July 30th, 2021 Options Expiration Results

The Covered Calls Advisor Portfolio had four positions with July 30th, 2021 options expirations.  Three positions (ConocoPhillips, Lowe's Companies Inc., and Micron Technologies Inc.) closed in-the-money, so the maximum potential return-on-investment results were achieved for these positions.   The results for these closed positions were:

• ConocoPhillips (COP) -- +1.9% absolute return (equivalent to +44.1% annualized return-on-investment) for the 16 days of this investment
• Lowe's Companies Inc. (LOW) -- +1.6% absolute return (equivalent to +25.5% annualized roi) for the 23 days of this investment
• Micron Technologies Inc. (MU) -- +3.8% absolute return (equivalent to +32.8% annualized roi) for the 42 days of this investment

The Covered Calls position in Caterpillar Inc. at the $210.00 strike price closed out-of-the money at $206.75, so the Call options expired and 100 shares of Caterpillar stock now remains in the Covered Calls Advisor Portfolio.  This position is currently at a net loss and a decision to either close out the position by selling the 100 shares or by continuing the Covered Call position by selling another Call option will be made early next week.  

The cash now available from the assignment (i.e. closing) of the two in-the-money positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Given the Covered Calls Advisor's currently cautious Overall Market outlook, new positions will be hedged by continuing to establish Covered Calls (or their synthetically equivalent Cash-Secured Puts) at strike prices below the stock prices. 

The detailed transactions and results for these three closed positions are as follows:

1. ConocoPhillips (COP) -- Covered Calls Position Closed at Options Expiration

The transactions were:
07/15/2021 Bought 200 ConocoPhillips shares @ $57.54
07/15/2021 Sold 2 COP 7/30/2021 $56.00 Call options @ $2.18
Note: A simultaneous buy/write transaction was executed.   The Implied Volatility of the Call options was 28.1 when this Covered Calls position was established.
07/23/2021 Quarterly ex-dividend of $.43 per share
07/30/2021 Covered Calls position closed out -- two COP Call options expired in-the-money, so 200 shares were sold at the $56.00 strike price. Note: the stock price was just barely in-the-money at $56.06 per share at options expiration.

The overall performance results (including commissions) for this ConocoPhillips Covered Calls position were as follows:
Covered Calls Cost Basis: $11,073.34
= ($57.54 - $2.18) *200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$436.00
= ($2.18 * 200 shares)
(b) Dividend Income (ConocoPhillips shares assigned at July 30th, 2021 expiration): +$86.00
= ($.43 dividend per share x 200 shares)
(c) Capital Appreciation (COP assigned at $56.00 strike price at options expiration): -$308.00
+($56.00 -$57.54) * 200 shares

Total Net Profit (ConocoPhillips shares assigned at $56.00 strike price at July 30th, 2021 options expiration): +$214.00

= (+$436.00 +$86.00 -$308.00)

Absolute Return-on-Investment: +1.9%

= +$214.00/$11,073.34

Annualized Return-on-Investment: +44.1%

= (+$214.00/$11,073.34) *(365/16 days)

2. Lowe's Companies Inc. (LOW) -- Covered Calls Position Closed at Options Expiration
The buy/write transaction was:
07/08/2021 Bought 200 Lowes Companies Inc. shares @ $191.44
07/08/2021 Sold 2 Lowes 07/30/2021 $187.50 Call options @ $6.12
Note: Implied Volatility (IV) of the Call options was at 20.5 when this position was transacted.   
07/20/2021 Quarterly ex-dividend of $.80 per share
07/30/2021 Covered Calls position closed out -- two Lowe's Call options expired in-the-money, so 200 shares were sold at the $187.50 strike price. Note: the stock price was in-the-money at $192.69 at options expiration.

The overall performance results (including commissions) for this Lowes Companies Inc. Covered Calls position were as follows:
Covered Calls Cost Basis: $37,065.34
= ($191.44 - $6.12) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,224.00
= ($6.12 * 200 shares)
(b) Dividend Income (Lowe's stock assigned at July 30th, 2021 options expiration): +$160.00
= ($.80 dividend per share x 200 shares)
(c) Capital Appreciation (200 Lowe's shares assigned at $187.50 strike price at options expiration): -$788.00
+($187.50 - $191.44) * 200 shares

Total Net Profit (200 Lowe's shares assigned at $187.50 at July 30th, 2021 expiration): +$596.00

= (+$1,224.00 +$160.00 -$788.00)
 

Absolute Return-on-Investment: +1.6%

= +$596.00/$37,065.34

Annualized Return-on-Investment: +25.5%

= (+$596.00/$37,065.34)*(365/23 days)

3. Micron Technology Inc. (MU) -- Covered Calls Position Closed at Options Expiration

The Buy/Write transaction was as follows:
06/18/2021 Bought 300 shares of Micron Technology Inc. stock @ $77.00 per share 
06/18/2021 Sold 3 Micron July 16th, 2021 $77.50 Call options @ $3.28 per share
07/16/2021 3 MU Call options expired out-of-the-money so 300 MU shares remain in the Covered Calls Advisor Portfolio.
07/20/2021 Continued Covered Calls position by selling 3 MU July 30th, 2021 $75.00 Call options @ $1.52 when stock price was $74.56.
07/30/2021 Covered Calls position closed out -- three Micron Call options expired in-the-money, so 300 shares were sold at the $75.00 strike price. Note: the stock price was in-the-money at $77.58 at options expiration.

The overall performance results (including commissions) for this Micron Technology Inc. Covered Calls position were as follows:
Stock Purchase Cost: $22,118.01
= ($77.00 - $3.28) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,435.98
= (($3.28 + $1.52) *300 shares) - $4.02 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (300 Micron shares assigned at $75.00 strike price at 7/30/2021 options expiration): -$600.00
+($75.00 -$77.00) * 300 shares

Total Net Profit (300 Micron shares assigned at $75.00 strike price at expiration): +$835.98

= (+$1,435.98 options income +$0.00 dividend income -$600.00 capital appreciation)

 

Absolute Return-on-Investment: +3.8%

= +$835.98/$22,118.01

Annualized Return-on-Investment: +32.8%

= (+$835.98/$22,118.01) *(365/42 days)

Please email me with any questions or comments related specifically to this post or whenever you have comments or questions related to Covered Calls investing.

Best Wishes and Godspeed,
Jeff Partlow (the Covered Calls Advisor)
partlow@cox.net

Early Assignment of Citigroup Inc. Covered Calls

Early this morning, the Covered Calls Advisor was notified by Schwab that the two Citigroup Inc. August 6th, 2021 $66.00 Call options were exercised early yesterday (on September 29th, 2021), the last business day prior to today's (September 30th) ex-dividend date.   The Citigroup stock price has increased slightly from its purchase price of $68.12 to $68.81 at the market close yesterday.  The initial $.93 time value per share declined to almost no time value per share remaining at market close yesterday, so the owner of the Calls exercised their right to buy the 200 shares of Citigroup at the $66.00 strike price and capture today's $.51 ex-dividend.  

As detailed below, a +1.4% absolute return in 17 days (equivalent to a +30.7% annualized return-on-investment) was achieved for this position. 

Citigroup Inc. (C) -- Covered Calls Position Closed Out by Early Assignment
The transactions were:
07/13/2021 Bought 200 Citigroup shares @ $68.12
07/13/2021 Sold 2 Citigroup 8/6/2021 $66.00 Call options @ $3.05
Note: the Implied Volatility of these Call options was 26.3 when this position was established.
07/29/2021 Two Citigroup Call options exercised early, so Call options expired and 200 shares of Citigroup stock were sold at the $66.00 strike price.

The overall performance results (including commissions) for this
Citigroup Covered Calls position were as follows:
Covered Calls Cost Basis: $13,015.34
= ($68.12 - $3.05) *200 + $1.34 commission

Net Profit Components:
(a) Options Income: +$610.00
= ($3.05 *200 shares)
(b) Dividend Income (If option exercised early on the business day prior to the ex-div date): +$0.00
(c) Capital Appreciation (If Citigroup shares assigned early): -$424.00
+($66.00 strike price -$68.12 stock purchase cost) *200 shares

Total Net Profit [Call options exercised on business day prior to the ex-dividend date)]: +$186.00

= (+$610.00 +$0.00 -$424.00)

 

Absolute Return: +1.4%

= +$186.00/$13,015.34

Annualized Return-on-Investment: +30.7%

= (+$186.00/$13,015.34)*(365/17 days)

Early Assignment of Morgan Stanley Covered Calls

Early this morning, the Covered Calls Advisor was notified by Schwab that the two Morgan Stanley August 6th, 2021 $91.00 Call options were exercised early yesterday (on July 28th, 2021), the last business day prior to today's (July 29th) ex-dividend date.   The Morgan Stanley stock price has increased from its purchase price of $88.42 on July 19th to $96.05 at the market close yesterday.  The $86.00 strike price was rolled-up to the $91.00 strike price at the same August 6th, 2021 expiration date on July 22nd.  So the initial $1.10 time value = [$3.56 option premium - ($88.42 stock price - $86.00 strike price)] had declined to $.13 per share = [$5.18 midpoint price of Call options - ($96.05 stock price - $91.00 strike price)] at yesterday's market close, even given the strike price was $5.00 higher than when the Covered Calls position was originally established.  So the owner of the Calls exercised their right to buy the 200 Morgan Stanley shares at the $91.00 strike price and also capture today's $.70 ex-dividend.  

As detailed below, a +1.6% absolute return in 10 days (equivalent to a +59.2% annualized return-on-investment) was achieved for this position.  The Covered Calls Advisor was pleased with this result (and more than willing to forgo receiving today's $.70 quarterly dividend) since the annualized return of +59.2% that was achieved exceeded the potential +47.0% annualized roi that might have been achieved in the future (i.e. at August 6th, 2021 options expiration) if the stock price remains above the strike price and therefore the stock would have instead been assigned then.  In addition, by rolling up to the $91.00 strike price, the Covered Calls Advisor "hit a double" and thereby increased the early assignment (on the day prior to the ex-dividend date) annualized roi from the original Covered Calls position (at the $86.00 strike price) from +49.0% to the +59.2% that was achieved.

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 Morgan Stanley Covered Calls position continued the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of five mega-cap 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 (and for other Financial sector Covered Calls investments) is to achieve attractive annualized return-on-investment results that exceed what would have been achieved if Covered Calls positions for these stocks were instead established during non-dividend-paying months.  This objective has been achieved not only for this Morgan Stanley position, but also for other positions established using the Covered Calls Advisor's Dividend Capture Strategy.   

Morgan Stanley (MS) -- Early Assignment of Covered Calls Position
The buy/write transaction was:
07/19/2021 Bought 200 Morgan Stanley shares @ $88.42
07/19/2021 Sold 2 Morgan Stanley 08/06/2021 $86.00 Call options @ $3.56
Note: the Implied Volatility of the Call options was 26.8 when this buy/write transaction was executed.
07/22/2021 Roll-up MS Covered Calls position from the $86.00 to the $91.00 strike price at the identical Aug. 6th, 2021 expiration date at a net debit price of $4.75.
07/28/2021 Early exercise of 2 MS Aug. 6th, 2021 $91.00 Call options, so 200 MS shares were assigned (i.e. sold) at the $91.00 strike price.

The overall performance results (including commissions) for this rolled-up Morgan Stanley Covered Calls position were as follows:
Covered Calls Cost Basis: $16,973.34
= ($88.42 - $3.56) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: -$240.68
= ($3.56 - $9.83 + $5.08) * 200 shares - $2.68 commissions
(b) Dividend Income (Two Call options exercised early on July 28th, the business day prior to the July 29th ex-div date): +$0.00
(c) Capital Appreciation (Morgan Stanley Call options assigned early on July 28th): +$516.00
=+($91.00 - $88.42) * 200 shares

Total Net Profit: +$275.34
= (-240.68 options income +$0.00 dividend income +$516.00 capital appreciation)

Absolute Return: +1.6%

= +$275.34/$16,973.34

Annualized Return: +59.2%

= (+$275.34/$16,973.34)*(365/10 days)

Roll-Up Covered Calls in Morgan Stanley

On July 19th, 2021 the Covered Calls Advisor established a Covered Calls position in Morgan Stanley at the August 6th, 2021 $86.00 strike price.  The price of the 200 Morgan Stanley shares has increased from the purchase price of $88.42 to $95.775 this afternoon.  There was only $.055 time value per share remaining in the Call options but 7 days remaining until the ex-dividend of $.70 per share and 16 days remaining until the Aug. 6th options expiration date.

The Covered Calls Advisor looked at the time value to roll-up the existing Calls to various higher strike prices and decided to roll up from the original $86.00 strike to the $91.00 strike at the same Aug. 6th, 2021 options expiration date.  A vertical debit spread transaction was executed at a net debit of $4.75 ($9.83 - $5.08) per share -- so $.25 time value per share potential additional net profit ($91.00 new strike price - $86.00 original strike price - $4.75 net debit) was added to the Covered Calls position.  In addition, there remains a possibility that the $.70 dividend will be captured if the stock continues to rise somewhat higher and the time value declines to about $.15 or less on the day prior to next Friday's ex-dividend date. 

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

•  +1.6% absolute return (equivalent to +59.2% annualized return for 10 days) if the stock is assigned early (business day prior to the July 29th ex-dividend date); OR 

• +2.4% absolute return (equivalent to +47.0% annualized return over a 19 days investment) if the stock is assigned on the August 6th options expiration date.

By rolling up the original Covered Calls, the potential early assignment annualized return-on-investment of +59.2% would exceed the +49.0% potential from the original position.  Alternatively, if assigned on the August 6th options expiration date, the +47.0% annualized roi would exceed the +41.7% potential aroi from the original position.  In Covered Calls investing parlance, this is sometimes referred to as "hitting a double" (instead of the usual "single"), since the roll-up enables us to sell Calls twice against the original stock purchase with both positions being at the same options expiration date and to increase our annualized return-on-investment if the new rolled-up Covered Calls position is assigned.

Morgan Stanley (MS) -- Continuation of Covered Calls Position by Roll-Up Transaction
The buy/write transaction was:
07/19/2021 Bought 200 Morgan Stanley shares @ $88.42
07/19/2021 Sold 2 Morgan Stanley 08/06/2021 $86.00 Call options @ $3.56
Note: the Implied Volatility of the Call options was 26.8 when this buy/write transaction was executed.
07/22/2021 Roll-up MS Covered Calls position from the $86.00 to the $91.00 strike price at the identical Aug. 6th, 2021 expiration date at a net debit price of $4.75.
07/29/2021 Upcoming quarterly ex-dividend of $.70 per share

Two possible overall performance results (including commissions) for this rolled-up Morgan Stanley Covered Calls position are as follows:
Covered Calls Cost Basis: $16,973.34
= ($88.42 - $3.56) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: -$240.68
= ($3.56 - $9.83 + $5.08) * 200 shares - $2.68 commissions
(b) Dividend Income (If option exercised early on July 28th, the business day prior to the July 29th ex-div date): +$0.00; or
(b) Dividend Income (If Morgan Stanley stock assigned at Aug. 6th, 2021 expiration): +$140.00
= ($.70 dividend per share x 200 shares)

(c) Capital Appreciation (If Morgan Stanley Call options assigned early on July 28th): +$516.00
+($91.00 - $88.42) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $91.00 strike price at Aug. 6th options expiration): +$516.00
+($91.00 - $88.42) * 200 shares

1. Total Net Profit [If option exercised on July 28th (business day prior to July 29th ex-dividend date)]: +$275.34

= (-240.68 options income +$0.00 dividend income +$516.00 capital appreciation); or

2. Total Net Profit (If Morgan Stanley shares assigned at $91.00 strike price at August 6th, 2021 expiration): +$415.32

= (-$240.68 +$140.00 +$516.00)

1. Absolute Return (If option exercised early on July 28th): +1.6%

= +$275.34/$16,973.34

Annualized Return (If option exercised early): +59.2%

= (+$275.34/$16,973.34)*(365/10 days); or

2. Absolute Return (If Morgan Stanley shares assigned at $91.00 at August 6th, 2021 options expiration): +2.4%

= +$415.32/$16,973.34

Annualized Return (If Morgan Stanley shares assigned at $91.00 at Aug 6th, 2021 expiration): +47.0%

= (+$415.32/$16,973.34)*(365/19 days)

Continuation of Covered Calls Positions in Micron Technology Inc. and Prudential Financial Inc.

Today, the Covered Calls positions in Micron Technology Inc. (ticker MU) and Prudential Financial Inc. (ticker PRU) was continued by selling Call options against the shares held in the Covered Calls Advisor Portfolio.  Last Friday, existing Covered Calls in both companies expired with the stock price out-of-the-money and the Covered Calls Advisor decided today to continue both Covered Calls positions.  For Micron, 3 July 30th $75.00 Calls were sold at $1.52 per share against the 300 MU shares owned.  For Prudential, 2 August 20th, 2021 $100.00 Calls were sold at $1.95 per share against the 200 PRU shares owned.  There has been no negative news on either company since these positions were originally established so the Covered Calls Advisor's bullish outlook persists. 

As detailed below, the potential return-on-investment results if assigned at options expiration are: 

• Micron Technology:  +3.8% absolute return (equivalent to +32.8% annualized return for 42 days).
  

• Prudential Financial:  +3.1% absolute return (equivalent to +21.4% annualized return for 53 days).

1. Micron Technology Inc. (MU) -- Continuation of Covered Calls Position

The Buy/Write transaction was as follows:
06/18/2021 Bought 300 shares of Micron Technology Inc. stock @ $77.00 per share 
06/18/2021 Sold 3 Micron July 16th, 2021 $77.50 Call options @ $3.28 per share
07/16/2021 3 MU Call options expired out-of-the-money so 300 MU shares remain in the Covered Calls Advisor Portfolio.
07/20/2021 Continued Covered Calls position by selling 3 MU July 30th, 2021 $75.00 Call options @ $1.52 when stock price was $74.56.

A possible overall performance result (including commissions) for this Micron Technology Inc. Covered Calls position is as follows:
Stock Purchase Cost: $22,118.01
= ($77.00 - $3.28) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,435.98
= (($3.28 + $1.52) *300 shares) - $4.02 commissions
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 300 Micron shares assigned at $75.00 strike price at 8/20/2021 options expiration): -$600.00
+($75.00 -$77.00) * 300 shares

Total Net Profit (If 300 Micron shares assigned at $75.00 strike price at expiration): +$835.98

= (+$1,435.98 options income +$0.00 dividend income -$600.00 capital appreciation)

 

Absolute Return (If 300 Micron shares assigned at $75.00 strike price at expiration): +3.8%

= +$835.98/$22,118.01

Annualized Return (If MU shares assigned at $77.50 at July 16th 2021 expiration): +32.8%

= (+$835.98/$22,118.01) *(365/42 days)

2. Prudential Financial Inc. (PRU) -- Continuation of Covered Calls Position

The buy/write transaction was as follows:
06/28/2021 Bought 200 shares of Prudential Financial stock @ $102.49 per share 
06/28/2021 Sold 2 Prudential July 16th, 2021 $100.00 Call options @ $3.63 per share
Note: The Implied Volatility of the Call options was 24.2 when this transaction was executed.
07/16/2021 2 PRU Call options expired out-of-the-money so 200 PRU shares remain in the Covered Calls Advisor Portfolio.
07/20/2021 Continued Covered Calls position by selling 2 PRU August 20th, 2021 $100.00 Call options @ $1.95 per share when PRU stock price was $97.07.

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $19,773.34
= ($102.49 - $3.63) * 200 shares + $1.34 commission

Net Profit Components:
(a) Option Income: +$1,113.32
= [($3.63 + $1.95) * 200 shares)] - $2.68 commissions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If PRU stock is above $100.00 strike price at August 20th, 2021 expiration): -$498.00
= ($100.00 -$102.49) * 200 shares

Total Net Profit: +$615.32
= (+$1,113.32 Call options income +$0.00 dividend income -$498.00 capital appreciation)

Absolute Return-on-Investment: +3.1%
= +$615.32/$19,773.34
Equivalent Annualized Return-on-Investment: +21.4%
= (+$615.32/$19,773.34)*(365/53 days)

Closed Positions in LyondellBasel Industries N.V. and Ralph Lauren Corporation

At last Friday's (July 16th) options expiration, the Covered Calls positions in LyondellBasel Industries N.V. (ticker LYB) and Ralph Lauren Corporation (RL) expired with the stock price below their respective strike prices, so their shares remained in the Covered Calls Advisor Portfolio. This morning, the Covered Calls Advisor closed out both positions at a loss as detailed below.

1. LyondellBasell Industries N.V. (LYB) -- Covered Calls Position Closed
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
06/18/2021 Two LYB 6/18/2021 $110.00 Call options expired out-of-the-money and 200 long shares of LYB stock remain in the Covered Calls Advisor Portfolio
Note: the LYB stock price was $100.35 on the options expiration date.
07/01/2021 Sold 2 LYB 7/16/2021 $105.00 Call options @ $1.80 per share when the stock was trading at $104.01 to continue this Covered Calls position.
07/16/2021 LYB Covered Calls expired out-of-the-money, so 200 shares of LYB shares retained in the Covered Calls Advisor Portfolio.
07/20/2021 Closed out LYB Covered Calls position by selling 200 LYB shares @ $94.42 per share.

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

Net Profit Components:
(a) Options Income: +$1,121.32
= ($3.82 + $1.80) * 200 shares - $2.68 commission
(b) Dividend Income: +$226.00
= $1.13 dividend per share x 200 shares
(c) Capital Appreciation: -$3,624.00
= ($94.42 - $112.54) * 200 shares

Total Net Profit:  -$2,276.68
= (+$1,121.32 options income +$226.00 dividend income -$3,624.00 capital appreciation)

Absolute Return: -10.5%
= -$2,276.68/$21,745.34
Equivalent Annualized Return: -72.1%
= (-$2,276.68/$21,745.34) * (365/53 days)

2. Ralph Lauren Corporation (RL) -- Covered Calls Position Closed

The buy/write transaction was:
06/22/2021 Bought 300 Ralph Lauren shares @ $113.66
06/22/2021 Sold 3 Ralph Lauren 07/16/2021 $110.00 Call options @ $5.46.  As required by the Covered Calls Advisor for positions in individual stocks, the Implied Volatility of these Calls at 27.8 exceeded the current S&P 500 Volatility Index (VIX) of 17.2.
06/24/2021 Upcoming quarterly ex-dividend of $.6875 per share
07/16/2021 Ralph Lauren Covered Calls position expired out-of-the-money, so 300 shares of LYB shares retained in the Covered Calls Advisor Portfolio.
07/20/2021 Closed out RL Covered Calls position by selling 300 Ralph Lauren Corp. shares @ $106.15 per share.

The overall performance results (including commissions) was as follows:

Covered Calls Cost Basis: $32,462.01
= ($113.66 - $5.46) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,635.99
= ($5.46 *300 shares) - $2.01 commission
(b) Dividend Income: +$206.25
= ($.6875 dividend per share x 300 shares)
(c) Capital Appreciation: -$2,253.00
+($106.15-$113.66) * 300 shares

Total Net Profit: -$410.76

= (+$1,635.99 options income +$206.25 dividend income - $2,253.00 capital appreciation)
 

Absolute Return: -1.3%

= -$410.76/$32,462.01

Annualized Return-on-Investment: -16.5%

= (-$410.76/$32,462.01)*(365/28 days)

Established Covered Calls in Morgan Stanley Using Dividend Capture Strategy

Today a Covered Calls position was established in Morgan Stanley (ticker symbol MS) when 200 shares were purchased at $88.42 and 2 August 6th, 2021 Call options were sold at $3.56 per share at the $86.00 strike price.  The net debit limit order at $84.86 was executed, so the time value was $1.14 per share [$3.56 Call options premium - ($88.42 stock purchase price - $86.00 strike price)]. There is an upcoming quarterly ex-dividend of $.70 (annual dividend yield of 3.2%) on July 29th., so potential return-on-investment results for this position, as detailed below, include the possibility of early assignment because the ex-dividend is prior to the August 6th, 2021 options expiration date.  As preferred by the Covered Calls Advisor, the next quarterly earnings report is after the options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Calls position was established with a Delta of 68.1. 

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

•  +1.3% absolute return (equivalent to +49.0% annualized return for the next 10 days) if the stock is assigned early (business day prior to the July 29th ex-dividend date); OR 

• +2.2% absolute return (equivalent to +41.7% annualized return over the next 19 days) if the stock is assigned on the August 6th options expiration date.

Morgan Stanley (MS) -- New Covered Calls Position
The buy/write transaction was:
07/19/2021 Bought 200 Morgan Stanley shares @ $88.42
07/19/2021 Sold 2 Morgan Stanley 08/06/2021 $86.00 Call options @ $3.56
Note: the Implied Volatility of the Call options was 26.8 when this buy/write transaction was executed.
07/29/2021 Upcoming quarterly ex-dividend of $.70 per share

Two possible overall performance results (including commissions) for this Morgan Stanley Covered Calls position are as follows:
Covered Calls Cost Basis: $16,973.34
= ($88.42 - $3.56) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$712.00
= ($3.56 * 200 shares)
(b) Dividend Income (If option exercised early on July 28th, the business day prior to the July 29th ex-div date): +$0.00; or
(b) Dividend Income (If Morgan Stanley stock assigned at Aug. 6th, 2021 expiration): +$140.00
= ($.70 dividend per share x 200 shares)

(c) Capital Appreciation (If Morgan Stanley Call options assigned early on July 28th): -$484.00
+($86.00 - $88.42) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $86.00 strike price at Aug. 6th options expiration): -$484.00
+($86.00 - $88.42) * 200 shares

1. Total Net Profit [If option exercised on July 28th (business day prior to July 29th ex-dividend date)]: +$228.00

= (+$712.00 options income +$0.00 dividend income -$484.00 capital appreciation); or

2. Total Net Profit (If Morgan Stanley shares assigned at $86.00 strike price at August 6th, 2021 expiration): +$368.00

= (+$712.00 +$140.00 -$484.00)

1. Absolute Return (If option exercised early on July 28th): +1.3%

= +$228.00/$16,973.34

Annualized Return (If option exercised early): +49.0%

= (+$228.00/$16,973.34)*(365/10 days); or

2. Absolute Return (If Morgan Stanley shares assigned at $86.00 at August 6th, 2021 options expiration): +2.2%

= +$368.00/$16,973.34

Annualized Return (If Morgan Stanley shares assigned at $86.00 at Aug 6th, 2021 expiration): +41.7%

= (+$368.00/$16,973.34)*(365/19 days)

Either outcome would provide a very attractive return-on-investment result for this Morgan Stanley investment.  These returns will be achieved as long as the stock is above the $86.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $84.16 ($88.42 -$3.56 -$.70) provides 4.8% 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 Morgan Stanley position, all nine criteria were met.

July 16th, 2021 Monthly Options Expiration Results

The Covered Calls Advisor Portfolio had eleven positions since last month's (June 18th, 2021) monthly options expiration date.  During this past month, the Covered Calls Advisor Portfolio closed out seven of these eleven positions and their results are described below:

• Two Covered Calls positions expired in-the-money on the July monthly options expiration date (i.e. July 16th, 2021, so the options expired and the stocks were sold at the strike prices with the following results:   

1. Discovery Inc. (DISCA) -- +2.1% absolute return in 26 days (equivalent to +29.9% annualized return-on-investment).  
2. Hologic Inc. (HOLX) -- +0.1% absolute return in 81 days (equivalent to +0.5% annualized return-on-investment).
   

• Three Covered Calls positions were closed out early based on decisions by the Covered Calls Advisor with the following results:
  

1. Alibaba Group Holdings Ltd. (BABA) -- -5.4% absolute return in 66 days (equivalent to -30.1% annualized return-on-investment).
2. Viacom Inc. (VIAC) -- +3.1% absolute return in 14 days (equivalent to +80.6% annualized return-on-investment).
3. Winnebago Industries Inc. (WGO) -- +0.8% absolute return in 13 days (equivalent to +21.9% annualized return-on-investment).

• One Covered Calls position in JPMorgan Chase & Co. (JPM) was closed out by early assignemtn on the day prior to the options expiration date with the following result: +1.0% absolute return in 14 days (equivalent to +25.8% annualized return-on-investment).

• One Covered Calls position in Twilio Inc. (TWLO) expired in-the-money on its weekly options expiration date and with the following result: +5.5% absolute return in 40 days (equivalent to +50.0% annualized return-on-investment).

• Four Covered Call positions (LyondellBasel Industries Inc., Micron Technology Inc., Prudential Financial Inc., and Ralph Lauren Corp.) closed out-of-the-money.  These shares now remain in the Covered Calls Advisor Portfolio (shown in the right sidebar of this blog) and decisions will be made soon to either sell these shares or to continue with the Covered Calls positions by selling future Call options against the shares currently held.

During the past year (last 12 months) 118 of 120 positions were closed out at a profit.  The average annualized return-on-investment was +39.6% and their average holding period was 21.1 days.

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 ConocoPhillips Using Dividend Capture Strategy

Today, a Covered Calls position was established in ConocoPhillips (ticker symbol COP) when two hundred COP shares were purchased at $57.54 and two July 30th, 2021 Call options were sold for $2.18 per share at the $56.00 strike price.  The net debit limit order at $55.36 was executed, so the time value was $.64 per share [$2.18 Call options premium - ($57.54 stock purchase price - $56.00 strike price)]. There is an upcoming quarterly ex-dividend of $.43 (annual dividend yield of 3.0%) on July 23rd., so potential return-on-investment results for this position, as detailed below, include the possibility of early assignment because the ex-dividend is prior to the July 30th, 2021 options expiration date.  As preferred by the Covered Calls Advisor, the next quarterly earnings report will be on August 3rd, 2021 is just after the options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Calls position was established with a Delta of 68.0. 

As detailed below, a potential return-on-investment result is +1.2% absolute return (equivalent to +52.7% annualized return for the next 8 days) if the stock is assigned early (business day prior to the July 23rd ex-date); OR +1.9% absolute return (equivalent to +44.1% annualized return over the next 16 days) if the stock is assigned on the July 30th, 2021 options expiration date.


ConocoPhillips (COP) -- New Covered Calls Position

If the current time value (i.e. extrinsic value) of $.64 per share remaining in the two short Call options decays substantially (down to about $.15 or less) by July 22nd (the last business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 ConocoPhillips shares away to capture the dividend payment.

The transactions were:
07/15/2021 Bought 200 ConocoPhillips shares @ $57.54
07/15/2021 Sold 2 COP 7/30/2021 $56.00 Call options @ $2.18
Note: A simultaneous buy/write transaction was executed.   The Implied Volatility of the Call options was 28.1 when this Covered Calls position was established.
07/23/2021 Upcoming quarterly ex-dividend of $.43 per share

Two possible overall performance results (including commissions) for this ConocoPhillips Covered Calls position are as follows:
Covered Calls Cost Basis: $11,073.34
= ($57.54 - $2.18) *200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$436.00
= ($2.18 * 200 shares)
(b) Dividend Income (If option exercised early on the business day prior to the July 23rd ex-div date): +$0.00; or
(b) Dividend Income (If ConocoPhillips shares assigned at July 30th, 2021 expiration): +$86.00
= ($.43 dividend per share x 200 shares)
(c) Capital Appreciation (If COP assigned early on Oct 17th): -$308.00
+($56.00 -$57.54) * 200 shares ;or
(c) Capital Appreciation (If COP assigned at $56.00 strike price at options expiration): -$308.00
+($56.00 -$57.54) * 200 shares

1. Total Net Profit [If option exercised on July 22nd (business day prior to the July 23rd ex-dividend date)]: +$128.00

= (+$436.00 +$0.00 -$308.00); or

2. Total Net Profit (If ConocoPhillips shares assigned at $56.00 strike price at July 30th, 2021 expiration): +$214.00

= (+$436.00 +$86.00 -$308.00)

1. Absolute Return [If COP options exercised on business day prior to ex-dividend date]: +1.2%

= +$128.00/$11,073.34

Annualized Return (If option exercised early): +52.7%

= (+$128.00/$11,073.34)*(365/8 days); or

2. Absolute Return (If ConocoPhillips shares assigned at $56.00 at July 30th, 2021 expiration): +1.9%

= +$214.00/$11,073.34

Annualized Return (If COP stock assigned at $55.00 at Oct 25, 2019 expiration): +44.1%

= (+$214.00/$11,073.34) *(365/16 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $56.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $54.93 ($57.54 -$2.18 -$.43) provides 4.5% 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.  As shown in the table below, all nine criteria are achieved for this ConocoPhillips Covered Calls position.

Covered Call Position Established in Caterpillar Inc.

Today, a new Covered Call position was established in Caterpillar Inc. (ticker CAT) with a July 30th, 2021 options expiration date.  A buy/write limit order with a debit price of $207.08 was executed and one hundred shares of Caterpillar stock were purchased at $215.10 and one in-the-money $210.00 strike price Call option was sold for $8.02 per share.  The time value when this Covered Calls position was established was $2.92 per share = [$8.02 Call option price - ($215.10 stock price - $210.00 strike price)].  Given the Covered Calls Advisor's current cautious outlook, an in-the-money Covered Call position was established.  The Delta was 65.9 which approximates a probability of 65.9% that the Call option will be in-the-money and therefore the stock assigned (i.e. sold) on the options expiration date.  

There is an earnings report before market open on the July 30th options expiration date.  There is a $1.11 per share ex-dividend next Monday (July 19th) which is included in the potential return-on-investment results detailed below.   The Covered Calls Advisor will be monitoring this position closely every day since closing out the position after the ex-dividend date but prior to the earnings date is a likely possibility. 

As detailed below, a potential return-on-investment result is +1.9% absolute return in 18 days (equivalent to a +39.5% annualized return-on-investment). 

 
Caterpillar Inc. (CAT) -- New Covered Call Position

The transaction was as follows:
07/13/2021 Bought 100 shares of Caterpillar stock @ $215.10 per share 
07/13/2021 Sold 1 Caterpillar July 30th, 2021 $210.00 Call option @ $8.02 per share
Note: this was a simultaneous Buy/Write transaction

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $20,708.67
= ($215.10 - $8.02)* 100 shares + $.67 commission

Net Profit Components:
(a) Option Income: +$802.00
= ($8.02* 100 shares)
(b) Dividend Income: +$111.00 = $1.11 per share x 100 shares 
(c) Capital Appreciation (If CAT stock is above $210.00 strike price at July 30th expiration): -$510.00
= ($210.00 -$215.10) * 100 shares

Total Net Profit: +$403.00
= (+$802.00 option income +$111.00 dividend income -$510.95 capital appreciation)

Absolute Return: +1.9%
= +$403.00/$20,708.67
Equivalent Annualized Return-on-Investment: +39.5%
= (+$403.00/$20,708.67)*(365/18 days)

Covered Calls Position Established in Citigroup Inc.

Today, a Covered Calls position was established in Citigroup Inc. (ticker symbol C) with the purchase of 200 shares at $68.12 per share and two August 6th, 2021 monthly Call options were sold for $3.05 per share at the $66.00 strike price.  The net debit limit order at $65.07 was executed, so the time value was $.93 per share [$3.05 Call options premium - ($68.12 stock purchase price - $66.00 strike price)]. Given the Covered Calls Advisor's currently cautious  Overall Market Meter sentiment, a moderately in-the-money Covered Calls positions was established.  The Delta of the Calls was 68.0 when this buy/write transaction was executed which approximates the probability of assignment on the options expiration date.  

Citigroup will report their quarterly earnings before market open tomorrow.   Their primary metrics are improving under the leadership of new CEO Jane Fraser who is focused on profitability of all their businesses and modernizing their technology infrastructure.  Also, Citi's current Price-to-Tangible Book Value at .82 is lower than its prior 5-year average value. The current target price of 28 analysts following the company is $84.54 (+24.1% above today's purchase price).

Most mid- to large-cap companies in the Financial Sector provide only modest growth prospects, but they often pay 2.0%+ annual dividend yields.  Consequently, the Covered Calls Advisor continues to target opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions established in upcoming months.  This new Citigroup Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of the four biggest U.S. money center banks (Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo) for each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup and/or Wells Fargo for Feb, May, Aug, and Nov options expirations; and
Bank of America for Mar, Jun, Sep, and Dec options expirations).

The Covered Calls Advisor expects Citi to announce a dividend tomorrow of at least $.51 per share and this is included in the detailed return-on-investment potential shown below.  The goal of these monthly Covered Calls in the money center 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 higher annualized return results than would be achieved with either: (1) Covered Calls in these same stocks during their non-ex-dividend months; or (2) A simple buy-and-hold stock purchase of these bank stocks.   

Two potential return-on-investment results are: (a) +1.4% absolute return (equivalent to +30.7% annualized return for the next 17 days) if the stock is assigned early [on the last trading day prior to an expected July 30th ex-dividend date]; OR (b) +2.2% absolute return (equivalent to +32.3% annualized return over the next 25 days) if the stock is assigned on the August 6th options expiration date. 

Citigroup Inc. (C) -- New Covered Calls Position
The transactions were:
07/13/2021 Bought 200 Citigroup shares @ $68.12
07/13/2021 Sold 2 Citigroup 8/6/2021 $66.00 Call options @ $3.05
Note: the Implied Volatility of these Call options was 26.3 when this position was established.
07/30/2021 Estimated date of upcoming quarterly ex-dividend estimated at $.51 per share

Two possible overall performance results (including commissions) for this
Citigroup Covered Calls position are as follows:
Covered Calls Cost Basis: $13,015.34
= ($68.12 - $3.05) *200 + $1.34 commission

Net Profit Components:
(a) Options Income: +$610.00
= ($3.05 *200 shares)
(b) Dividend Income (If option exercised early on the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If Citi shares assigned at August 6th, 2021 expiration): +$102.00
= ($.51 dividend per share x 200 shares)
(c) Capital Appreciation (If Citigroup shares assigned early): -$424.00
+($66.00 strike price -$68.12 stock purchase cost) *200 shares; or
(c) Capital Appreciation (If Citi shares assigned at $66.00 strike price at options expiration): -$424.00
+($66.00-$68.12) *200 shares

1. Total Net Profit [If option exercised on business day prior to the ex-dividend date)]: +$186.00

= (+$610.00 +$0.00 -$424.00); or

2. Total Net Profit (If Citi shares assigned at $66.00 at Aug. 6th, 2021 options expiration): +$288.00

= (+$610.00 +$102.00 -$424.00)

1. Absolute Return (If Citigroup options exercised early on the business day prior to the expiration date): +1.4%

= +$186.00/$13,015.34

Annualized Return (If option exercised early): +30.7%

= (+$186.00/$13,015.34)*(365/17 days); or

2. Absolute Return (If Citigroup shares assigned at $66.00 at Aug. 6th, 2021 expiration): +2.2%

= +$288.00/$13,015.34

Annualized Return (If Citi stock assigned at $66.00 at Aug. 6th expiration): +32.3%

= (+$288.00/$13,015.34)*(365/25 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 $66.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $64.56 ($68.12 -$3.05 -$.51) provides 5.2% 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.  As shown in the table below, eight criteria are achieved for this Citigroup Inc. Covered Calls position.

Established Covered Calls in Lowe's Companies Inc. Using Dividend Capture Strategy

Today, a buy/write limit order in Lowe's Companies Inc. (ticker LOW) was executed at the Covered Calls Advisors' net debit price of $185.32 per share.  Two hundred shares were purchased at $191.44 and two July 30th, 2021 Call options were sold for $6.12 at the $187.50 strike price, therefore a time value of $2.18 = [$6.12 options premium - ($191.44 stock price - $187.50 strike price)] per share.  

This position uses the Covered Calls Advisor's Dividend Capture Strategy since Lowe's has an upcoming quarterly ex-dividend of $.80 per share on July 20th, 2021 which is prior to the July 30th options expiration date.  This is equivalent to an absolute annualized dividend yield of 1.7% (at the $191.44 stock price) and an equivalent annualized dividend yield of 6.6% = [($.80/$191.44) x (365/23 days to expiration)].  This dividend is included in the detailed return-on-investment calculations below.  Either an early assignment on the day prior to the ex-dividend date or on the July 30th expiration date would be desirable to the Covered Calls Advisor given the potential annualized return on investments for either outcome.  Importantly to the Covered Calls Advisor, there is no quarterly earnings report prior to the options expiration date since Q2 earnings will be reported on August 18th, 2021.

Lowe's is in the top 4% of large-cap (>$10B market cap) companies based on the metrics in the Covered Calls Advisor's "Large-Cap Value, Profitability, and Growth" screener.  It is also highly rated by the 32 analysts' that cover it.  They have an average target price of $228.75 (+19.5% above the current price) with 25 of the 32 analysts rating it as 'Buy' or 'Market Outperform', 7 rate it a 'Hold', and no analyst rates it as a 'Market Underperform' or 'Sell'.   

As shown on the table at the bottom of this post, all nine criteria of the  Dividend Capture Strategy are met with this position.  The Covered Calls Advisor's current Overall Market Meter outlook remains cautious, so the appropriate Covered Calls strategy is to sell in-the-money strike prices.  Even if the stock market declines somewhat during the next 23 days, hopefully the decline will be a moderate one and the stock price of Lowe's will not decline below the $187.50 strike price at closing on the July 30th options expiration date.  The Delta for these Call options was 66.2 when this position was established which approximates the probability that the position will be in-the-money at market close on the options expiration date.  

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

•  +1.2% absolute return (equivalent to +35.8% annualized return for the next 12 days) if the stock is assigned early (business day prior to the July 20th ex-dividend date). 
  

• +1.6% absolute return (equivalent to +25.5% annualized return over the next 23 days) if the stock is assigned on the July 30th, 2021 options expiration date.

Lowe's Companies Inc. (LOW) -- New Covered Calls Position
The buy/write transaction was:
07/08/2021 Bought 200 Lowes Companies Inc. shares @ $191.44
07/08/2021 Sold 2 Lowes 07/30/2021 $187.50 Call options @ $6.12
Note: Implied Volatility (IV) of the Call options was at 20.5 when this position was transacted.   
07/20/2021 Upcoming quarterly ex-dividend of $.80 per share

Two possible overall performance results (including commissions) for this Lowes Companies Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $37,065.34
= ($191.44 - $6.12) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,224.00
= ($6.12 * 200 shares)
(b) Dividend Income (If option exercised early on July 19th, 2021, the business day prior to the July 20th ex-div date): +$0.00; or
(b) Dividend Income (If Lowe's stock assigned at July 30th, 2021 options expiration): +$160.00
= ($.80 dividend per share x 200 shares)

(c) Capital Appreciation (If Lowe's Call options assigned early on July 19th): -$788.00
+($187.50 - $191.44) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $187.50 strike price at options expiration): -$788.00
+($187.50 - $191.44) * 200 shares

1. Total Net Profit [If option exercised on July 19th (business day prior to the July 20th ex-dividend date)]: +$436.00

= (+$1,224.00 options income +$0.00 dividend income -$788.00 capital appreciation); or

2. Total Net Profit (If Lowe's shares assigned at $187.50 at July 30th, 2021 expiration): +$596.00

= (+$1,224.00 +$160.00 -$788.00)

1. Absolute Return [If option exercised on business day prior to ex-dividend date]: +1.2%

= +$436.00/$37,065.34

Annualized Return (If option exercised early): +35.8%

= (+$436.00/$37,065.34)*(365/12 days); or

2. Absolute Return (If Lowe's shares assigned on July 30th options expiration date): +1.6%

= +$596.00/$37,065.34

Annualized Return (If Lowe's shares assigned at $187.50 at July 30th, 2021 expiration): +25.5%

= (+$596.00/$37,065.34)*(365/23 days)

Either outcome provides an attractive return-on-investment result for this Lowe's Companies Inc. investment.  These returns will be achieved as long as the stock is above the $187.50 strike price at assignment.  However, if the stock declines below the strike price, the breakeven price of $184.52 ($191.44 -$6.12 -$.80) provides 3.6% 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 (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, all nine criteria are achieved for this Lowe's Companies Inc. Covered Calls position.

Closed Covered Call Position in Alibaba Group Holding Ltd.

The Covered Calls Advisor decided to close out the Covered Call position in Alibaba Group Holding Ltd. (ticker BABA).  The stock has declined from $232.14 when this Covered Calls position was established on April 30th, 2021 to $201.21 this morning when the 100 BABA shares were sold.  The fundamental value in Alibaba remains strong, but the Covered Calls Advisor did not anticipate the recent strict tightening of regulatory authority that China's government would place on its large tech companies.  So, the Covered Calls Advisor decided to exit this position at a loss rather than continue with this position given the increased uncertainty regarding the extent to which central government's desire to control tech data will stifle the future potential of Alibaba.  

As detailed below, the return-on-investment result was -5.4% absolute return in 66 days (equivalent to a -30.1% annualized return-on-investment).

Alibaba Group Holding Ltd. (BABA) -- Covered Call Position Closed
The original 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 May 28th, 2021 $215.00 Call @ $2.92 per share.
Note: the stock price was $209.08 when this $2.91 net credit spread transaction was executed.
05/28/2021 The BABA $215.00 Call option expired out-of-the-money and the 100 shares of BABA stock were retained in the Covered Calls Advisor Portfolio
06/01/2021 Continued BABA Covered Calls position by selling one June 18th, 2021 $225.00 Call option @ $3.95 per share
06/18/2021 One BABA Call option expired out-of-the-money and 100 shares remain in the Covered Calls Advisor Portfolio.
06/24/2021 Sold 1 Alibaba July 16th, 2021 $225.00 Call option @ $2.77 per share
Note: the price of BABA shares was $217.04 when this Call option was sold.
07/08/2021 Closed BABA Covered Calls position with simultaneous Buy/Write unwind transaction at a net credit of $200.88 per share.  Sold 1 BABA 7/16/2021 $225.00 Call option @ $.33 per share and sold 100 BABA shares @ $201.21 per share.

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

Net Profit Components:
(a) Options Income: +$1,884.32
= ($10.24 - $.01 + $2.92 + $3.95 + $2.77 - $.33) * 100 shares - $3.35 commissions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (Alibaba stock sold at $201.21 per share): -$3,093.00
= ($201.21 -$232.14) * 100 shares\

Total Net Profit: -$1,208.68
= (+$1,884.32 Call option income +$0.00 dividend income -$3,093.00 capital appreciation)

Absolute Return-on-Investment: -5.4%
= -$1,208.68/$22,191.34
Equivalent Annualized Return-on-Investment: -30.1%
= (-$1,208.68/$22,191.34)* (365/66 days)

Early Assignment of JPMorgan Chase & Co. Covered Calls

Early this morning, the Covered Calls Advisor was notified by Schwab that the three JPMorgan Chase & Co. July 16th, 2021 $140.00 Call options were exercised early yesterday (on July 1st, 2021), the last business day prior to today's (July 2nd) ex-dividend date.   The JPMorgan stock price has increased from its purchase price of $147.77 on June 18th to $156.18 at the market close yesterday.  So the initial $1.38 time value = [$9.15 option premium - ($147.77 stock price - $140.00 strike price)] had declined substantially by yesterday's market close, so the owner of the Calls exercised their right to buy the 300 shares of JPMorgan at the $140.00 strike price and also capture today's $.90 ex-dividend.  

As detailed below, a +25.8% absolute return in 14 days (equivalent to a +25.8% annualized return-on-investment) was achieved for this position.  The Covered Calls Advisor was pleased with this result (and more than willing to forgo receiving today's $.90 quarterly dividend) since the annualized return of +25.8% that was achieved exceeded the potential +20.6% annualized roi that might have been achieved in the future (i.e. at July 16th, 2021 options expiration) if the stock price remains above the strike price and therefore the stock would have instead been assigned then.  Another benefit of this early assignment is that the next JPMorgan quarterly earnings report is on July 13th, 2021 which is prior to the July 16th, 2021 options expiration date and the Covered Calls Advisor prefers to avoid the uncertainty (and the associated increased volatility) of earnings reports.

 

JPMorgan Chase & Co. (JPM) -- Early Assignment of JPMorgan Chase Covered Calls Position

The buy/write transaction was:
06/18/2021 Bought 300 JPM shares @ $147.77
06/18/2021 Sold 3 JPM 07/16/2021 $140.00 Call options @ $9.15
07/01/2021 Early exercise of 3 JPM July 16th, 2021 $140.00 Call options, so 300 JPM shares were assigned (i.e. sold) at the $140.00 strike price.

The overall performance results (including commissions) for this JPM Covered Calls position were as follows:
Stock Purchase Cost: $41,588.01
= ($147.77 - $9.15) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$2,742.99
= ($9.15 *300 shares) - $2.01 commission
(b) Dividend Income (JPM Call options exercised early on July 1st, the business day prior to the July 2nd ex-div date): +$0.00

(c) Capital Appreciation (300 JPM shares assigned early): -$2,331.00
+($140.00 -$147.77) * 300 shares

Total Net Profit: +$411.99

= (+$2,742.99 options income +$0.00 dividend income -$2,331.00 capital appreciation)

 

Absolute Return-on-Investment: +1.0%

= +$411.99/$41,588.01

Annualized Return-on-Investment: +25.8%

= (+$411.99/$41,588.01)*(365/14 days)

Continuation of Covered Calls Position in LyondellBasell Industries N.V.

Today, the Covered Calls position in LyondellBasell Industries was continued by selling two July 16th, 2021 $105.00 Call options against the 200 shares held in the Covered Calls Advisor Portfolio.  The stock price has declined substantially from the original $112.54 purchase price to $104.01 today when the continuation of this LYB Covered Calls position was executed.  There is no negative news on the company since this position was originally established that causes the Covered Calls Advisor to change my original bullish outlook.  So, by continuing this position now, the Covered Calls Advisor is working to repair this currently losing position back to a profitable result. 

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

• -1.6% absolute return (equivalent to -12.0% annualized return for 50 days) if the stock price is unchanged from today's price of $104.01 on the July 16th, 2021 options expiration date; OR 

• -0.7% absolute return (equivalent to -5.4% annualized return for 50 days) if the stock is in-the-money and therefore assigned at the $105.00 strike price on the July 16th, 2021 options expiration date.

 

LyondellBasell Industries N.V. (LYB) -- Continuation of 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
06/18/2021 Two LYB 6/18/2021 $110.00 Call options expired out-of-the-money and 200 long shares of LYB stock remain in the Covered Calls Advisor Portfolio
Note: the LYB stock price was $100.35 on the options expiration date.
07/01/2021 Sold 2 LYB 7/16/2021 $105.00 Call options @ $1.80 per share when the stock was trading at $104.01 to continue this Covered Calls position.

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: +$1,121.32
= ($3.82 + $1.80) * 200 shares - $2.68 commission
(b) Dividend Income (If LyondellBasell stock price unchanged at $104.01 on the July 16th, 2021 options expiration date): +$226.000
= $1.13 dividend per share x 200 shares; OR
(b) Dividend Income (If LyondellBasell stock assigned at $105.00 strike price on July 16th options expiration date): $226.00
= $1.13 dividend per share x 200 shares
(c) Capital Appreciation (If LYB stock price unchanged at $104.01 on the July 16th, 2021 options expiration date): -$1,706.00
= ($104.01 - $112.54) * 200 shares; OR
(c) Capital Appreciation (If LyondellBasell stock is above $105.00 strike price at the July 16th expiration): -$1,508.00
= ($105.00 - $112.54) * 200 shares

1.  Total Net Profit (If LyondellBasell stock price unchanged at $104.01 on the July 16th, 2021 options expiration date): -$358.68
= (+$1,121.32 options income +$226.00 dividend income -$1,706.00 capital appreciation): OR
2.  Total Net Profit (If LYB stock assigned at $105.00 on July 16th options expiration date): -$160.68
= (+$1,121.32 options income +$226.00 dividend income -$1,508.00 capital appreciation)

1.  Absolute Return (If LYB stock price unchanged at $104.01 on the July 16th, 2021 options expiration date): -1.6%
= -$358.68/$21,745.34
Equivalent Annualized Return: -12.0%
= (-$358.68/$21,745.34) * (365/50 days); OR
2.  Absolute Return (If LyondellBasell stock assigned at $105.00 on July 16th options expiration date): -0.7%
= -$160.68/$21,745.34
Equivalent Annualized Return: -5.4%
= (-$160.68/$21,745.34) * (365/50 days)