Today, four limit orders were submitted as follows:
1. Quest Diagnostics Inc. (ticker DGX) -- A buy/write limit order was placed to buy 200 shares and sell two April 16th, 2021 $125.00 Call options at a net debit of $123.60 per share.
2. Oscar Health Inc.(OSCR) -- A buy/write limit order was placed to buy 300 shares and sell three April 16th, 2021 $25.00 Call options at a net debit of $23.34 per share.
3. Herbalife Nutrition Ltd.(HLF) -- A limit order was placed to sell three HLF April 16th, 2021 $42.50 Put options at $.65 per share.
4. Comcast Corporation (CMCSA) -- A buy/write limit order was placed to buy 300 shares and sell three April 16th, 2021 $52.50 Call options at a net debit of $52.06 per share.
The first three positions above were executed at the specified limit prices. The fourth position (Comcast) did not execute today, so I will put it in my notes to re-consider it again tomorrow. The detailed transactions and potential return-on-investment results for the three new positions in the Covered Calls Advisor Portfolio are as follows:
1. Quest Diagnostics Inc. (DGX) -- New Covered Calls Position
Quest is one of only six companies that appeared on both the (a) Large-Cap Value and Profitability and also the (b) Quantitative Value screeners developed by the Covered Calls Advisor (the other five are Cisco, Kellogg, Lockheed Martin, Lowe's, and Philip Morris). In terms of value, Quest's trailing twelve months P/E Ratio is only 11.4 and its Cash Return on Invested Capital is 15.4%.
Included in the analysis below, there is an upcoming ex-dividend of $.62 on April 6th, 2021 which is prior to the April 16th options expiration date.
The buy/write transaction was as follows:
03/30/2021 Bought 200 shares of Quest Diagnostics Inc. @ $126.93
03/22/2021 Sold 2 DGX April 16th, 2021 $125.00 Call options @ $3.33 per share
Note: the Implied Volatility of these slightly in-the-money Call options was 19.8 when this transaction executed.
04/06/2021 Upcoming $.62 per share ex-dividend
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $24,721.34
= ($126.93 - $3.33) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$666.00
= ($3.33* 200 shares)
(b) Dividend Income (If stock is assigned early on April 5th (the day prior to the ex-dividend date): +$0.00; OR
(b) Dividend Income (If the stock is assigned on the April 16th options expiration date): +$124.00
= $.62 per share x 200 shares
(c) Capital Appreciation (If Quest Diagnostics is assigned early): -$386.00
= ($125.00 price at expiration - $126.93 purchase price) * 200 shares; OR
(c) Capital Appreciation (If DGX share price is above $125.00 strike price at Apr 16th expiration): -$386.00
= ($125.00 -$126.93)* 200 shares
(a) Total Net Profit (If DGX shares assigned early on the day prior to the 4/6/2021 ex-div date): +$280.00
= (+$666.00 options income +$0.00 dividend income -$386.00 capital appreciation); OR
(b) Total Net Profit (If DGX shares close above the $125.00 strike price and are therefore assigned at expiration): +$404.00
= (+$666.00 options income +$124.00 dividend income -$386.00 capital appreciation)
(a) Absolute Return (If Quest shares assigned early on the day prior to the 4/6/2021 ex-div date): +1.1%
= +$280.00/$24,721.34
Equivalent Annualized Return (If assigned early): +59.1%
= (+$280.00/$24,721.34)*(365/7 days); OR
(b) Absolute Return (If Quest shares assigned at expiration): +1.6%
= +$404.00/$24,721.34
Equivalent Annualized Return (If assigned at expiration): +33.1%
= (+$404.00/$24,721.34)*(365/18 days)
The
downside 'breakeven price' at expiration is at $122.98 ($126.93 price per share - $3.33 options income - $.62 dividend income),
which is 3.1% below the current market price of $126.93.
2. Oscar Health Inc. (OSCR) -- New Covered Calls Position
The Covered Calls Advisor self imposes a limitation of no more than one small position at a time in a speculative company. Most recently, positions in the Covered Calls positions in DraftKings and Uber Technologies expired in-the-money for a nice profit. Oscar Health Inc. works primarily with individuals to assist them in obtaining affordable healthcare insurance. Oscar's competitive advantage is in their advanced cloud-based member engagement platform. They are a 4-time member of CNBC's Disruptor 50 companies. Their Initial Public Offering (IPO) was March 1st, 2021 at $36.00 per share and their price has declined to $25.49 today when it was purchased. Their quiet period ended yesterday, and six investment companies immediately came out with their analyst's recommendations, which were very positive given that their average target price is $37.83 (+48.4% above today's purchase price). Credit Suisse's analysis is that their 'Growth-Adjusted EV/Sales Multiple" for 2021 of .05 is substantially better than the .11 average of their traditional health insurer competitors. As noted before, this is a speculative (i.e. risky) investment given many future uncertainties, but I think this company has excellent growth potential and I will continue to track it carefully.
The simultaneous Buy/Write transaction was as follows:
03/30/2021 Bought 300 Oscar Health shares @ $25.49 per share
03/30/2021 Sold 3 OSCR April 16th, 2021 $25.00 Call options @ $2.15 per share
Note: the Implied Volatility of the Call options was very high at 81.0 when this transaction occurred, so the potential return-on-investment shown below is also very high.
A possible overall performance result (including commissions) if the stock price is above the $25.00 strike price at expiration would be as follows:
Covered Call Cost Basis: $7,004.01
= ($25.49 - $2.15) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$645.00
= ($2.15 * 300 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If OSCR stock is above $25.00 strike price on the April 16th, 2021 options expiration): -$147.00
= ($25.00 - $25.49) * 300 shares
Total Net Profit (If Oscar Health stock is above the $25.00 strike price at the close on the April 16th, 2021 options expiration date): +$498.00
= (+$645.00 options income +$0.00 dividend income -$147.00 capital appreciation)
Absolute Return (If OSCR stock is above $25.00 strike price on the April 16th, 2021 options expiration) : +7.1%
= +$498.00/$7,004.01
Equivalent Annualized Return: +144.2%
= (+$240.00/$15,062.01)*(365/18 days)
The
downside 'breakeven price' at expiration is at $23.34 ($25.49 - $2.15),
which is 8.4% below the current market price of $25.49.
3. Herbalife Nutrition Ltd. (HLF) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
03/30/2021 Sold 3 Herbalife April 16th, 2021 $42.50 100% Cash-Secured Put options @ $.65 per share. Note: the stock price was $44.63 when these Put options were sold.
The Covered Calls Advisor does not use margin, so the detailed
information on this position and the potential result detailed below
reflect that this position was established using 100% cash
securitization for the three Put options sold.
A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Puts Cost Basis: $12,557.01
= ($42.50 - $.65) * 300 shares + $2.01 commission
Net Profit:
(a) Options Income: +$192.99
= ($.65 * 300 shares) - $2.01 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Herbalife stock is above $42.50 strike price at the April 16th expiration): +$0.00
= ($42.50 - $42.50) * 300 shares
Total Net Profit (If HLF stock price is above $42.50 strike price at options expiration): +$192.99
= (+$192.99 option income +$0.00 dividend income +$0.00 capital appreciation)
Absolute Return (If Herbalife stock is above $42.50 strike price at the April 16th, 2021 options expiration) : +1.5%
= +$192.99/$12,557.01
Annualized Return: +31.2%
= (+$192.99/$12,557.01)*(365/18 days)
The probability of assignment at market close on the April 16th, 2021
options expiration date was 73.5% when this position was established. The
downside 'breakeven price' at expiration is at $41.85 ($42.50 - $.65),
which is 6.2% below the current market price of $44.6275.
