Established Covered Call in Salesforce.Com Inc.

Today, a buy/write limit order in Salesforce.Com Inc. (ticker CRM) was executed at the Covered Calls Advisors' net debit price of $204.70 per share. One hundred shares were purchased at $217.15 and one December 18th, 2020 Call option was sold for $12.45 at the $210.00 strike price, therefore a time value of $5.30 per share = [$12.45 option premium - ($217.15 stock price - $210.00 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 65.0 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 +2.6% absolute return in 17 days (equivalent to a +55.6% annualized return-on-investment).

The Implied Volatility of the Call options sold was very high at 46.1 compared with the current S&P 500 Volatility Index (VIX) value of 21.0.  This elevated level reflects the fact that their just announced acquisition of Slack has been poorly received by some Salesforce investors.  The stock has declined precipitously by 18.0% since this time last week despite its good quarterly earnings report  -- 20% revenue growth and 132% earnings per share growth versus the same quarter last year.  As an investor, it is very difficult to occasionally buy into sharply declining stocks, but it can sometimes be worthwhile if supported by both the potential for a likely outstanding annualized return-on-investment as well as a stock target price potential exceeding +20%, which is the case with this Salesforce Covered Call position.      

 

Salesforce.Com Inc. (CRM) -- New Covered Call Position

The Buy/Write transaction was as follows:
12/02/2020 Bought 100 shares of Salesforce.Com Inc. stock @ $217.15 per share 
12/02/2020 Sold 1 Salesforce December 18th, 2020 $210.00 Call option @ $12.45 per share

A possible overall performance result (including commissions) if the stock price is above the $210.00 strike price at expiration would be as follows:
Covered Call Cost Basis: $20,470.67
= ($217.15 - $12.45) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$1,245.00
= ($12.45 * 100 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Salesforce stock is above $210.00 strike price at the December 18th expiration): -$715.00
= ($210.00 - $217.15) * 100 shares

Total Net Profit: +$530.00
= (+$1,245.00 options income +$0.00 dividend income -$715.00 capital appreciation)

Absolute Return: +2.6%
= +$530.00/$20,470.67
Equivalent Annualized Return: +55.6%
= (+$530.00/$20,470.67)*(365/17 days)

The downside 'breakeven price' at expiration is at $204.70 ($217.15 - $12.45), which is 5.7% below the current market price of $217.15.