annualized return-on-investment) if assigned on the last business day prior to the November 5th, 2020 ex-dividend date; OR (b) +2.0% absolute return in 30 days (equivalent to a +24.6% annualized return-on-investment) if assigned on the Nov. 20th, 2020 options expiration date.

1.  IBM Corp. (IBM) -- New Covered Calls Position
The buy/write transaction was:
10/22/2020 Bought 200 IBM shares @ $113.40
10/22/2020 Sold 2 IBM 11/20/2020 $110.00 Call options @ $5.16
Note: the Time Value (aka Extrinsic Value) in the Call options was $1.76 per share = [$5.16 Call options premium - ($113.40 stock price - $110.00 strike price)]
11/09/2020 Expected upcoming quarterly ex-dividend of $1.63 per share

Two possible overall performance results (including commissions) for this IBM Covered Calls position are as follows:
Covered Calls Cost Basis: $21,649.34
= ($113.40 - $5.16) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,032.00
= ($5.16 * 200 shares)
(b) Dividend Income (If option exercised early on Nov 6th, the business day prior to the Nov 9th ex-div date): +$0.00; or
(b) Dividend Income (If IBM stock assigned at Nov. 20th, 2020 expiration): +$326.00
= ($1.63 dividend per share x 200 shares)

(c) Capital Appreciation (If IBM Call options assigned early on Nov 6th): -$680.00
+($110.00 - $113.40) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $110.00 strike price at options expiration): -$680.00
+($110.00 - $113.40) * 200 shares

1. Total Net Profit [If option exercised on Nov 6th (business day prior to Nov 9th ex-dividend date)]: +$352.00

= (+$1,032.00 options income +$0.00 dividend income -$680.00 capital appreciation); or

2. Total Net Profit (If IBM shares assigned at $110.00 strike price at November 20th, 2020 expiration): +$678.00

= (+$1,032.00 +$326.00 -$680.00)

1. Absolute Return (If two IBM Call options exercised early on Nov 6th): +1.6%

= +$352.00/$21,649.34

Annualized Return (If option exercised early): +33.0%

= (+$352.00/$21,649.34)*(365/18 days); or

2. Absolute Return (If IBM shares assigned at $110.00 at November 20th, 2020 options expiration): +3.1%

= +$678.00/$21,649.34

Annualized Return (If IBM shares assigned at $120.00 at Aug 28th, 2020 expiration): +38.1%

= (+$678.00/$21,649.34) * (365/30 days)

Either outcome provides an attractive return-on-investment result for this IBM investment.  These returns will be achieved as long as the stock is above the $110.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $106.61 ($113.40 -$5.16 -$1.63) provides 6.0% downside protection below today's stock purchase price.


2.   KB Home (KBH) -- New Covered Calls Position
The Buy/Write transaction today was as follows:
10/22/2020 Bought 300 shares of KB Home stock @ $37.08 per share 
10/22/2020 Sold 3 KB Home November 20th, 2020 $35.00 Call options @ $3.34 per share
Note: the Delta was 67.5 when this transaction was executed. 
11/10/2020 Upcoming quarterly ex-dividend of $.15 per share

A possible overall performance results (including commissions) if the stock price is above the $35.00 strike price at expiration would be as follows:
Covered Call Cost Basis: $10,124.01
= ($37.08 - $3.34) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$1,002.00
= ($3.34 * 300 shares)
(b) Dividend Income: (If option exercised early on Nov 9th, the day prior to the Nov 10th ex-div date): +$0.00; or
(b) Dividend Income (If KBH stock assigned at Nov. 20th, 2020 expiration): +$45.00
= ($.15 dividend per share x 300 shares)

(c) Capital Appreciation (If KBH Call options assigned early on Nov 9th): -$624.00
+($35.00 - $37.08) * 300 shares; or
(c) Capital Appreciation (If KBH shares assigned at $35.00 strike price at options expiration): -$624.00
+($35.00 - $37.08) * 300 shares

1. Total Net Profit [If option exercised on Nov 9th (business day prior to Nov 10th ex-dividend date)]: +$378.00

= (+$1,002.00 options income +$0.00 dividend income -$624.00 capital appreciation); or

2. Total Net Profit (If KBH shares assigned at $35.00 strike price at November 20th, 2020 expiration): +$423.00

= (+$1,002.00 +$45.00 -$624.00)

1. Absolute Return (If two KBH Call options exercised early on Nov 6th): +3.7%

= +$378.00/$10,124.01

Annualized Return (If option exercised early): +71.7%

= (+$378.00/$10,124.01)*(365/19 days); or

2. Absolute Return (If KBH shares assigned at $35.00 at November 20th, 2020 options expiration): +4.2%

= +$423.00/$10,124.01

Annualized Return (If KBH shares assigned at $35.00 at Nov. 20th, 2020 expiration): +50.8%

= (+$423.00/$10,124.01) * (365/30 days)

3.  Constellation Brands Inc. (STZ) -- New Covered Call Position
The simultaneous buy/write transaction was:
10/22/2020 Bought 100 Constellation Brands shares @ $179.48
10/22/2020 Sold 1 Constellation Brands 11/20/2020 $170.00 Call option @ $12.12
Note: the Implied Volatility of these Calls was 30.5 when this transaction was executed.
11/05/2020 Upcoming quarterly ex-dividend of $.75 per share

Two possible overall performance results (including commissions) for this Constellation Brands Covered Call position are as follows:
Covered Call Cost Basis: $16,736.67
= ($179.48 - $12.12) *100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$1,212.00
= ($12.12 * 100 shares)
(b) Dividend Income (If option exercised early on Nov 4th, the last business day prior to the Nov 5th, 2020 ex-div date): +$0.00; or
(b) Dividend Income (If Constellation Brands stock assigned at Nov 20th, 2020 expiration): +$75.00
= ($.75 dividend per share x 100 shares)

(c) Capital Appreciation (If Constellation Brands assigned early on Nov 4th, 2020): -$948.00
+($170.00 - $179.48) * 100 shares; or
(c) Capital Appreciation (If shares assigned at $170.00 strike price at options expiration): -$948.00
+($170.00 - $179.48) * 100 shares

1. Total Net Profit [If option exercised on Nov 4th (business day prior to Nov 5th ex-dividend date)]: +$264.00

= (+$1,212.00 option income +$0.00 dividend income -$948.00 capital appreciation); or

2. Total Net Profit (If Constellation Brands shares assigned at $170.00 at Nov 20th, 2020 expiration): +$339.00

= (+$1,212.00 option income +$75.00 dividend income -$948.00 capital appreciation)

1. Absolute Return [If option exercised on Nov 4th, 2020 (day prior to ex-dividend date)]: +1.6%

= +$264.00/$16,736.67

Annualized Return (If option exercised early): +41.1%

= (+$264.00/$16,736.67)*(365/14 days); or

2. Absolute Return (If STZ shares assigned at $170.00 at Nov 20th, 2020 options expiration): +2.0%

= +$339.00/$16,736.67

Annualized Return (If STZ shares assigned at $170.00 at Nov 20th, 2020 expiration): +24.6%

= (+$339.00/$16,736.67)*(365/30 days)