Covered Calls Established in Hologic Inc.

This afternoon an initial Covered Calls position was established in Hologic Inc. (ticker symbol HOLX) when the Covered Calls Advisor's buy/write limit order was executed.  Two hundred shares were purchased at $72.92 and two May 21st, 2021 Call options were sold at $4.48 at the $70.00 strike price.  The time value when this Covered Calls position was established was $1.56 per share = [$4.48 Call options price - ($72.92 stock price - $70.00 strike price)], so the downside breakeven price is $68.44 ($70.00 strike price - $1.56 time value).  Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Calls position was established with the Delta at 67.7, which approximates a probability of 67.7% that the Call options will be in-the-money on the options expiration date.

The Covered Calls Advisor prefers not to hold positions when there is an upcoming earnings report prior to any company's options expiration date but an exception was made in this case since Hologic issues their Q1 2021 earnings report after market close tomorrow. The earnings per share expected by analysts is $2.62, but the expected range is narrow between $2.57 and $2.68 and I believe Hologic will continue its trend of the past 5 quarters of exceeding estimates.  Also earlier this month, they announced their fourth acquisition so far this year, a $975 million acquisition (90% of which is paid with cash) of a company that expands Hologic's vertical capabilities in their medical diagnostics business.  I believe their decision to make this purchase is also an indicator that their current strong business trends are continuing.  

About a month ago, I shared an article on this blog of the Covered Calls Advisor's method of using an Options and Company Checklist to obtain important information on potential companies for Covered Calls investments. In this post I used the Checklist for Hologic (see post here).  The quality, value, and growth characteristics of Hologic highlighted by the Checklist made it a worthwhile investment candidate for the Covered Calls Advisor.  I am also impressed with the management and vision of CEO Steve MacMillan -- see his interview from February 2021 with Jim Cramer on CNBC's Mad Money here.  

As detailed below, a potential return-on-investment result for this Hologic Inc. position is +2.3% absolute return (equivalent to +33.1% annualized return over the next 25 days) if the stock is in-the-money and therefore assigned on the May 21st, 2021 options expiration date.

 

Hologic Inc. (HOLX) -- New Covered Calls Position

The buy/write transaction was as follows:
04/27/2021 Bought 200 shares of Hologic stock @ $72.92 per share 
04/27/2021 Sold 2 Hologic May 21st, 2021 $70.00 Call options @ $4.48 per share
Note: The Implied Volatility of the Call options was 36.1 when this transaction was executed.  

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $13,689.34
= ($72.92 - $4.48) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$894.66
= ($4.48 * 200 shares) - $1.34 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Hologic stock is above $70.00 strike price at May 21st, 2021 expiration): -$584.00
= ($70.00 -$72.92) * 200 shares

Total Net Profit: +$310.66
= (+$894.66 Call option income +$0.00 dividend income -$584.00 capital appreciation)

Absolute Return-on-Investment: +2.3%
= +$310.66/$13,689.34
Equivalent Annualized Return-on-Investment: +33.1%
= (+$310.66/$13,689.34)*(365/25 days)