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.