Established Covered Calls Position in HP Inc. Using the Dividend Capture Strategy

A Covered Calls position was established in HP Inc. (ticker symbol HPQ) when the Covered Calls Advisor's buy/write limit order was executed -- 300 shares were purchased at $29.26 and 3 June 18th, 2021 Call options were sold at $1.52 per share at the $28.00 strike price.   Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Calls position was established -- the Delta was 74.5, which closely approximates the probability that the Call options will be in-the-money on the options expiration date. 

HP has a quarterly ex-dividend of $.1938 per share on June 8th (a 2.6% annual dividend yield). Potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the June 18th options expiration date.

HP Inc. just released quarterly earnings after the market close yesterday. Sales and earnings per share expectations were exceeded and HP also increased its guidance for current fiscal year EPS to $3.40-$3.50 per share. Despite this positive report, the stock had declined by 8.8% from yesterday's closing price of $32.10 to $29.26 this morning when the Covered Calls Advisor's buy/write limit order of $27.74 was executed. At this $29.26 purchase price, the P/E ratio based on the $3.45 midpoint of this year's EPS guidance would be only 8.5, a very attractive valuation for this leading technology hardware company. Also, HP was on the Covered Calls Advisor's 'Watchlist' since it appeared in the top 7% of S&P 500 companies as identified in the Covered Calls Advisor's 'S&P 500 Value and Profitability' stock screener.      

As detailed below, two potential return-on-investment results are: 

•  +0.9% absolute return (equivalent to +31.1% annualized return-on-investment for the next 11 days) if the stock is assigned early (business day prior to the June 8th ex-dividend date); OR 

• +1.6% absolute return (equivalent to +27.1% annualized return over the next 22 days) if the stock is assigned on the June 18th options expiration date. 
  

HP Inc. (HPQ) -- New Covered Calls Position
The buy/write transaction was:

05/28/2021 Bought 300 HP Inc. HP Inc. shares @ $29.26
05/28/2021 Sold 3 HP Inc. 6/18/2021 $28.00 Call options @ $1.52
Note 1: the Implied Volatility of the Calls was 26.4 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.26 per share = [$1.52 Call options premium - ($29.26 stock price - $28.00 strike price)]
06/08/2021 Upcoming quarterly dividend of $.1938 per share

Two possible overall performance results (including commissions) for this HP Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $8,324.01
= ($29.26 - $1.52) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$456.00
= ($1.52 * 300 shares)
(b) Dividend Income (If options exercised early on June 7th, the business day prior to the June 8th ex-div date): +$0.00; or
(b) Dividend Income (If HPQ stock assigned at June 18th, 2021 expiration): +$58.14
= ($.1938 dividend per share x 300 shares)

(c) Capital Appreciation (If HP Inc. Call options assigned early on June 8th): -$378.00
+($28.00 - $29.26) * 300 shares; or
(c) Capital Appreciation (If HP Inc. shares assigned at $28.00 strike price at June 18th options expiration): -$378.00
+($28.00 - $29.26) * 300 shares

1. Total Net Profit [If options exercised on June 7th (business day prior to June 8th ex-dividend date)]: +$78.00

= (+$456.00 options income +$0.00 dividend income -$378.00 capital appreciation); or

2. Total Net Profit (If 300 HP Inc. shares assigned at $28.00 strike price at June 18th, 2021 expiration): +$136.14

= (+$456.00 +$58.14 -$378.00)

1. Absolute Return (If three HP Inc. Call options exercised early on June 8th, 2021): +0.9%

= +$78.00/$8,324.01

Annualized Return (If options assigned early): +31.1%

= (+$78.00/$8,324.01)*(365/11 days); or

2. Absolute Return (If HPQ shares assigned at $28.00 at June 18th, 2021 options expiration): +1.6%

= +$136.14/$8,324.01

Annualized Return (If HPQ shares assigned at $28.00 at June 18th, 2021 expiration): +27.1%
= (+$136.14/$8,324.01)*(365/22 days)

Either outcome provides a satisfactory return-on-investment result for this HP Inc. investment.  These returns will be achieved as long as the stock is above the $28.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $27.5462 ($29.26 -$1.52 -$.1938) provides 5.9% downside protection below today's stock purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position.  As shown below with this HP Inc. position, all nine criteria were met.

Established Covered Calls in LyondellBasell Industries N.V. Using Dividend Capture Strategy

Today, a Covered Calls position was established in LyondellBasell Industries N.V.(ticker LYB) with the purchase of 200 shares at $112.54 per share and two June 18th, 2021 Call options were sold for $3.82 per share at the $110.00 strike price.  This transaction occurred at simultaneous buy/write transaction at a net debit of $108.72 per share.  The corresponding time value (aka extrinsic value) in the Call options was $1.28 per share = [$3.82 Call options premium received - ($112.54 stock purchase price - $110.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at approximately 66.2 when this buy/write transaction was executed, which approximates the probability of assignment on the June 18th, 2021 options expiration date. 

LyondellBasell Industries made their quarterly dividend announcement this morning; it will go ex-dividend at $1.13 per share (4.0% annualized dividend yield at the current stock price which is an increase of +7.6% above the prior quarterly dividend amount) on June 4th which is prior to the June 18th options expiration date, so this dividend is included in the potential return-on-investment results shown below.  Also shown below, all nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and, as preferred by the Covered Calls Advisor, the next quarterly earnings report on July 30th, 2021 is after the June 18th options expiration date. 

LyondellBasell's revenue is exploding this fiscal year and will almost double last year's pandemic-depressed level. Earnings are also expected to explode higher to perhaps above $14.00 per share this year (a historically very attractive P/E ratio of only 7.7) with expected Q2 earnings of $4.59 versus $.71 last year. The stock is close to its prior 3-year high, but the Covered Calls Advisor believes it remains a good value at its current price.

As shown below, two potential return-on-investment result are: (1) +1.2% absolute return in 7 days (equivalent to a +61.1% annualized return-on-investment if LYB stock is assigned at $110.00 on the day prior to the June 4th ex-dividend date; OR (2) +2.2% absolute return in 22 days (equivalent to a +36.7% annualized return-on-investment if assigned at the June 18th expiration.

LyondellBasell Industries N.V. (LYB) -- New Covered Calls Position
The buy/write transaction was as follows:
05/28/2021 Bought 200 shares of LyondellBasell stock @ $112.54 per share 
05/28/2021 Sold 2 LyondellBasell June 18th, 2021 $110.00 Call options @ $3.82 per share
Note: the Implied Volatility of the Call options was 22.0.
06/04/2021 Upcoming ex-dividend of $1.13 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $21,745.34
= ($112.54 - $3.82) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$762.66
= ($3.82 * 200 shares) - $1.34 commission
(b) Dividend Income (If LyondellBasell stock assigned on day prior to June 4th ex-dividend date): +$0.00; OR
(b) Dividend Income (If LyondellBasell stock assigned on June 18th options expiration date): $226.00
= $1.13 dividend per share x 200 shares
(c) Capital Appreciation (If LYB stock is assigned at $110.00 on the day prior to the June 4th ex-dividend date): -$508.00
= ($110.00 - $112.54) * 200 shares; OR
(c) Capital Appreciation (If LyondellBasell stock is above $110.00 strike price at the June 18th expiration): -$508.00
= ($110.00 - $112.54) * 200 shares

1.  Total Net Profit (If LyondellBasell stock assigned on day prior to June 4th ex-dividend date): +$254.66
= (+$762.66 options income +$0.00 dividend income -$508.00 capital appreciation): OR
2.  Total Net Profit (If LYB stock assigned on June 18th options expiration date): +$480.66
= (+$762.66 options income +$226.00 dividend income -$508.00 capital appreciation)

1.  Absolute Return (If LYB stock assigned on day prior to June 4th ex-dividend date): +1.2%
= +$254.66/$21,745.34
Equivalent Annualized Return: +61.1%
= (+$254.66/$21,745.34) * (365/7 days); OR
2.  Absolute Return (If LyondellBasell stock assigned on June 18th options expiration date): +2.2%
= +$480.66/$21,745.34
Equivalent Annualized Return: +36.7%
= (+$480.66/$21,745.34)*(365/22 days)


Either outcome would provide a very good return-on-investment result.  These returns will be achieved as long as the stock is above the $110.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $107.59 ($112.54 -$3.82 -$1.13) provides 4.4% 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 which is the case for this LyondellBasell Industries N.V. position, and all nine criteria were met in this case (as shown in the chart below).

Roll Up-and-Out Twilio Inc. Cash-Secured Put Position

On May 17th, the Covered Calls Advisor established a 100% Cash-Secured Put position in Twilio Inc. at the June 18th, 2021 $270.00 strike price.  Twilio shares have spiked higher from $289.04 when this position was established to $332.60 today, so the Covered Calls Advisor decided to roll-up-and-out from the $270.00 strike price to the $300.00 strike price at the June 25th, 2021 options expiration date.  A vertical credit spread transaction was executed at a net credit of $4.42 ($5.40 - $.98) per share.  There was only $.98 time value remaining in the $270.00 Calls for the next 24 days and trading up to the $300.00 Put added $4.42 to the remaining time value.

A potential return-on-investment result for this Twilio Inc. Cash-Secured Put position is +5.5% absolute return in 40 days (equivalent to a +50.0% annualized return-on-investment) if the stock price closes above the $300.00 strike price on the June 25th options expiration date. 
By rolling up the original position, this result would exceed the +3.8% absolute return (+41.8% annualized) that was the maximum potential of the original Cash-Secured Put position at the $270.00 strike price.  The blog post detailing this original position is here.   The detailed transactions and a potential result are provided below.    

Twilio Inc. (TWLO) -- New 100% Cash-Secured Put Position
The original transaction was as follows:
05/17/2021  Sold 1 Twilio Inc. June 18th, 2021 $270.00 100% Cash-Secured Put options @ $9.85 per share.
Note: the Implied Volatility of this Put option was 52.3 when this position was transacted.
05/26/2021 Roll up transaction executed:
Bought-to-Close 1 TWLO 6/18/2021 $270.00 Put option @ $.98 per share and simultaneously Sold-to-Open 1 TWLO 6/25/2021 $300.00 Put option @ $5.40 per share
Note: The estimated probability that this $300.00 Put option closes out-of-the-money (stock price above the strike price) on the June 18th options expiration date was approximately 80% when this roll up transaction was executed.

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 one Put option sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $26,015.67
= ($270.00 - $9.85) * 100 shares + $.67 commission

Net Profit:
(a) Option Income: +$1,424.99
= ($9.85 - $.98 + $5.40) * 100 shares - $2.01 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Twilio stock is above $300.00 strike price at the June 25th expiration): +$0.00
= ($300.00 - $300.00) * 100 shares

Total Net Profit (If Twilio stock price is out-of-the-money (above $300.00 strike price) on the June 25th options expiration date): +$1,424.99
= (+$1,424.99 option income +$0.00 dividend income + $0.00 capital appreciation)

Absolute Return (If Twilio is above $300.00 strike price at the June 25th, 2021 options expiration) : +5.5%
= +$1,424.99/$26,015.67
Annualized Return: +50.0%
= (+$1,424.99/$26,015.67) * (365/40 days)

Established Cash-Secured Put Position in Regeneron Pharmaceuticals Inc.

Today, one 100% Cash-Secured Put option was sold in Regeneron Pharmaceuticals Inc. (ticker REGN) at the June 18th, 2021 $480.00 strike price at $6.80 per share when the stock price was $494.75 (3.0% above the strike price). This out-of-the-money Put position had a Delta of 69.3 which approximates the probability of assignment at the options expiration date.

Regeneron is a biopharmaceutical company focused on treatments for eye diseases, cancer, dermatitis,and rheumatoid arthritis.  The average target price of 25 analysts covering Regeneron is $628.36 (+27.0% above the current stock price).  Eighteen analysts rate it as a 'Strong Buy' or 'Buy', seven rate it a 'Hold', and none rate it as 'Underperform' or 'Sell'.   Given Regeneron's potential, the Covered Calls Advisor believes it represents a very good value at its current price and at its current relatively modest P/E ratio of 14.2 and only 10.6 based on this year's estimated earnings.  

The 25.1 Implied Volatility for the Put option was attractive to the Covered Calls Advisor since it is well above the current S&P 500 Volatility Index (VIX) of 18.5.  Important to the Covered Calls Advisor, there is no earnings report prior to the June 18th, 2021 options expiration date. 

As detailed below for this Regeneron 100% Cash-Secured Put position, there is potential for a +1.4% absolute return in 25 days (equivalent to a +21.0% annualized return-on-investment). 

 

Regeneron Pharmaceuticals Inc. (REGN) -- New 100% Cash-Secured Put Position
The transaction today was as follows:
05/25/2021  Sold 1 Regeneron June 18th, 2021 $480.00 100% Cash-Secured Put option @ $6.80 per share.

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 one Put option sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $47,320.67
= ($480.00 - $6.80) * 100 shares + $.67 commission

Net Profit:
(a) Options Income: +$679.33
= ($6.80 * 100 shares) - $.67 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If REGN stock is above $480.00 strike price at the June 18th expiration): +$0.00
= ($480.00 - $480.00) * 100 shares

Total Net Profit (If Regeneron stock price is above $480.00 strike price at options expiration): +$679.33
= (+$679.33 option income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Regeneron is above $480.00 strike price at the June 18th, 2021 options expiration) : +1.4%
= +$679.33/$47,320.67
Equivalent Annualized Return: +21.0%
= (+$679.33/$47,320.67)*(365/25 days)

 

Closed Covered Calls Position in KB Home

The Covered Calls Advisor decided to close out the Covered Calls position in KB Home (ticker KBH).  The stock has declined from $48.49 when this Covered Calls position was established on April 30th, 2021 to $43.79 this morning when the 300 KBH shares were sold.  Although the demand for new homes remains strong, continued downside is possible because of a slower new builds rate (from dramatic cost increase in lumber and other materials and also from a shortage of skilled construction labor).  The Covered Calls Advisor also believes the probability is relatively high that interest rates will continue to trend higher this year which is also not supportive of higher homebuilder stock prices.  

As detailed below, the return-on-investment result was -3.2% absolute return in 24 days (equivalent to a -48.3% annualized return-on-investment).

KB Home (KBH) -- Covered Calls Position Closed
The Buy/Write transaction was as follows:
04/30/2021 Bought 300 KB Home shares @ $48.49
04/30/2021 Sold 3 KB Home 05/21/2021 $46.00 Call options @ $3.11
Note: the Time Value (aka Extrinsic Value) in the Call options was $.62 per share = [$3.11 Call options premium - ($48.49 stock price - $46.00 strike price)]
05/05/2021 Quarterly ex-dividend of $.15 per share
05/21/2021 KBH share closed out-of-the-money at the options expiration date.  The stock price closed at $43.54 (below the $46.00 strike price).
05/24/2021 Sold 300 shares at $43.79 to close the KBH position.

The overall performance result (including commissions) for this KB Home Covered Calls position was as follows:
Covered Calls Cost Basis: $13,616.01
= ($48.49 - $3.11) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$933.00
= ($3.11 * 300 shares)
(b) Dividend Income: +$45.00
= ($.15 dividend per share x 300 shares)
(c) Capital Appreciation (KBH shares sold at $43.79 per share): -$1,410.00
+($43.79 - $48.49) * 300 shares

Total Net Profit: -$432.00

= (+$933.00 +$45.00 -$1,410.00)
 

Absolute Return: -3.2%

= -$432.00/$13,616.01

Annualized Return (If KB Home shares assigned at $38.00 at Feb 19th, 2021 expiration): -48.3%

= (-$432.00/$13,616.01) * (365/24 days)

May 21st, 2021 Monthly Options Expiration Results

The Covered Calls Advisor Portfolio had nine positions since last month's (April 16th, 2021) monthly options expiration date.  During this past month, the Covered Calls Advisor Portfolio closed out eight of these nine positions profitably.

The return-on-investment results achieved were as follows:   

• Two Covered Calls positions expired in-the-money yesterday (on the May 21st, 2021 monthly options expiration date), so the Call options expired and the stocks were sold at their strike price.  The return-on-investment results were as follows:

1. Diamondback Energy Inc. (FANG) -- +1.7% absolute return in 15 days (equivalent to +41.8% annualized return-on-investment).
2. Truist Financial Corporation (TFC) -- +1.7% absolute return in 18 days (equivalent to +34.5% annualized return-on-investment).

 

• One 100% Cash-Secured Puts position expired out-of-the-money (stock price above the strike price) yesterday (on the May 21st, 2021 monthly options expiration date), so the Put options expired and the cash received when these Puts were originally sold was retained as profit in the Covered Calls Advisor Portfolio.  The return-on-investment results were as follows:

1. Uber Technologies Inc. (UBER) -- +1.2% absolute return in 16 days (equivalent to +28.4% annualized return-on-investment).

 

• Three Covered Calls positions expired in-the-money on their weekly options expiration dates.       The results of these three positions were:
  

1. Alibaba Group Holdings Ltd. (BABA) -- +1.3% absolute return in 11 days (equivalent to +42.7% annualized return-on-investment).
2. Applied Materials Inc. (AMAT) -- +1.5% absolute return in 12 days (equivalent to +45.0% annualized return-on-investment).
3. EOG Resources Inc. (EOG) -- +2.4% absolute return in 23 days (equivalent to +37.5% annualized return-on-investment).

• Two Covered Calls were closed out prior to their expiration dates (sold-to-close the stocks and simultaneously bought-to-close the Call options) based on decisions by the Covered Calls Advisor and with the following results:

1. Applied Materials Inc. (AMAT) -- +2.0% absolute return in 8 days (equivalent to +90.9% annualized return-on-investment).
   
2. Oscar Health Inc. (OSCR) -- +3.6% absolute return in 20 days (equivalent to +65.7% annualized return-on-investment).

 

One of the nine positions this month (Covered Calls in KB Home Inc.) expired out-of-the-money on the May 21st expiration date, so the 300 shares now remain in the Covered Calls Advisor Portfolio. A decision will be made early next week to either sell these shares or to continue with the Covered Calls position by selling three future Call options against the shares currently held.

During the past year (last 12 months) all 131 positions were closed out at a profit.  The average annualized return-on-investment was +42.4% and their average holding period was 20.4 days.

Warning: these results have been exceptional because of the persistent bull market during the past year, so the results of the Covered Calls Advisor Portfolio are certainly not to be considered as the norm for Covered Calls investing.  A more reasonable expectation for a well-informed and disciplined Covered Calls investment portfolio during more normal market conditions is to be profitable on two-thirds (67%) or more of positions.  

As shown in the right sidebar, there are currently eight open positions in the Covered Calls Advisor Portfolio.  All future transactions and return-on-investment results for these positions will be posted on this blog site on the same day the transactions occur.  As always, I welcome receiving your emails whenever you have any comments or questions related to this post or anything related to Covered Calls investing.

Best Wishes,
Jeff Partlow
Covered Calls Advisor
partlow@cox.net

Covered Calls Established in Applied Materials Inc.

A Covered Calls position was established in Applied Materials Inc. (ticker AMAT) this afternoon with a June 18th, 2021 options expiration date.   A buy/write transaction entered at a net debit of $118.26 was executed by purchasing 200 shares of AMAT at $128.68 and simultaneously selling two June 18th, 2021 Call options at the $120.00 strike price at $10.42 per share. The time value when this Covered Calls position was established was $1.74 per share = [$10.42 Call options price - ($128.68 stock price - $120.00 strike price)].  Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Calls position was established.  The Delta was 77.3 which approximates a probability of 77.3% that the Call options will be in-the-money and therefore the stock assigned (i.e. sold) on the options expiration date.  

The Implied Volatility of these Calls was 34.7 when this transaction was executed.  Applied Materials quarterly earnings report after the market close yesterday with the largest earnings beat in 5 years.  There is a $.24 per share ex-dividend next week on May 26th which is included in the potential return-on-investment results detailed below.

Applied Materials continues to screen attractively on the Covered Calls Advisor's 'Large Cap Value/Profitability/Growth' screen as a leader in the Technology (Semiconductor Equipment) industry.    Analysts remain bullish as twenty-three of twenty-eight analysts rating it as either a 'Buy' or 'Outperform'.  The other five analysts rate it as 'Neutral' and none rate it as 'Underperform' or 'Sell'.  The average target price of these analysts is $157.22 (22.2% above today's purchase price).  

As shown below, a potential return-on-investment result for this Applied Materials Covered Calls position is +1.7% absolute return in 29 days (equivalent to a +21.0% annualized return-on-investment if assigned at the June 18th expiration.

  

Applied Materials Inc. -- New Covered Calls Position Established

The $118.26 net debit buy/write limit order was transacted as follows:
05/21/2021 Bought 200 AMAT shares @ $128.68
05/21/2021 Sold 2 AMAT June 18th, 2021 $120.00 Call options @ $10.42
Note: the Open Interest in the Calls was 4,048 contracts.
05/26/2021 200 AMAT shares go ex-dividend @ $.24 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $23,653.34
= ($128.68 - $10.42) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$2,082.66
= ($10.42 * 200 shares) - $1.34 commission
(b) Dividend Income (If AMAT stock assigned on June 18th, 2021 options expiration date): $48.00
= $.24 dividend per share x 200 shares
(c) Capital Appreciation (If AMAT stock is above $120.00 strike price at the June 18th expiration): -$1,736.00
= ($120.00 -$128.68) * 200 shares

Total Net Profit (If AMAT stock assigned on June 18th options expiration date): +$394.66
= (+$2,082.66 options income +$48.00 dividend income -$1,736.00 capital appreciation)

Absolute Return (If AMAT stock assigned at $120.00 strike price on June 18th, 2021 options expiration date): +1.7%
= +$394.66/$23,653.34
Equivalent Annualized Return: +21.0%
= (+$394.66/$23,653.34)*(365/29 days)

This potential outcome would provide a good return-on-investment result.  These returns will be achieved as long as the stock is above the $120.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $118.02 ($128.68 -$10.42 -$.24) provides 8.3% downside protection below today's purchase price.

Closed Covered Calls Position in Applied Materials Inc.

The Covered Calls Advisor decided to close out the Covered Calls position in Applied Materials Inc. (ticker AMAT).  The stock has increased swiftly from $116.36 when this Covered Calls position was established on May 12th, 2021 to $126.03 this morning when the net credit limit order to close out the position at $104.25 was executed.  The time value when this Covered Calls position was established was $2.80 per share = [$14.16 Call options price - ($116.36 stock price - $105.00 strike price)] and the time value has declined to $.75 per share = [$21.78 Call options buy-to-close price - ($126.03 sell-to-close stock price - $105.00 strike price)] today, resulting in a $2.05 time value profit per share ($2.80 - $.75).  

Applied Materials will report its Q2 2021 earnings after market close today.  Since the Covered Calls Advisor prefers not to maintain positions when earnings are released and since 73% of time value profit has been achieved in only 8 days and since there are still 29 more days remaining until the June 18th, 2021 options expiration date, it was decided to close out the position now.   

As detailed below, the return-on-investment result was +2.0% absolute return in 8 days (equivalent to a +90.9% annualized return-on-investment).

 

Applied Materials Inc. -- Covered Calls Position Closed Out

The $102.20 net debit buy/write limit order was transacted as follows:
05/12/2021 Bought 200 AMAT shares @ $116.36
05/12/2021 Sold 2 AMAT June 18th, 2021 $105.00 Call options @ $14.16
Note: the Open Interest in the Calls was 847 contracts.
05/20/2021 Closed out (i.e. unwound) the AMAT Covered Calls position by Selling-to-Close 200 AMAT shares @ $126.03 and Buying-to-Close the 2 AMAT 6/18/2021 Call options @ $21.78 per share.

The overall performance results (including commissions) was as follows:
Covered Calls Cost Basis: $20,441.34
= ($116.36 - $14.16) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: -$1,526.68
= ($14.16 -$21.78) * 200 shares - $2.68 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (200 AMAT shares sold at $126.03 per share): +$1,934.00
= ($126.03 price when sold - $116.36 stock purchase price) * 200 shares

Net Profit (AMAT Covered Calls closed out by Selling-to-Close 200 AMAT shares @ $126.03 and Buying-to-Close the 2 AMAT 6/18/2021 Call options @ $21.78 per share): +$407.32
= (-$1,526.68 options income +$0.00 dividend income +$1,934.00 capital appreciation)

Absolute Return-on-Investment: +2.0%
= +$407.32/$20,441.34
Equivalent Annualized Return-on-Investment: +90.9%
= (+$407.32/$20,441.34)*(365/8 days)

Established Covered Calls Position in Devon Energy Corp. Using the Dividend Capture Strategy

Today a Covered Calls position was established in Devon Energy Corp. (ticker symbol DVN) when the Covered Calls Advisor's buy/write limit order was executed -- 400 shares were purchased at $24.75 and 4 June 18th, 2021 Call options were sold at $3.30 per share at the $22.00 strike price.   Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Calls position was established -- the Delta was 77.4, which closely approximates the probability that the Call options will be in-the-money on the options expiration date. 

Devon recently announced an upcoming fixed-plus-variable-ex-dividend of $.34 ($.11 fixed plus $.23 variable) per share on June 11th which in total is a 13% increase above its prior quarterly dividend payout.  It provides a total cash return dividend of 5.5% at the current stock price of $24.75, which is well above even the shareholder yield (that includes buybacks) of its Energy sector peers and also the large-cap broader market.  This fixed-plus-variable dividend is the first of its kind among Energy companies with the variable amount based on up to a 50% distribution of Devon's quarterly excess free cash flow.  Potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the June 18th options expiration date.

Devon Energy is a leading independent oil and gas Exploration and Production (E&P) company with a strong presence in the Permian Basin area of West Texas.  It is now a 'Strong Buy' based on the ratings of the 31 analysts currently following it and their average target price is $32.30 which is +30.5% above today's $24.75 purchase price.  Also, Devon is the recent 'Top Pick' in the large-cap energy sector by Credit Suisse.   Devon's stock is currently also attractively priced based on traditional energy company valuation metrics since based on current 2022 financial estimates, its EV/EBITDX of 5.0x and its NAV of 0.8x are both well below that of its peers.  Finally, Devon's Q1 2021 report was recently announced (two weeks ago) and they exceeded analysts' eps estimates by +36.4% ($.45 actual versus $.33 estimates).      

As detailed below, two potential return-on-investment results are: 

•  +2.6% absolute return (equivalent to +40.7% annualized return-on-investment for the next 23 days) if the stock is assigned early (business day prior to the June 11th ex-dividend date); OR 

• +4.1% absolute return (equivalent to +48.8% annualized return over the next 31 days) if the stock is assigned on the June 18th options expiration date. 
  

Devon Energy Corp. (DVN) -- New Covered Calls Position
The buy/write transaction was:
05/19/2021 Bought 400 Devon Energy Corp. shares @ $24.75
05/19/2021 Sold 4 DVN 6/18/2021 $22.00 Call options @ $3.30
Note 1: the Implied Volatility of the Calls was 51.2 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.55 per share = [$3.30 Call options premium - ($24.75 stock price - $22.00 strike price)]
06/11/2021 Upcoming quarterly fixed-plus-variable-dividend of $.34 per share

Two possible overall performance results (including commissions) for this Devon Energy Covered Calls position are as follows:
Covered Calls Cost Basis: $8,582.68
= ($24.75 - $3.30) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,320.00
= ($3.30 * 400 shares)
(b) Dividend Income (If options exercised early on June 10th, the business day prior to the June 11th ex-div date): +$0.00; or
(b) Dividend Income (If Devon Energy stock assigned at June 18th, 2021 expiration): +$136.00
= ($.34 dividend per share x 400 shares)

(c) Capital Appreciation (If Devon Energy Corp. Call options assigned early on June 10th): -$1,100.00
+($22.00 - $24.75) * 400 shares; or
(c) Capital Appreciation (If DVN shares assigned at $22.00 strike price at June 18th options expiration): -$1,100.00
+($22.00 - $24.75) * 400 shares

1. Total Net Profit [If options exercised on June 10th (business day prior to June 11th ex-dividend date)]: +$220.00

= (+$1,320.00 options income +$0.00 dividend income -$1,100.00 capital appreciation); or

2. Total Net Profit (If 400 Devon Energy shares assigned at $22.00 strike price at June 18th, 2021 expiration): +$356.00

= (+$1,320.00 +$136.00 -$1,100.00)

1. Absolute Return (If four DVN Call options exercised early on June 10th, 2021): +2.6%

= +$220.00/$8,582.68

Annualized Return (If options assigned early): +40.7%

= (+$220.00/$8,582.68)*(365/23 days); or

2. Absolute Return (If Devon Energy shares assigned at $22.00 at June 18th, 2021 options expiration): +4.1%

= +$356.00/$8,582.68

Annualized Return (If DVN shares assigned at $22.00 at June 18th, 2021 expiration): +48.8%
= (+$356.00/$8,582.68)*(365/31 days)

Either outcome provides a very attractive return-on-investment result for this Devon Energy Corp. investment.  These returns will be achieved as long as the stock is above the $22.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $21.11 ($24.75 -$3.30 -$.34) provides 14.7% downside protection below today's stock purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position.  As shown below with this Devon Energy Corp. position, all nine criteria were met.

Covered Calls Established in Bank of America Corp. Using Dividend Capture Strategy

Today, a Covered Calls position was established in Bank of America Corp. (ticker BAC) with the purchase of 300 shares at $41.51 per share and three June 18th, 2021 Call options were sold for $2.94 per share at the $39.00 strike price.  This transaction occurred at simultaneous buy/write transaction at a net debit of $38.57 per share.  The corresponding time value (aka extrinsic value) in the Call options was $.43 per share = [$2.94 Call options premium received - ($41.51 stock purchase price - $39.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at approximately 77.8 when this buy/write transaction was executed, which approximates the probability of assignment on the June 18th, 2021 options expiration date. 

Bank of America goes ex-dividend at $.18 per share (1.7% annualized dividend yield at the current stock price) on June 3rd which is prior to the June 18th options expiration date, so this dividend is included in the potential return-on-investment results shown below.  Also shown below, eight of the nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and (as preferred by the Covered Calls Advisor) the next quarterly earnings report on July 14th, 2021 is after the June 18th options expiration date.  In addition, Bank of America passed the Covered Calls Advisor's Finance Sector Screener, so it is currently ranked in the Top 20% of all Financial sector large-cap companies. 

Most companies in the Financial Sector provide only modest growth prospects, but they often provide good annual dividend yields.  Consequently, the Covered Calls Advisor targets opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions.  This new June 18th, 2021 Bank of America Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of five very large U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, and Morgan Stanley) for each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup and/or Morgan Stanley for Feb, May, Aug, and Nov options expirations; and
Bank of America and/or Goldman Sachs for Mar, Jun, Sep, and Dec options expirations).

The goal of these monthly Covered Calls in these 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 attractive annualized return results -- much better than would be achieved if Covered Calls positions for these bank stocks in non-dividend paying months.  

Two potential return-on-investment results are: (a) +1.1% absolute return (equivalent to +27.1% annualized return for the next 15 days) if the stock is assigned early [on the last trading day prior to the June 3rd ex-dividend date]; OR (b) +1.6% absolute return (equivalent to +18.6% annualized return over the next 31 days) if the stock is assigned on the June 18th, 2021 options expiration date. 

Bank of America Corp. (BAC) -- New Covered Calls Position

The buy/write transaction was as follows:
05/19/2021 Bought 300 shares of Bank of America Corp. stock @ $41.51 per share 
05/19/2021 Sold 3 BAC June 18th, 2021 $39.00 Call options @ $2.94 per share
Note: The Open Interest in these Calls was 10,779 contracts and their Implied Volatility was 29.1
06/03/2021 Ex-dividend of $.18 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $11,573.01
= ($41.51 - $2.94) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$882.00
= ($2.94 * 300 shares)
(b) Dividend Income (If BAC shares assigned on 6/2/2021, the business day prior to the 6/3/2021 ex-dividend date): = +$0.00; or
(b) Dividend Income (If BAC shares assigned at 6/18/2021 options expiration): +$54.00
= $.18 per share x 300 shares
(c) Capital Appreciation (If BAC shares assigned early on 6/3/2021): -$753.00
= ($39.00 -$41.51) * 300 shares; or
(c) Capital Appreciation (If shares above $39.00 strike price at the June 18th options expiration): -$753.00
= ($39.00 -$41.51) * 300 shares

1. Potential Net Profit (If Bank of America shares assigned on 6/2/2021, the day prior to the June 3rd ex-dividend date): +$129.00
= (+$882.00 options income +$0.00 dividend income - $753.00 capital appreciation)
2. Potential Net Profit (If BAC price is above $39.00 strike price at the June 18th options expiration): +$183.00
= (+$882.00 options income +$54.00 dividend income - $753.00 capital appreciation)

1. Absolute Return (If BAC shares assigned on 6/2/2021, the day prior to the June 3rd ex-dividend date): +1.1%
= +$129.00/$11,573.01
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +27.1%
= (+$129.00/$11,573.01)*(365/15 days)
2. Absolute Return (If BAC price is above $39.00 strike price at June 18th options expiration): +1.6%
= +$183.00/$11,573.01
Equivalent Annualized Return (If assigned on 6/18/2021 options expiration date): +18.6%
= (+$183.00/$11,573.01)*(365/31 days)

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  As shown below, eight of the nine criteria are achieved for this Bank of America Covered Calls position.

Established Cash-Secured Put Position in Twilio Inc.

This afternoon, a 100% Cash-Secured Put option position was established in Twilio Inc. (ticker TWLO) at the June 18th, 2021 options expiration date and the $270.00 strike price by selling one Put option at $9.85 per share when the stock price was $289.04 (7.1% above the strike price).  This position had a probability of assignment of 69.6% when this position was established.

Twilio is a leading Communications Platform-as-a-Service provider that enables businesses to embed messaging, voice, video, and authentication capabilities directly into their software applications. The company's platform allows developers to build and manage applications without the complexity of creating and maintaining underlying infrastructure. This just-published article (read here) makes a compelling case regarding both the ongoing growth potential as well as the potential sustainable competitive advantage being developed by Twilio.

Their Q1 2021 quarterly earnings and revenues exceeded analysts' expectations, yet the stock has since declined by 13.9%.  The Covered Calls Advisor believes now is a good opportunity to initiate a position in Twilio.  The twenty-eight analysts average rating is a 'Strong Buy' and their average target price of $472.17 is 63.4% above today's purchase price.              

As detailed below for this Twilio 100% Cash-Secured Put position, there is potential for a +3.8% absolute return in 33 days (equivalent to a +41.8% annualized return-on-investment). 

Twilio Inc. (TWLO) -- New 100% Cash-Secured Put Position
The transaction today was as follows:
05/17/2021  Sold 1 Twilio Inc. June 18th, 2021 $270.00 100% Cash-Secured Put options @ $9.85 per share.
Note: the Implied Volatility of this Put option was 52.3 when this position was transacted.

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 one Put option sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $26,015.67
= ($270.00 - $9.85) * 100 shares + $.67 commission

Net Profit:
(a) Option Income: +$984.33
= ($9.85 * 100 shares) - $.67 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Twilio stock is above $270.00 strike price at the June 18th expiration): +$0.00
= ($270.00 - $270.00) * 100 shares

Total Net Profit (If Twilio stock price is out-of-the-money (above $270.00 strike price) at options expiration): +$984.33
= (+$984.33 option income +$0.00 dividend income + $0.00 capital appreciation)

Absolute Return (If Twilio is above $270.00 strike price at the June 18th, 2021 options expiration) : +3.8%
= +$984.33/$26,015.67
Annualized Return: +41.8%
= (+$984.33/$26,015.67) * (365/33 days)

The downside 'breakeven price' at expiration is at $260.15 ($270.00 - $9.85), which is 10.0% below the current market price of $289.04.

Established Covered Calls in Qualcomm Inc. Using Dividend Capture Strategy

Today, a Covered Calls position was established in Qualcomm Inc. (ticker QCOM) with the purchase of 200 shares at $128.09 per share and two June 18th, 2021 Call options were sold for $9.71 per share at the $120.00 strike price.  This transaction occurred at simultaneous buy/write transaction at a net debit of $118.38 per share.  The corresponding time value (aka extrinsic value) in the Call options was $1.62 per share = [$9.71 Call options premium received - ($128.09 stock purchase price - $120.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at approximately 76.1 when this buy/write transaction was executed, which approximates the probability of assignment on the June 18th, 2021 options expiration date. 

Qualcomm Inc. goes ex-dividend at $.68 per share (2.1% annualized dividend yield at the current stock price) on June 2nd which is prior to the June 18th options expiration date, so this dividend is included in the potential return-on-investment results shown below.  Also shown below, eight of the nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and the next quarterly earnings report on July 28th, 2021 is after the June 18th options expiration date. 

Qualcomm appeared on the Covered Calls Advisor's PEG Ratio screener with its future 3-5 years earnings growth rate exceeding FY2021's estimated P/E Ratio of 16.4 based on the current stock price.  The Covered Calls Advisor believes that the softness in the stock price during the past three months is unwarranted especially given that the most recent quarterly earnings report exceeded analysts' estimates by 14%.  Also, the average target price of 33 analysts currently covering Qualcomm Inc. is $171.35 (33.8% above today's purchase price).

As shown below, two potential return-on-investment result are: (1) +1.4% absolute return in 16 days (equivalent to a +31.1% annualized return-on-investment if QCOM stock is assigned at $120.00 on the day prior to the June 2nd ex-dividend date; OR (2) +1.9% absolute return in 33 days (equivalent to a +21.4% annualized return-on-investment if assigned at the June 18th expiration.

Qualcomm Inc.(QCOM) -- New Covered Calls Position
The transactions were as follows:
05/17/2021 Bought 200 shares of Qualcomm stock @ $128.09 per share 
05/17/2021 Sold 2 Qualcomm June 18th, 2021 $120.00 Call options @ $9.71 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of the Call options was 32.0.
06/02/2021 Upcoming ex-dividend of $.68 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $23,677.34
= ($128.09 - $9.71) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,940.66
= ($9.71 * 200 shares) - $1.34 commission
(b) Dividend Income (If Qualcomm stock assigned on day prior to June 2nd ex-dividend date): +$0.00; OR
(b) Dividend Income (If Qualcomm stock assigned on June 18th options expiration date): $136.00
= $.68 dividend per share x 200 shares
(c) Capital Appreciation (If Qualcomm stock is assigned at $120.00 on the day prior to the June 2nd ex-dividend date): -$1,618.00
= ($120.00 - $128.09) * 200 shares; OR
(c) Capital Appreciation (If Qualcomm stock is above $120.00 strike price at the June 18th expiration): -$1,618.00
= ($120.00 - $128.09) * 200 shares

1.  Total Net Profit (If Qualcomm stock assigned on day prior to June 2nd ex-dividend date): +$322.66
= (+$1,940.66 options income +$0.00 dividend income -$1,618.00 capital appreciation): OR
2.  Total Net Profit (If stock assigned on June 18th options expiration date): +$458.66
= (+$1,940.66 options income +$136.00 dividend income -$1,618.00 capital appreciation)

1.  Absolute Return (If QCOM stock assigned on day prior to June 2nd ex-dividend date): +1.4%
= +$322.66/$23,677.34
Equivalent Annualized Return: +31.1%
= (+$322.66/$23,677.34) * (365/16 days); OR
2.  Absolute Return (If Qualcomm stock assigned on June 18th options expiration date): +1.9%
= +$458.66/$23,677.34
Equivalent Annualized Return: +21.4%
= (+$458.66/$23,677.34)*(365/33 days)


Either outcome would provide a very good return-on-investment result.  These returns will be achieved as long as the stock is above the $120.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $117.70 ($128.09 -$9.71 -$.68) provides 8.1% downside protection below today's purchase price.

Using the Cox-Ross-Rubinstein Options Pricing Model, the probability of making a profit (if held until the May 21st options expiration) for this Qualcomm Covered Calls position is 76.1%, so the approximate expected value annualized ROI of this investment (if held until expiration) is +16.3% (+21.4% * 76.1%), a satisfactory result for this in-the-money Covered Calls position, especially given that there are a higher than normal number of days (33) until the options expiration date.  Also, there is no earnings report uncertainty built into the Implied Volatility prior to the options expiration date.

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 which is the case for this Qualcomm Inc. position, and eight criteria were met in this case (as shown in the chart below).

Continuation of Covered Call Position in Alibaba Group Holdings Ltd.

Today, the Covered Call position in Alibaba Group Holdings Ltd.(BABA) was rolled down-and-out from today's May 14th, 2021 $225.00 strike price to the May 28th, 2021 $215.00 strike price at a net credit of $2.91 per share. The stock price has declined substantially from the original purchase price of $232.14 per share to $209.08 today when this rollout transaction was executed.  The combination of China's government regulations and $2.8 billion anti-competitive fine as well as earnings per share below analysts' estimates are the primary reasons for this price decline.  

Since yesterday's earnings report, seven companies have come out with decreased target prices for Alibaba.  But as shown in the chart below, the average cut in their target prices was only 8.7%, so the adjusted average target price is now approximately $282.43, which is 35.1% above today's $209.08 price when this rollout transaction occurred.  So, the Covered Calls Advisor decided to enter this rollout transaction which extends the expiration date two more weeks to provide some time to better evaluate whether Alibaba should continue as a core holding or if the position should be exited at a loss.

This commentary in the Q1 2021 Polen Global Growth Fund investor letter summarizes why Alibaba is in a dominant position with strong ongoing growth potential:

In the case of Alibaba, two significant news events impacted the company’s shares in the last few months of 2020. First, the Chinese government intervened to halt–for an undetermined period of time–Ant Group’s IPO. Alibaba owns 33% of Ant Group, and Ant Group’s “Alipay” application facilitates financing and payments around the Alibaba ecosystem. Second, rumors of Chinese regulatory oversight in the internet space were solidified at the end of 2020 when China’s State Administration for Market Regulation announced an investigation under the nation’s Anti-Monopoly Law. In combination, these events contributed to a sell-off in BABA shares that resulted in a roughly 30% decline from highs in late October 2020. We view Alibaba as arguably one of the most dominant businesses in the world.  We believe the company is also playing an integral role in China’s ambitions to reorient its economy from one that is export-driven to one that is domestically consumption-driven. Alibaba’s marketplaces—TaoBao and Tmall—in combination with its logistics capabilities may well provide the most efficient way to purchase and receive goods in many of China’s lower-tier cities. Important to the investment case, Alibaba’s core commerce business continues to compound at high rates while enjoying low total addressable market penetration and multiple competitive advantages, not the least of which consist of two-sided network effects between merchants and consumers. At approximately 19x next twelve month’s earnings, we think Alibaba will provide a favorable investment outcome even if it must pay fines or modify some business practices. We continue to expect earnings growth in excess of 20% over the next three to five years. Even if earnings growth were to fall to 15%, we think it would still result in a favorable outcome at the price at which we added to the position.

 

As detailed below, two potential return-on-investment results are: 

•  -4.5% absolute return (equivalent to -62.8% annualized return for 26 days) if the stock price is unchanged from today's price of $209.08 on the May 28th, 2021 options expiration date; OR 

• -1.8% absolute return (equivalent to -25.3% annualized return for 26 days) if the stock is assigned at the $215.00 strike price on the May 28th, 2021 options expiration date.

 

Alibaba Group Holdings Ltd. (BABA) -- Continuation of Covered Call Position

The buy/write transaction was as follows:
05/03/2021 Bought 100 shares of Alibaba stock @ $232.14 per share 
05/03/2021 Sold 1 Alibaba May 14th, 2021 $225.00 Call option @ $10.24 per share
Note: The Implied Volatility of the Call option was 32.3 when this transaction was executed.
05/14/2021 Bought-to-Close 1 BABA May 14th, 2021 $225.00 Call Option @ $.01 per share and simultaneously Sold-to-Open 1 BABA $215.00 Call @ $2.92 per share.
Note: the stock price was $209.08 when this $2.91 net credit spread transaction was executed.

Two possible overall performance results (including commissions) would be as follows:
Covered Call Cost Basis: $22,191.34
= ($232.14 - $10.24) * 100 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,313.66
= ($10.24 - $.01 + $2.92) * 100 shares - $1.34 commissions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Alibaba stock price is unchanged at $209.08 at the May 28th, 2021 options expiration date): -$2,306.00
= ($209.08 -$232.14) * 100 shares; OR
(c) Capital Appreciation (If Alibaba stock price closes above the $215.00 strike price and is assigned at the May 28th, 2021 options expiration date): -$1,714.00
= ($215.00 -$232.14) * 100 shares

(a) Total Net Profit (If Alibaba stock price is unchanged at $209.08 at the May 28th, 2021 options expiration date): -$992.34
= (+$1,313.66 Call option income +$0.00 dividend income -$2,306.00 capital appreciation); OR
(b) Total Net Profit (If Alibaba stock price closes above the $215.00 strike price and is assigned at the May 28th, 2021 options expiration date): -$400.34
= (+$1,313.66 Call option income +$0.00 dividend income -$1,714.00 capital appreciation)

1. Absolute Return-on-Investment (If Alibaba stock price is unchanged at $209.08 at the May 28th, 2021 options expiration date): -4.5%
= -$992.34/$22,191.34
Equivalent Annualized Return-on-Investment: -62.8%
= (-$992.34/$22,191.34)* (365/26 days); OR
2. Absolute Return-on-Investment (If Alibaba stock price closes above the $215.00 strike price and is assigned at the May 28th, 2021 options expiration date): -1.8%
= -$400.34/$22,191.34
Equivalent Annualized Return-on-Investment: -25.3%
= (-$400.34/$22,191.34)*(365/44 days)

Covered Calls Established in Applied Materials Inc.

A Covered Calls position was established in Applied Materials Inc. (ticker AMAT) with a June 18th, 2021 options expiration date.   A buy/write transaction entered at a net debit of $102.20 was executed by purchasing 200 shares of AMAT at $116.36 and simultaneously selling two June 18th, 2021 Call options at the $105.00 strike price at $14.16 per share. The time value when this Covered Calls position was established was $2.80 per share = [$14.16 Call options price - ($116.36 stock price - $105.00 strike price)].  Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Calls position was established.  The Delta was 76.1 which approximates a probability of 76.1% that the Call options will be in-the-money and therefore the stock assigned (i.e. sold) on the options expiration date.  

The Implied Volatility of these Calls was very high at 49.4 today when this transaction was executed.  I attribute this abnormally high Implied Volatility to the uncertainty associated with the upcoming Q2 earnings report on May 20th, but the range of earnings per share estimates is narrow at between $1.50 and $1.56, so I think the risk/reward profile here is a net positive.  Also, Applied Materials goes ex-dividend at $.24 per share (only 0.8% annualized dividend yield at the current stock price) on May 26th which is prior to the June 18th options expiration date, so this dividend is included in the potential return-on-investment results shown below. 

Applied Materials continues to screen attractively on the Covered Calls Advisor's 'Large Cap Value/Profitability/Growth' screen as a leader in the Technology (Semiconductor Equipment) industry.    Analysts remain bullish as twenty-three of twenty-eight analysts rating it as either a 'Buy' or 'Outperform'.  The other five analysts rate it as 'Neutral' and none rate it as 'Underperform' or 'Sell'.  The average target price of these analysts is $155.45 (33.6% above today's purchase price).  

As shown below, two potential return-on-investment results for this Applied Materials Covered Calls position are: 

(1) +2.7% absolute return in 14 days (equivalent to a +71.3% annualized return-on-investment in the relatively unlikely event that AMAT stock is assigned at $105.00 on the day prior to the May 26th ex-dividend date; OR 

(2) +3.0% absolute return in 38 days (equivalent to a +28.5% annualized return-on-investment if assigned at the June 18th expiration.

  

Applied Materials Inc. -- New Covered Calls Position Established

The $102.20 net debit buy/write limit order was transacted as follows:
05/12/2021 Bought 200 AMAT shares @ $116.36
05/12/2021 Sold 2 AMAT June 18th, 2021 $105.00 Call options @ $14.16
Note: the Open Interest in the Calls was 847 contracts.
05/26/2021 200 AMAT shares go ex-dividend @ $.24 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $20,441.34
= ($116.36 - $14.16) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$2,830.66
= ($14.16 * 200 shares) - $1.34 commission
(b) Dividend Income (If Applied Materials stock assigned on day prior to May 26th ex-dividend date): +$0.00; OR
(b) Dividend Income (If AMAT stock assigned on June 18th, 2021 options expiration date): $48.00
= $.24 dividend per share x 200 shares
(c) Capital Appreciation (If stock is assigned at $105.00 on the day prior to the May 26th ex-dividend date): -$2,272.00
= ($105.00 -$116.36) * 200 shares; OR
(c) Capital Appreciation (If AMAT stock is above $105.00 strike price at the June 18th expiration): -$2,272.00
= ($105.00 -$116.36) * 200 shares

1.  Total Net Profit (If AMAT stock assigned on day prior to May 26th ex-dividend date): +$558.66
= (+$2,830.66 options income +$0.00 dividend income -$2,272.00 capital appreciation): OR
2.  Total Net Profit (If stock assigned on June 18th options expiration date): +$606.66
= (+$2,830.66 options income +$48.00 dividend income -$2,272.00 capital appreciation)

1.  Absolute Return (If AMAT stock assigned on day prior to May 26th ex-dividend date): +2.7%
= +$558.66/$20,441.34
Equivalent Annualized Return: +71.3%
= (+$558.66/$20,441.34) * (365/14 days); OR
2.  Absolute Return (If stock assigned on June 18th, 2021 options expiration date): +3.0%
= +$606.66/$20,441.34
Equivalent Annualized Return: +28.5%
= (+$606.66/$20,441.34)*(365/38 days)

Either outcome would provide a good return-on-investment result.  These returns will be achieved as long as the stock is above the $105.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $101.96 ($116.36 -$14.16 -$.24) provides 12.4% downside protection below today's purchase price.

Using the Cox-Ross-Rubinstein Options Pricing Model, the probability of making a profit (if held until the June 18th, 2021 options expiration) for this Applied Materials Covered Calls position is 76.1%, so the approximate expected value annualized ROI of this investment (if held until expiration) is +21.7% (+28.5% * 76.1%) for this in-the-money AMAT Covered Calls position.

Roll Down-and-Out Covered Calls Position in Hologic Inc.

Today, the Covered Calls position in Hologic Inc. (HOLX) was rolled down-and-out from the May 21st, 2021 $70.00 strike price to the June 18th, 2021 $65.00 strike price at a net credit of $2.48 per share. The stock price has declined from the original purchase price of $72.92 per share to $64.58 today when this rollout transaction was executed. The Covered Calls Advisor made the mistake of establishing the original position just prior to Hologic's quarterly earnings report. The current quarter's results exceeded expectations but the guidance for the next quarter was well below expectations, so the stock price suffered in response. But the Covered Calls Advisor continues to view Hologic as a good investment and today's rollout transaction begins an effort to repair this Hologic Covered Calls position.

As detailed below, two potential return-on-investment results are: 

•  -2.0% absolute return (equivalent to -16.9% annualized return for the next 44 days) if the stock price is unchanged from today's price of $64.58 on the June 18th, 2021 options expiration date; OR 

• -1.4% absolute return (equivalent to -11.8% annualized return over the next 44 days) if the stock is assigned at the $65.00 strike price on the June 18th, 2021 options expiration date.
  

 

Hologic Inc. (HOLX) -- Continuation of Covered Calls Positon

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.
05/11/2021 Bought-to-Close 2 HOLX May 21st, 2021 $70.00 Call Options @ $.17 per share and simultaneously Sold-to-Open 2 HOLX $65.00 Calls @ $2.65 per share.
Note: the stock price was $64.58 when this credit spread 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: +$1,389.32
= ($4.48 - $.17 + $2.65) * 200 shares - $2.68 commissions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Hologic stock price is unchanged at $64.58 at the June 18th, 2021 options expiration date): -$1,668.00
= ($64.58 -$72.92) * 200 shares; OR
(c) Capital Appreciation (If Hologic stock price closes above the $65.00 strike price and is assigned at the June 18th, 2021 options expiration date): -$1,584.00
= ($65.00 -$72.92) * 200 shares

(a) Total Net Profit (If Hologic stock price is unchanged at $64.58 at the June 18th, 2021 options expiration date): -$278.68
= (+$1,389.32 Call options income +$0.00 dividend income -$1,668.00 capital appreciation); OR
(b) Total Net Profit (If Hologic stock price closes above the $65.00 strike price and is assigned at the June 18th, 2021 options expiration date): -$194.68
= (+$1,3892.32 Call options income +$0.00 dividend income -$1,584.00 capital appreciation)

1. Absolute Return-on-Investment (If Hologic stock price is unchanged at $64.58 at the June 18th, 2021 options expiration date): -2.0%
= -$278.68/$13,689.34
Equivalent Annualized Return-on-Investment: -16.9%
= (-$278.68/$13,689.34)*(365/44 days); OR
2. Absolute Return-on-Investment (If Hologic stock price closes above the $65.00 strike price and is assigned at the June 18th, 2021 options expiration date): -1.4%
= -$194.68/$13,689.34
Equivalent Annualized Return-on-Investment: -11.8%
= (-$194.68/$13,689.34)*(365/44 days)

Establish Covered Calls Position in Diamondback Energy Inc.

Today, a Covered Calls position was established in Diamondback Energy Inc. (ticker FANG) with the purchase of 200 shares at $80.73 per share and two May 21st, 2021 Call options were sold for $6.61 per share at the $75.00 strike price.  This transaction occurred at simultaneous buy/write transaction at a net debit of $74.12 per share.  The corresponding time value (aka extrinsic value) in the Call options was $.88 per share = [$6.61 Call options premium received - ($80.73 stock purchase price - $75.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at approximately 77.0 when this buy/write transaction was executed, which approximates the probability of assignment on the May 21st, 2021 options expiration date. 

Diamondback Energy goes ex-dividend at $.40 per share (2.0% annualized dividend yield at the current stock price) on May 12th which is prior to the May 21st options expiration date, so this dividend is included in the potential return-on-investment results shown below.  Also shown below, eight of the nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and the next quarterly earnings report on April 30th, 2021 is after the April 23rd options expiration date. 

Diamondback's Q1 2021 earnings were reported 4 days ago and exceeded analysts estimates by +28%.  Consequently, current year eps estimates have now adjusted up to $8.34 per share (a P/E ratio of only 9.7) with further earnings increases expected for the following year.   Analysts remain bullish on Diamondback Energy with twenty-six of thirty analysts rating it as either a 'Buy' or 'Outperform'.  The other four analysts rate it as 'Neutral' and none rate it as 'Underperform' or 'Sell'.  


As shown below, two potential return-on-investment result are: (1) +1.2% absolute return in 5 days (equivalent to a +86.0% annualized return-on-investment if FANG stock is assigned at $75.00 on the day prior to the May 12th ex-dividend date; OR (2) +1.7% absolute return in 15 days (equivalent to a +41.8% annualized return-on-investment if assigned at the May 21st expiration.


Diamondback Energy Inc. (FANG) -- New Covered Calls Position

The transactions were as follows:
05/7/2021 Bought 200 shares of Diamondback stock @ $80.73 per share 
05/7/2021 Sold 2 Diamondback May 21st, 2021 $75.00 Call options @ $6.61 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of the Call options was 38.6.
5/12/2021 Upcoming ex-dividend of $.40 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $14,825.34
= ($80.73 - $6.61) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,320.66
= ($6.61 * 200 shares) - $1.34 commission
(b) Dividend Income (If Diamondback stock assigned on day prior to May 12th ex-dividend date): +$0.00; OR
(b) Dividend Income (If Diamondback stock assigned on May 21st options expiration date): $80.00
= $.40 dividend per share x 200 shares
(c) Capital Appreciation (If FANG stock is assigned at $75.00 on the day prior to the May 12th ex-dividend date): -$1,146.00
= ($75.00 -$80.73) * 200 shares; OR
(c) Capital Appreciation (If FANG stock is above $75.00 strike price at the May 21st expiration): -$1,146.00
= ($75.00 -$80.73) * 200 shares

1.  Total Net Profit (If FANG stock assigned on day prior to May 12th ex-dividend date): +$174.66
= (+$1,320.66 options income +$0.00 dividend income -$1,146.00 capital appreciation): OR
2.  Total Net Profit (If stock assigned on May 21st options expiration date): +$254.66
= (+$1,320.66 options income +$80.00 dividend income -$1,146.00 capital appreciation)

1.  Absolute Return (If FANG stock assigned on day prior to May 12th ex-dividend date): +1.2%
= +$174.66/$14,825.34
Equivalent Annualized Return: +86.0%
= (+$174.66/$14,825.34) * (365/5 days); OR
2.  Absolute Return (If stock assigned on May 21st options expiration date): +1.7%
= +$254.66/$14,825.34
Equivalent Annualized Return: +41.8%
= (+$254.66/$14,825.34)*(365/15 days)


Either outcome would provide a very good return-on-investment result.  These returns will be achieved as long as the stock is above the $75.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $73.72 ($80.73 -$6.61 -$.40) provides 8.7% downside protection below today's purchase price.

Using the Cox-Ross-Rubinstein Options Pricing Model, the probability of making a profit (if held until the May 21st options expiration) for this Diamondback Energy Covered Calls position is 77.0%, so the approximate expected value annualized ROI of this investment (if held until expiration) is +32.2% (+41.8% *  77.0%), a very good result for this in-the-money Covered Calls position, especially given that there is no earnings report volatility prior to the options expiration date.

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 which is the case for this Diamondback Energy position, as shown in the chart below.

Established Cash-Secured Puts Position in Uber Technologies Inc.

This afternoon, a small 100% Cash-Secured Put options position was established in Uber Technologies Inc. (ticker UBER) at the May 21st, 2021 options expiration date and the $42.50 strike price by selling two Puts at $.53 per share when the stock price was $45.80 (7.8% above the strike price).  This position had a probability of assignment of 79.3% when this position was established.

Uber announced quarterly earnings yesterday that exceeded expectations. A $600 million charge was taken because of a U.K. reclassification of Uber's labor costs which highlighted the regulatory labor concerns associated with gig economy companies like Uber and the stock tanked by more than 10% today when this position was established.  The Covered Calls Advisor believes this is an overreaction and agrees with JPMorgan, Morgan Stanley, and Morningstar who all came out today reiterating their Overweight/Buy ratings and $67 to $74 price targets.  Uber has developed a strong brand in both its ride-sharing and food delivery segments and the strengthening economy bodes well for its growth potential this year and beyond.  Also, concerns in the investment community about Uber's current difficulty in finding drivers will likely be successfully addressed as economic activity continues to rebound from the pandemic shutdowns.        

As detailed below for this Uber 100% Cash-Secured Puts position, there is potential for a +1.2% absolute return in 16 days (equivalent to a +28.4% annualized return-on-investment). 

Uber Technologies Inc. (UBER) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
05/06/2021  Sold 2 Uber Technologies Inc. May 21st, 2021 $42.50 100% Cash-Secured Put options @ $.53 per share.

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 two Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $8,395.34
= ($42.50 - $.53) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$104.66
= ($.53 * 200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UBER stock is above $42.50 strike price at the May 21st expiration): +$0.00
= ($42.50 - $42.50) * 200 shares

Total Net Profit (If Uber stock price is out-of-the-money (above $42.50 strike price) at options expiration): +$104.66
= (+$104.66 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Uber is above $42.50 strike price at the May 21st, 2021 options expiration) : +1.2%
= +$104.66/$8,395.34
Annualized Return: +28.4%
= (+$104.66/$8,395.34)*(365/16 days)

The downside 'breakeven price' at expiration is at $41.97 ($42.50 - $.53), which is 8.4% below the current market price of $45.80.