Today, a Covered Calls position has been established in Qualcomm Inc.(ticker QCOM) at the $135.00 strike price and for the April 16th, 2021 options expiration date. This position is slightly out-of-the-money since the 200 shares of QCOM stock was purchased at $133.43 (just below the $135.00 strike price). Qualcomm appeared on the Covered Calls Advisor's PEG Ratio screener based on FY2020's earnings per share and this year substantial additional earnings per share are expected. The Covered Calls Advisor believes that the softness in the stock price during the past two months is unwarranted, so a slightly bullish out-of-the-money strike price was chosen for this position.
As detailed below, two potential return-on-investment results are:
The transactions were as follows:
03/22/2021 Bought 200 shares of Qualcomm Inc. @ $133.43
03/22/2021 Sold 2 QCOM April 16th, 2021 $135.00 Call options @ $3.60 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of these Call options was 28.9 when this transaction executed.
Two possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $25,967.34
= ($133.43 - $3.60) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$720.00
= ($3.60* 200 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If QCOM is unchanged at $133.43 purchase price at April 16th expiration): +$0.00
= ($133.43 price at expiration - $133.43 purchase price)* 200 shares; OR
(c) Capital Appreciation (If QCOM is above $135.00 strike price at Apr 16th expiration): +$314.00
= ($135.00 -$133.43)* 200 shares
(a) Total Net Profit (If QCOM price unchanged at $133.43 at expiration): +$720.00
= (+$720.00 options income +$0.00 dividend income -$0.00 capital appreciation); OR
(b) Total Net Profit (If QCOM shares above $135.00 strike price and thus assigned at expiration): +$1,034.00
= (+$720.00 options income +$0.00 dividend income +$314.00 capital appreciation)
(a) Absolute Return (If QCOM price unchanged at expiration): +2.8%
= +$720.00/$25,967.34
Equivalent Annualized Return: +38.9%
= (+$720.00/$25,967.34)*(365/26 days); OR
(b) Absolute Return (If QCOM shares assigned at expiration): +4.0%
= +$1,034.00/$25,967.34
Equivalent Annualized Return: +55.9%
= (+$1,034.00/$25,967.34)*(365/26 days)
The downside 'breakeven price' at expiration is at $129.83 ($133.43 price per share - $3.60 options income), which is 2.7% below the current market price of $133.43.
