Citigroup reported their 2020 Q4 earnings before market open this morning. Their revenues were 10% below the same pre-Covid quarter last year and their earnings were 2.3% below last year. Their Return on Tangible Common Equity was 11.8%, well above the 10.0% regulatory minimum requirement. Their key profitability metrics are likely to improve in 2021. Citi's current Price-to-Tangible Book Value at .86 is equivalent to their prior 5-year average value. Also, they intend to initiate stock buybacks in 2021.
Most mid- to large-cap companies in the Financial Sector provide only modest growth prospects, but they often pay 2.0%+ annual dividend yields. Consequently, the Covered Calls Advisor is targeting opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions established in upcoming months. This new February Citigroup monthly Covered Calls position continues the Dividend Capture Strategy of often selling
in-the-money monthly Covered Calls for one of the four biggest U.S. money center
banks (Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo) for each options expiration
month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup and/or Wells Fargo for Feb, May, Aug, and Nov options expirations; and
Bank of America for Mar, Jun, Sep, and Dec options expirations).
The goal of these monthly Covered Calls in the money center banks is to both capture the quarterly dividend payment and for the stock prices to remain above the strike price at
options expiration, thereby achieving the maximum possible return-on-investment result for the position. So far, this approach has provided
higher annualized return results than would be achieved
with either: (1) Covered Calls in these same stocks during their non-ex-dividend
months; or (2) A simple buy-and-hold stock purchase of these bank stocks. Hopefully, these outperformance results achieved to-date using this strategy will continue with this
February 19th Citigroup Covered Calls position.
Two potential return-on-investment results are: (a) +1.8% absolute return (equivalent to +39.2% annualized
return for the next 17 days) if the stock is assigned early [on the last trading day prior to the ex-dividend date]; OR (b) +2.7%
absolute return (equivalent to +26.9% annualized return over the next 36
days) if the stock is assigned on the February 19th options expiration date.
Citigroup Inc. (C) -- New Covered Calls Position
The transactions were:
01/15/2021 Bought 300 Citigroup shares @ $66.30
01/15/2021 Sold 3 Citigroup 2/19/2021 $62.50 Call options @ $4.92
Note: the Implied Volatility of these Call options was 33.4 when this position was established.
02/01/2021 Upcoming quarterly ex-dividend estimated at $.51 per share
Two possible overall performance results (including commissions) for this
Citigroup Covered Calls position are as follows:
Covered Calls Cost Basis: $18,416.01
= ($66.30 - $4.92) *300 + $2.01 commission
Net Profit Components:
(a) Options Income: +$1,476.00
= ($4.92 *300 shares)
(b) Dividend Income (If option exercised early on the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If Citi shares assigned at Feb. 19th, 2021 expiration): +$153.00
= ($.51 dividend per share x 300 shares)
(c) Capital Appreciation (If Citigroup shares assigned early): -$1,140.00
+($62.50 strike price -$66.30 stock purchase cost) *300 shares; or
(c) Capital Appreciation (If Citi shares assigned at $62.50 strike price at options expiration): -$1,140.00
+($62.50-$66.30) *300 shares
Either outcome would provide a good return-on-investment result. These returns will be achieved as long as the stock is above the $62.50 strike price at assignment. If the stock declines below the strike price, the breakeven price of $60.87 ($66.30 -$4.92 -$.51) provides 8.2% downside protection below today's purchase price.
The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a dividend capture strategy. The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved. As shown in the table below, all nine criteria are achieved for this Citigroup Inc. Covered Calls position.
