Covered Calls Established in Alibaba Group Holdings Ltd. and Applied Materials Inc.

Early in this morning's trading, Covered Calls positions were established in Alibaba Group Holdings Ltd. (ticker symbol BABA) and Applied Materials Inc. (AMAT) when the Covered Calls Advisor's buy/write limit orders were executed.  For Alibaba, 100 shares were purchased at $244.92 and one March 5th, 2021 Call option was sold at $12.84 at the $235.00 strike price.   For Applied Materials, 200 shares were purchased at $112.26 and 2 March 5th, 2021 Call options were sold at $5.89 at the $108.00 strike price.  Given the Covered Calls Advisor's current cautious outlook, moderately in-the-money Covered Calls positions were established for both companies.  The Delta was 69.2 for the Alibaba Covered Calls position and 70.9 for the Applied Materials position -- this approximates the probability that the Call options will be in-the-money on the options expiration date. In addition, there is upcoming ex-dividends of $.22 per share tomorrow for Applied Materials, which is included in the potential return-on-investment results detailed below.  Importantly for the Covered Calls Advisor, there is not a quarterly earnings report for either company prior to their March 5th options expiration date.

As detailed below, potential return-on-investment results for each of these Covered Calls positions are: 

• For Alibaba Group Holdings Ltd.: +1.3% absolute return (equivalent to +41.7% annualized return over the next 11 days) if the stock is assigned on the March 5th options expiration date.

• For Applied Materials Inc.: +1.7% absolute return (equivalent to +57.7% annualized return over the next 11 days) if the stock is assigned on the March 5th options expiration date.

1. Alibaba Group Holdings Ltd. (BABA) -- New Covered Call Position

The transactions were as follows:
2/23/2021 Bought 100 shares of Alibaba stock @ $244.92 per share 
2/23/2021 Sold 1 Alibaba March 5th, 2021 $235.00 Call option @ $12.84 per share
Note: this was a simultaneous Buy/Write transaction.  The Implied Volatility of the Call options was 39.0 when this transaction was executed.  

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $23,208.67
= ($244.92 - $12.84) * 100 shares + $.67 commission

Net Profit Components:
(a) Option Income: +$1,284.00
= ($12.84 * 100 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is above $235.00 strike price at March 5th, 2021 expiration): -$992.00
= ($235.00 -$244.92) * 100 shares

Total Net Profit: +$292.00
= (+$1,284.00 Call option income +$0.00 dividend income -$992.00 capital appreciation)

Absolute Return: +1.3%
= +$292.00/$23,208.67
Equivalent Annualized Return: +41.7%
= (+$292.00/$23,208.67)*(365/11 days)

The downside 'breakeven price' at expiration is at $232.08 ($244.92 - $12.84), which is 5.2% below the current market price of $244.92.


2. Applied Materials Inc. (AMAT) -- New Covered Calls Position

The transactions were as follows:
02/23/2021 Bought 200 shares of Applied Materials Inc. @ $112.26 per share 
02/23/2021 Sold 2 Applied Materials March 5th, 2021 $108.00 Call options @ $5.89 per share
Note: the Implied Volatility of the Call option was 34.5 when this buy/write limit order was executed. 
02/24/2021 Ex-dividend of $.22 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $21,275.34
= ($112.26 - $5.89) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,178.00
= ($5.89 * 200 shares)
(b) Dividend Income: +$44.00
= $.22 per share x 200 shares 
(c) Capital Appreciation (If Applied Materials stock is above $108.00 strike price at the March 5th options expiration): -$852.00
= ($108.00 -$112.26) * 300 shares

Total Net Profit: +$370.00
= (+$1,178.00 options income +$44.00 dividend income -$852.00 capital appreciation)

Absolute Return: +1.7%
= +$370.00/$21,275.34
Equivalent Annualized Return: +57.7%
= (+$370.00/$21,275.34)*(365/11 days)