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)
