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
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)
