Covered Calls Established in D.R. Horton Inc.

This afternoon, the Covered Calls Advisor's limit order was executed and a Covered Calls position was established in D.R. Horton Inc. (ticker DHI) with a December 31st, 2020 options expiration date. Two D.R. Horton Call options were sold at $4.04 at the $67.50 strike price when the stock price was $70.60.  The Delta was approximately 72.5 when this transaction was executed which is a moderately in-the-money position and consistent with the Covered Calls Advisor's current cautious market outlook.  There is already an existing Cash-Secured Puts position in Horton, but its expiration date is Friday and the Covered Calls Advisor wishes to maintain a position in DHI until at least the end of this year -- so this new position was established today.    

D.R. Horton is the largest homebuilder in America by market cap. Importantly, it is considered the best-in-class operator in its industry and has the highest exposure to the critically important entry-level buyers (67% of closings), lowest debt leverage, and least on-balance sheet land risk. The most recent earnings report in early November was very positive and exceeded analysts' average estimates by 27%.  The strong demand for new homes continues to benefit from near-record low mortgage rates.  Important for the Covered Calls Advisor, the next quarterly earnings report is after the December 31st options expiration date.

As detailed below, a potential return-on-investment result is +1.4% absolute return in 16 days (equivalent to a +32.2% annualized return-on-investment).  


D.R. Horton Inc. (DHI) -- New Covered Calls Position

The Buy/Write transaction was as follows:
12/16/2020 Bought 200 shares of D.R. Horton Inc. stock @ $70.60 per share 
12/16/2020 Sold 2 D.R. Horton Dec 31st, 2020 $67.50 Call options @ $4.04 per share

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $13,313.34
= ($70.60 - $4.04) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$808.00
= ($4.04 * 200 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If D.R. Horton stock is above $67.50 strike price at the Dec 31st expiration): -$620.00
= ($67.50 - $70.60) * 200 shares

Total Net Profit: +$188.00
= (+$808.00 options income +$0.00 dividend income -$620.00 capital appreciation)

Absolute Return: +1.4%
= +$188.00/$13,313.34
Equivalent Annualized Return: +32.2%
= (+$188.00/$13,313.34)*(365/16 days)

The downside 'breakeven price' at expiration is at $66.56 ($70.60 - $4.04), which is 5.7% below the current market price of $70.60.