Closed Covered Calls Position in Raytheon Technologies Co.

At last Friday's (August 27th) options expiration, the Covered Calls position in Raytheon Technologies Co. (RTX) expired with the stock price slightly below the $86.00 strike price so the 200 shares remained in the Covered Calls Advisor Portfolio. The price of Raytheon shares has remained below last week's strike price and I decided to close the position by selling the 200 shares at $85.20.  So despite the Raytheon stock declining by 3.0% from the $87.82 purchase price to the $85.20 selling price, this Covered Calls position achieved an overall profit, albeit a modest one.  This position demonstrates that hedging a stock ownership position by selling in-the-money Call options against the stock normally outperforms a basic stock buy-and-hold strategy when the stock price moves in a variety of ways (neutral, slightly bearish, or even slightly bullish) and only underperforms buy-and-hold if the stock moves in a moderate-to-strongly-bullish way.

The return-on-investment results for this Raytheon Covered Calls position was +0.3% absolute return in 19 days (equivalent to a +5.5% annualized return-on-investment). 

Raytheon Technologies Corporation (RTX) -- Covered Calls Position Closed
The buy/write transaction was:
08/12/2021 Bought 200 Raytheon shares @ $87.82
08/12/2021 Sold 2 Raytheon 08/27/2021 $86.00 Call options @ $2.36
08/19/2021 Upcoming quarterly ex-dividend of $.51 per share
08/27/2021 2 RTX Call options expired with Raytheon stock below the $86.00 strike price so the 200 shares remain in the Covered Calls Advisor Portfolio.
8/31/2021 Sold 200 Raytheon shares at $85.20 per share.

The overall performance results (including commissions) for this Raytheon Covered Calls position are as follows:
Covered Calls Cost Basis: $17,093.34
= ($87.82 - $2.36) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$470.66
= ($2.36 * 200 shares) - $1.34 commission
(b) Dividend Income: +$102.00
= ($.51 dividend per share x 200 shares)
(c) Capital Appreciation (200 shares sold at $85.20): -$524.00
+($85.20 - $87.82) * 200 shares

Total Net Profit (Covered Calls position closed by selling 200 shares at $85.20 on August 31st): +$48.66

= (+$470.66 Call options income +$102.00 dividend income -$524.00 capital appreciation)

 Absolute Return-on-Investment: +0.3%

= +$48.66/$17,093.34

Annualized Return-on-Investment: +5.5%

= (+$106.66/$17,093.34) * (365/19 days)

Covered Calls Position Established in Cigna Corporation

This morning, a Covered Calls position was established in Cigna Corp. (ticker symbol CI) when two hundred Cigna shares were purchased at $209.83 and two September 17th, 2021 Call options were sold for $6.23 per share at the $205.00 strike price.  The  buy/write net debit limit order at $203.60 was executed, so the time value was $1.40 per share [$6.23 Call options premium - ($209.83 stock purchase price - $205.00 strike price)].  There is an upcoming quarterly ex-dividend of $1.00 (annual dividend yield of 1.9%) on September 7th, 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 September 17th, 2021 options expiration date.  

As preferred by the Covered Calls Advisor, Cigna's next quarterly earnings report will be after the September 17th, 2021 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 70.9 when the buy/write limit order was executed. 

Cigna stock has an attractive valuation since its Next Fiscal Year P/E Ratio is only 9.3 compared with its prior 5-year historical average of 13.  In addition, the average analysts' target price is $275.44 (+31.3% above today's stock purchase price). 

As detailed below, a potential return-on-investment result is +0.7% absolute return (equivalent to +31.2% annualized return for the next 8 days) if the stock is assigned early (business day prior to the September 7th ex-date); OR +1.2% absolute return (equivalent to +22.6% annualized return over the next 19 days) if the stock is assigned on the September 17th, 2021 options expiration date.

Cigna Corp. (CI) -- New Covered Calls Position
The transaction today was as follows:
08/30/2021 Bought 200 Cigna Corp. shares @ $209.83
08/30/2021 Sold 2 Cigna 9/17/2021 $205.00 Call options @ $6.23
09/07/2021 Upcoming quarterly ex-dividend of $1.00 per share

Two possible overall performance results (including commissions) for this Cigna Covered Calls position are as follows:
Covered Calls Cost Basis: $40,721.34
= ($209.83 - $6.23) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$1,244.66
= ($6.23 * 200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Sept 7th ex-div date): +$0.00; or
(b) Dividend Income (If Cigna shares assigned at Sept 17th, 2021 options expiration): +$200.00
= ($1.00 dividend per share x 200 shares)
(c) Capital Appreciation (If CI shares assigned early on Sept.7th): -$966.00
+($205.00 - $209.83) * 200 shares ;or
(c) Capital Appreciation (If Cigna shares assigned at $205.00 strike price at options expiration): -$966.00
+($205.00 - $209.83) * 200 shares

1. Total Net Profit [If options exercised on Sept. 6th (business day prior to the Sept. 7th ex-dividend date)]: +$278.66

= (+$1,244.66 +$0.00 - $966.00); or

2. Total Net Profit (If Cigna shares assigned at $205.00 strike price at Sept. 17th, 2021 expiration): +$478.66

= (+$1,244.66 + $200.00 - $966.00)

1. Absolute Return [If Cigna Call options exercised on business day prior to ex-dividend date]: +0.7%

= +$278.66/$40,721.34

Annualized Return (If options exercised early): +31.2%

= (+$278.66/$40,721.34) * (365/8 days); or

2. Absolute Return (If Cigna shares assigned at $205.00 strike price on Sept 17th, 2021 expiration): +1.2%

= +$478.66/$40,721.34

Annualized Return (If Cigna stock assigned at $205.00 at Sept 17th, 2021 expiration): +22.6%

= (+$478.66/$40,721.34) *(365/19 days)

These returns will be achieved as long as the stock is above the $205.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $202.60 ($209.83 -$6.23 -$1.00) provides 3.4% 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.  As shown in the table below, eight of the nine criteria are met for this Cigna Corp. Covered Calls position.

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 500 shares at $41.78 per share and five September 10th, 2021 Call options were sold for $1.04 per share at the $41.00 strike price.  This transaction occurred via a simultaneous buy/write transaction at a net debit of $40.7 per share.  The corresponding time value (aka extrinsic value) in the Call options was $.26 per share = [$1.04 Call options premium received - ($41.78 stock purchase price - $41.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at approximately 70.1 when this buy/write transaction was executed, which approximates the probability of assignment on the September 10th, 2021 options expiration date. 

Bank of America goes ex-dividend at $.21 per share (2.0% annualized dividend yield at the current stock price) this Thursday, September 2nd, which is prior to the September 10th 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 October 14th, 2021 is after the Sept 10th options expiration date.  In addition, Bank of America appeared in 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 Sept 10th, 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 provide an opportunity to either: (1) potentially capture the quarterly dividend payment and if the stock price remains above the strike price at options expiration, the maximum possible return-on-investment result on the options expiration date for the position would be achieved; or (2) have the stock assigned early on the day prior to the ex-dividend date in which case the Covered Calls Advisor is usually very pleased since the Dividend Capture Strategy criteria are designed such that most often the annualized return-on-investment for early assignment is greater than that would be achieved if the stock was instead assigned on the options expiration date.  So far, applying this approach has provided attractive annualized return results -- much better than would be achieved if Covered Calls positions for these bank stocks were held in the Covered Calls Advisor Portfolio in the other two non-dividend paying months each quarter.  

Two potential return-on-investment results for this Bank of America Covered Calls position are: (a) +0.6% absolute return (equivalent to +77.6% annualized return for the next 3 days) if the stock is assigned early [this Wednesday which is the last trading day prior to the Sept 2nd ex-dividend date]; OR (b) +1.2% absolute return (equivalent to +35.1% annualized return over the next 12 days) if the stock is assigned on the Sept 10th, 2021 options expiration date. 

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

The buy/write transaction was as follows:
08/30/2021 Bought 500 shares of Bank of America Corp. stock @ $41.78 per share 
08/30/2021 Sold 5 BAC Sept 10th, 2021 $41.00 Call options @ $1.04 per share
Note: The Open Interest in these Calls was 1,955 contracts and their Implied Volatility was 20.0
09/02/2021 Ex-dividend of $.21 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $20,373.35
= ($41.78 - $1.04) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$520.00
= ($1.04 * 500 shares)
(b) Dividend Income (If BAC shares assigned on 9/1/2021, the business day prior to the 9/2/2021 ex-dividend date): = +$0.00; or
(b) Dividend Income (If BAC shares assigned at 9/10/2021 options expiration): +$105.00
= $.21 per share x 500 shares
(c) Capital Appreciation (If BAC shares assigned early on 9/01/2021): -$390.00
= ($41.00 -$41.78) * 500 shares; or
(c) Capital Appreciation (If shares above $41.00 strike price at the September 10th options expiration): -$390.00
= ($41.00 -$41.78) * 500 shares

1. Potential Net Profit (If Bank of America shares assigned on 9/1/2021, the day prior to the Sept 2nd ex-dividend date): +$130.00
= (+$520.00 options income +$0.00 dividend income - $390.00 capital appreciation)
2. Potential Net Profit (If BAC price is above $41.00 strike price at the Sept 10th options expiration): +$235.00
= (+$520.00 options income +$105.00 dividend income - $390.00 capital appreciation)

1. Absolute Return (If BAC shares assigned on 9/1/2021, the day prior to the Sept 2nd ex-dividend date): +0.6%
= +$130.00/$20,373.35
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +77.6%
= (+$130.00/$20,373.35)*(365/3 days)
2. Absolute Return (If BAC price is above $41.00 strike price at Sept 10th options expiration): +1.2%
= +$235.00/$20,373.35
Equivalent Annualized Return (If assigned on 6/18/2021 options expiration date): +35.1%
= (+$235.00/$20,373.35)*(365/12 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, all nine criteria are achieved for this Bank of America Covered Calls position.

Covered Calls Established in Boeing Co. and Polaris Inc.

Covered Calls buy/write limit orders were entered this morning for Boeing Co. (ticker symbol BA) and Polaris Inc. (PII) as soon as it was clear that Fed Chair Jay Powell would maintain his dovish tone in today's speech, which he did, and both buy/writes transacted almost immediately.  

For Boeing, 100 shares were purchased at $218.59 and one September 17th, 2021 Call option was sold at $8.53 at the $215.00 strike price.  Boeing is one of the world's duopoly companies (along with Airbus) in the commercial airline industry and is also a top 5 U.S. Defense contractor.  The company has struggled from the two 737MAX crashes and the associated aircraft groundings.  The Covered Calls Advisor believes the resultant substantial stock decline caused by these disasters and compounded by the precipitous decline in air travel related to the worldwide pandemic is most likely near an inflection point such that there is now substantially more upside potential in the stock than downside.  Supporting this thesis is the fact that just yesterday, India recertified the 737MAX and now 175 of 195 countries have give recertification approval to the MAX.  China has not yet approved the MAX but it is currently in the process of re-testing it.    

For Polaris, 200 shares were purchased at $122.13 and 2 September 17th, 2021 Call options were sold at $4.27 at the $120.00 strike price.  Polaris is in the Leisure Products Industry.  It designs, engineers, manufactures, and markets power sports vehicles worldwide.  It operates in five business segments: Off-Road Vehicles, Snowmobiles, Motorcycles, Boats, and Global Adjacent Markets.  Polaris recently appeared in three of the Covered Calls Advisor's stock screeners: 1. Mid-Cap Value, Profitability, and Growth; 2. Morningstar Ratings (including Wide Moat status); and 3. Dividend Increases, Buyback Announcements, and Debt Reductions.  Finally, the average target price of the 16 analysts' covering Polaris is $153.23 which is +25.5% above today's stock purchase price.

Given the Covered Calls Advisor's current cautious outlook, in-the-money Covered Calls positions were established for both companies.  The Delta was 60.1 for the Boeing Covered Call position and 61.0 for the Polaris Inc. position -- this approximates the probability that the Call options will be in-the-money on the options expiration date. In addition, there is an upcoming ex-dividend of $.63 per share (2.1% dividend yield) next Tuesday for Polaris Inc. which is included in the potential return-on-investment results detailed below.  Importantly for the Covered Calls Advisor, there is not a quarterly earnings report for either company prior to their September 17th, 2021 options expiration date.

As detailed below, potential return-on-investment results (Note: it is just a coincidence that the returns are identical for each of these Covered Calls positions), which are: 

• For Boeing Co.: +2.4% absolute return (equivalent to +39.0% annualized return over the next 22 days) if the stock is assigned on the September 17th options expiration date.

• For Polaris Inc.: +2.4% absolute return (equivalent to +39.0% annualized return over the next 22 days) if the stock is assigned on the September 17th options expiration date.

1. Boeing Co. (BA) -- New Covered Call Position

The buy/write transaction was as follows:
8/27/2021 Bought 100 shares of Boeing Co. stock @ $218.59 per share 
8/27/2021 Sold 1 Boeing Sept 17th, 2021 $215.00 Call option @ $8.53 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $21,006.67
= ($218.59 - $8.53) * 100 shares + $.67 commission

Net Profit Components:
(a) Option Income: +$853.00
= ($8.53 * 100 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BA stock is above $215.00 strike price at Sept 17th, 2021 expiration): -$359.00
= ($215.00 - $218.59) * 100 shares

Total Net Profit: +$494.00
= (+$853.00 Call option income +$0.00 dividend income -$359.00 capital appreciation)

Absolute Return-on-Investment: +2.4%
= +$494.00/$21,006.67
Equivalent Annualized Return-on-Investment: +39.0%
= (+$494.00/$21,006.67)*(365/22 days)

The downside 'breakeven price' at expiration is at $210.06 ($218.59 - $8.53), which is 3.9% below the current market price of $218.59.


2. Polaris Inc. (PII) -- New Covered Calls Position

The transactions were as follows:
08/27/2021 Bought 200 shares of Polaris Inc. @ $122.13 per share 
08/27/2021 Sold 2 PII Sept 17th, 2021 $120.00 Call options @ $4.27 per share
Note: the Implied Volatility of the Call options was 25.4 when this buy/write limit order was executed. 
08/31/2021 Ex-dividend of $.63 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $23,573.34
= ($122.13 - $4.27) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$854.00
= ($4.27 * 200 shares)
(b) Dividend Income: +$126.00
= $.63 per share x 200 shares 
(c) Capital Appreciation (If Polaris Inc. stock is above $120.00 strike price at the Sept 17th options expiration): -$426.00
= ($120.00 -$122.13) * 200 shares

Total Net Profit: +$554.00
= (+$854.00 options income +$126.00 dividend income -$426.00 capital appreciation)

Absolute Return-on-Investment: +2.4%
= +$554.00/$23,573.34
Equivalent Annualized Return-on-Investment: +39.0%
= (+$554.00/$23,573.34)*(365/22 days)

Covered Calls Established in Devon Energy Corp.

This morning, a Covered Calls position was established in Cigna Corp. (ticker symbol CI) when two hundred Cigna shares were purchased at $209.83 and two September 17th, 2021 Call options were sold for $6.23 per share at the $205.00 strike price.  The  buy/write net debit limit order at $203.60 was executed, so the time value was $1.40 per share [$6.23 Call options premium - ($209.83 stock purchase price - $205.00 strike price)].  There is an upcoming quarterly ex-dividend of $1.00 (annual dividend yield of 1.9%) on September 7th, 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 September 17th, 2021 options expiration date.  

As preferred by the Covered Calls Advisor, Cigna's next quarterly earnings report will be after the September 17th, 2021 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 70.9 when the buy/write limit order was executed. 

Cigna stock has an attractive valuation since its Next Fiscal Year P/E Ratio is only 9.3 compared with its prior 5-year historical average of 13.  In addition, the average analysts' target price is $275.44 (+31.3% above today's stock purchase price). 

Covered Calls positions were established in Barrick Gold Corp.(ticker symbol GOLD) and Tyson Foods Inc. (TSN). 

For Barrick Gold, 500 shares were purchased at $20.04 and 5 September 10th, 2021 Call options were sold at $.73 per share at the $19.50 strike price.  The net debit limit order at $19.31 was executed, so the time value was $.19 per share [$.73 Call options premium - ($20.04 stock purchase price - $19.50 strike price)]. There is an upcoming ex-dividend of $.23 per share ($.09 regular dividend plus a $.14 special dividend), both on August 30th, 2021.  so two potential return-on-investment results for this position are detailed below and include the possibility of early exercise since the ex-dividend is prior to the September 10th, 2021 options expiration date.  Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, an in-the-money Covered Calls position was established -- the Delta was 69.5, which approximates a probability of 69.5% that the Call options will be in-the-money on the options expiration date. Barrick was one of only four companies in the Materials Sector that appeared on the Covered Calls Advisor's Acquirers Multiple stock screener. The average target price of analysts covering Barrick is $28.80 which is +43.7% above today's $20.04 purchase price. 

For Tyson Foods, 200 shares were purchased at $79.25 and 2 September 17th, 2021 Call options were sold at $2.35 per share at the $77.50 strike price.  The Covered Calls Advisor's net debit limit order at $76.90 was executed, so the time value was $.60 per share [$2.35 Call options premium - ($79.25 stock purchase price - $77.50 strike price)]. There is an upcoming ex-dividend of $.445 per share (2.2% dividend yield) on August 31st, 2021.  so two potential return-on-investment results for this position are detailed below and include the possibility of early exercise since the ex-dividend is prior to the September 17th, 2021 options expiration date.  The Delta was 69.6 when this buy/write transaction was executed. Tyson Foods appeared on three of the Covered Calls Advisor's recent stock screeners (Acquirers Multiple, Large-Cap Value+Productivity+Growth, and Dividend Increases/Buybacks/and Debt Reductions). The average target price of analysts covering Tyson is $85.75 which is +8.2% above today's $79.25 purchase price. Important to the Covered Calls Advisor, neither Barrick or Tysons have quarterly earnings reports prior to their options expiration dates.  

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

• Barrick Gold Corp.: +0.9% absolute return (equivalent to +57.7% annualized return for the next 6 days) if the stock is assigned early (business day prior to the August 30th ex-dividend date); OR  +2.1% absolute return (equivalent to +43.4% annualized return over the next 18 days) if the stock is assigned on the September 10th options expiration date.

• Tyson Foods Inc.: +0.8% absolute return (equivalent to +41.1% annualized return for the next 7 days) if the stock is assigned early (business day prior to the August 31st ex-dividend date); OR  +1.4% absolute return (equivalent to +20.0% annualized return over the next 25 days) if the stock is assigned on the September 17th options expiration date.

1. Barrick Gold Corp. (GOLD) -- New Covered Calls Position
The buy/write transaction was:

08/24/2021 Bought 500 Barrick Gold shares @ $20.04
08/24/2021 Sold 5 Barrick 09/10/2021 $19.50 Call options @ $.73
08/30/2021 Upcoming quarterly ex-dividend of $.23 per share

Two possible overall performance results (including commissions) for this Barrick Gold Covered Calls position are as follows:
Covered Calls Cost Basis: $9,658.35
= ($20.04 - $.73) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$361.65
= ($.73 * 500 shares) - $3.35 commission
(b) Dividend Income (If option exercised early on Aug. 27th, 2021, the business day prior to the Aug. 30th ex-div date): +$0.00; or
(b) Dividend Income (If Barrick stock assigned at Aug. 30th, 2021 options expiration): +$115.00
= ($.23 dividend per share x 500 shares)

(c) Capital Appreciation (If Barrick Call options assigned early on Aug 27th): -$270.00
+($19.50 strike price - $20.04 stock purchase price) * 500 shares; or
(c) Capital Appreciation (If shares assigned at $19.50 strike price at options expiration): -$270.00
+($19.50 - $20.04) * 500 shares

1. Total Net Profit [If option exercised on Aug. 27th (business day prior to Aug. 30th ex-dividend date)]: +$91.65

= (+$361.65 options income +$0.00 dividend income -$270.00 capital appreciation); or

2. Total Net Profit (If Barrick shares assigned at $19.50 strike price at the Aug. 30th, 2021 expiration): +$206.65

= (+$361.65 Call options income +$115.00 dividend income -$270.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised early on Aug. 27th -- day prior to the Aug. 30th ex-div date): +0.9%

= +$91.65/$9,658.35

Annualized Return-on-Investment (If option exercised early): +57.7%

= (+$91.65/$9,658.35) * (365/6 days); or

2. Absolute Return-on-Investment (If GOLD shares assigned at $19.50 strike price at Aug. 30th, 2021 options expiration date): +2.1%

= +$206.65/$9,658.35

Annualized Return-on-Investment (If GOLD shares assigned at $19.50 at Aug. 30th, 2021 expiration): +43.4%

= (+$206.65/$9,658.35) x (365/18 days)

Either outcome would provide a good return-on-investment result for this Barrick Gold investment.  These returns will be achieved as long as the stock is above the $19.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $19.08 ($20.04 -$.73 -$.23) 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 Barrick Gold position, all nine criteria were met.

2. Tyson Foods Inc. (TSN) -- New Covered Calls Position
The buy/write transaction was:

Covered Calls Established in Micron Technology Inc.

A Covered Calls positions was established in Micron Technology Inc. by purchasing 300 shares at $71.25 and simultaneously selling three September 3rd, 2021 $73.00 Call options at $1.00 per share. The Implied Volatility of these Calls was 30.8 when this transaction was executed and there is no quarterly earnings report prior to the options expiration date.

Micron's finances are strong and they are also very highly rated by analysts.  Reuters Research indicates that currently 31 analysts have a Buy or Outperform rating on the stock, 4 have a Hold, and none have an Underperform or Strong Sell; and their current average target price is $115.59 (+58.3% above the $73.00 strike price).  Because of Micron's bullish outlook, a slightly out-of-the-money strike price was established (stock purchased at $71.25 and with a strike price at $73.00).  

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

•  +1.4% absolute return (equivalent to +43.0% annualized return for the next 12 days) if the stock price is unchanged at options expiration at the $77.00 purchase price; OR 

• +3.9% absolute return (equivalent to +118.8% annualized return over the next 12 days) if the stock price is in-the-money (i.e. above the $73.00 strike price) and therefore assigned on the September 3rd options expiration date.

Micron Technology Inc. (MU) -- New Covered Calls Position

The Buy/Write transaction was as follows:
08/23/2021 Bought 300 shares of Micron Technology Inc. stock @ $71.25 per share 
08/23/2021 Sold 3 Micron September 3rd, 2021 $73.00 Call options @ $1.00 per share

Two possible overall performance results (including commissions) for this Micron Technology Inc. Covered Calls position are as follows:
Stock Purchase Cost: $21,077.01
= ($71.25 - $1.00) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$297.99
= ($1.00 *300 shares) - $2.01 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If Micron stock price unchanged at $71.25 at Sept 3rd options expiration): +$0.00
= + ($71.25 - $71.25) * 300 shares; or
(c) Capital Appreciation (If 300 Micron shares assigned at $73.00 strike price at expiration): +$525.00
+($73.00 -$71.25) * 300 shares

1. Total Net Profit (If Micron stock price unchanged at $71.25 at Sept 3rd options expiration): +$297.99

= (+$297.99 options income +$0.00 dividend income - $0.00 capital appreciation); or

2. Total Net Profit (If 300 Micron shares assigned at $73.00 strike price at expiration): +$822.99

= (+$297.99 options income +$0.00 dividend income +$525.00) capital appreciation

 

1. Absolute Return (If Micron stock price unchanged at $71.25 at Sept 3rd options expiration): +1.4%

= +$297.99/$21,077.01

Annualized Return (If Micron stock price unchanged at $71.25 at Sept 3rd options expiration): +43.0%

= (+$297.99/$21,077.01)*(365/12 days); or

2. Absolute Return (If 300 Micron shares assigned at $73.00 strike price at expiration): +3.9%

= +$822.99/$21,077.01

Annualized Return (If MU shares assigned at $73.00 at Sept 3rd, 2021 expiration): +118.8%

= (+$822.99/$21,077.01)*(365/12 days)

Continuation of Covered Calls Position in Cabot Oil and Gas Corp.

Last Friday, the August 20th $15.50 Cabot Oil and Gas Corp. Call options expired out-of-the-money (the stock closed on Friday at $14.42 per share).  This morning, Cabot's stock opened higher and when its stock price was $14.71, the Covered Calls Advisor continued the Covered Calls position by selling six September 3rd, 2021 $15.00 Call options for $.25 per share against the 600 Cabot shares owned. 

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

•  -1.3% absolute return (equivalent to -16.0% annualized return for 29 days) if the stock price is unchanged from today's price of $14.71 on the Sept 3rd, 2021 options expiration date; OR 

• +0.6% absolute return (equivalent to +8.0% annualized return for 29 days) if the stock is assigned at the $15.00 strike price on the Sept 3rd, 2021 options expiration date.

 

Cabot Oil and Gas Corp. (COG) -- Continuation of Covered Calls Position

The original buy/write transaction was as follows:
08/05/2021 Bought 600 Cabot shares @ $15.86
08/05/2021 Sold 6 COG 8/20/2021 $15.50 Call options @ $.61
Note: A simultaneous buy/write transaction was executed.   The Implied Volatility of the Call options was 30.5 when this Covered Calls position was established.
08/11/2021 Quarterly ex-dividend of $.11 per share
08/20/2021 6 COG $15.50 Call options expired and 600 COG shares remain in the Covered Calls Advisor Portfolio
08/23/2021 Continued COG Covered Calls position by selling 6 Sept. 3rd, 2021 $15.00 Calls @ the sell-to-open limit order of $.25 per share when the stock price was $14.71, the bid/ask price was $.20/$.30, and the Implied Volatility of the Call options was 30.8.

Two possible overall performance results (including commissions) for this Cabot Oil and Gas Covered Calls position are as follows:
Covered Calls Cost Basis: $9,154.02
= ($15.86 - $.61) * 600 shares + $4.02 commissions

Net Profit Components:
(a) Options Income: +$507.96
= ($.61 + $.25) * 600 shares - $8.04 commissions
(b) Dividend Income: +$66.00
= ($.11 dividend per share x 600 shares)
(c) Capital Appreciation (If COG share price unchanged at $14.71 upon Sept. 3rd, 2021 options expiration): -$690.00
+($14.71 -$15.86) * 600 shares; OR
(c) Capital Appreciation (If COG share price above $15.00 strike price upon Sept. 3rd, 2021 options expiration, so 600 shares assigned at $15.00): -$516.00
+($15.00 -$15.86) * 600 shares

 

1. Total Net Profit (If Cabot price unchanged at $14.71 per share at Sept 3rd, 2021 options expiration): -$116.04

= (+$507.96 +$66.00 - $690.00); or

2. Total Net Profit (If Cabot shares assigned at $15.00 strike price at Sept 3rd, 2021 expiration): +$57.96

= (+507.96 + $66.00 - $516.00)

1. Absolute Return [If COG Call options exercised on business day prior to ex-dividend date]: -1.3%

= -$116.04/$9,154.02

Annualized Return: -16.0%

= (-$116.04/$9,154.02)*(365/29 days); or

2. Absolute Return (If Cabot shares assigned at $15.00 strike price on Sept 3rd, 2021 expiration): +0.6%

= +$57.96/$9,154.02

Annualized Return (If Cabot stock assigned at $15.00 at Sept 3rd, 2021 options expiration date): +8.0%

= (+$57.96/$9,154.02) *(365/29 days)

August 20th, 2021 Monthly Options Expiration Results

The Covered Calls Advisor Portfolio had thirteen positions since last month's (July 16th, 2021) monthly options expiration date.  During this past month, the Covered Calls Advisor Portfolio closed out twelve of these thirteen positions.  Ten of the twelve positions were closed at a profit and the other two were closed at a loss.  A summary of results (for all thirteen positions) since the last monthly options expiration date on July 16th, 2021 through yesterday's monthly options expiration date of August 20th are described below:

• One Cash-Secured Put position in Cigna Corp. (ticker CI) expired out-of-the-money (stock price above the $197.50 strike price) on the August 20th monthly options expiration date for a +1.2% absolute return-on-investment (equivalent to +27.1% annualized return-on-investment).

• Two Covered Calls positions expired in-the-money on the August 20th monthly options expiration date, so the options expired and the stocks were sold at the strike prices with the following results: 

1. Delta Air Lines Inc. (DAL) -- +1.5% absolute return in 17 days (equivalent to +32.3% annualized return-on-investment).  
2. Prudential Financial Inc. (PRU) -- +3.1% absolute return in 53 days (equivalent to +21.4% annualized return-on-investment). 

• Three Covered Calls positions expired in-the-money on their July 30th weekly options expiration dates, so their options expired and their stocks were sold at their respective strike prices as follows:
  

1. Conoco Phillips (COP) -- +1.9% absolute return in 16 days (equivalent to +44.1% annualized return-on-investment).  
2. Lowe's Companies Inc. (LOW) -- +1.6% absolute return in 23 days (equivalent to +25.5% annualized return-on-investment). 
3. Micron Technology Inc. (MU) -- +3.8% absolute return in 42 days (equivalent to +32.8% annualized return-on-investment).
   

• Three Covered Calls positions were closed out prior to their options expiration dates based on decisions made by the Covered Calls Advisor with the following results:
  

1. Caterpillar Inc. (CAT) -- +1.1% absolute return in 20 days (equivalent to +20.0% annualized return-on-investment).
2. Ralph Lauren Co. (RL) -- -1.3% absolute return in 28 days (equivalent to -16.5% annualized return-on-investment).
3. Lyondell Basel Industries Inc. (LYB) -- -10.5% absolute return in 53 days (equivalent to -72.1% annualized return-on-investment).

• Three Covered Calls positions were closed out by early assignment on the day prior to their ex-dividend dates with the following results:

1. Citigroup Inc. (C) -- +1.4% absolute return in 17 days (equivalent to +30.7% annualized return-on-investment).
2. Morgan Stanley (MS) -- +1.6% absolute return in 10 days (equivalent to +59.2% annualized return-on-investment).
3. United Parcel Service Inc. (UPS) -- +0.7% absolute return in 9 days (equivalent to +26.4% annualized return-on-investment).

• One Covered Call position in Cabot Oil & Gas Corporation expired on the August 20th, 2021 options expiration date 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) 117 of 121 positions were closed out at a profit.  The average annualized return-on-investment was +36.9% and their average holding period was 22.2 days.  In comparison, the benchmark S&P 500 index returned +30.6% during the same prior one-year period.

As shown in the right sidebar, there are currently three 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 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 Position Established in Tapestry Inc. Using Dividend Capture Strategy

This morning, a Covered Calls position was established in Tapestry Inc. (ticker symbol TPR) when four hundred Tapestry shares were purchased at $39.71 and four September 17th, 2021 Call options were sold for $3.03 per share at the $37.50 strike price.  The  buy/write net debit limit order at $36.68 was executed, so the time value was $.82 per share [$3.03 Call options premium - ($39.71 stock purchase price - $37.50 strike price)]. There is an upcoming quarterly ex-dividend of $.25 (annual dividend yield of 2.5%) on September 3rd, 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 September 17th, 2021 options expiration date.  As preferred by the Covered Calls Advisor, the next quarterly earnings report will be after the September 17th, 2021 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 70.2 when the buy/write limit order was executed. 

As detailed below, a potential return-on-investment result is +2.2% absolute return (equivalent to +57.8% annualized return for the next 14 days) if the stock is assigned early (business day prior to the September 3rd ex-date); OR +2.9% absolute return (equivalent to +36.5% annualized return over the next 29 days) if the stock is assigned on the September 17th, 2021 options expiration date.

 

Tapestry Inc. owns and is the designer and marketer of luxury accessories and lifestyle brands Coach, Kate Spade, and Stuart Weitzman.  Their Q4 2021 earnings were reported yesterday morning before the market opened and they beat analysts' estimates of both revenue and earnings and established FY2022 estimates for a further mid-teens increase in both revenue and earnings which implies a FYF P/E valuation of 11.  Moreover, they announced a reinstatement of a quarterly dividend at $.25 per share (2.5% dividend yield), a new $500 million stock buyback authorization, and a $400 million debt reduction before the end of 2021.  Given this encouraging report, the Covered Calls Advisor is surprised that the stock price reacted by declining 4.2% to $39.71 when today's Covered Calls position was established. Finally, the average target price of 27 analysts covering the company is $53.55 (+34.9% above today's stock purchase price).

Tapestry Inc. (TPR) -- New Covered Calls Position

The transactions were:
08/20/2021 Bought 400 Tapestry Inc. shares @ $39.71
08/20/2021 Sold 4 TPR 9/17/2021 $37.50 Call options @ $3.03
Note: the Implied Volatility of the Call options was 39.1 when this Covered Calls position was established.
09/03/2021 Upcoming quarterly ex-dividend of $.25 per share

Two possible overall performance results (including commissions) for this Tapestry Covered Calls position are as follows:
Covered Calls Cost Basis: $14,674.68
= ($39.71 - $3.03) * 400 shares + $2.68 commissions

Net Profit Components:
(a) Options Income: +$1,209.32
= ($3.03 * 400 shares) - $2.68 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Sept 3rd ex-div date): +$0.00; or
(b) Dividend Income (If Tapestry shares assigned at Sept 17th, 2021 options expiration): +$100.00
= ($.25 dividend per share x 400 shares)
(c) Capital Appreciation (If TPR assigned early on Sept. 3rd): -$884.00
+($37.50 - $39.71) * 400 shares ;or
(c) Capital Appreciation (If TPR shares assigned at $37.50 strike price at options expiration): -$884.00
+($37.50 - $39.71) * 400 shares

1. Total Net Profit [If options exercised on Sept. 2nd (business day prior to the Sept. 3rd ex-dividend date)]: +$325.32

= (+$1,209.32 +$0.00 - $884.00); or

2. Total Net Profit (If Tapestry shares assigned at $37.50 strike price at Sept. 17th, 2021 expiration): +$425.32

= (+$1,209.32 + $100.00 - $884.00)

1. Absolute Return [If TPR Call options exercised on business day prior to ex-dividend date]: +2.2%

= +$325.32/$14,674.68

Annualized Return (If options exercised early): +57.8%

= (+$325.32/$14,674.68) * (365/14 days); or

2. Absolute Return (If Tapestry shares assigned at $37.50 strike price on Sept 17th, 2021 expiration): +2.9%

= +$425.32/$14,674.68

Annualized Return (If Tapestry stock assigned at $55.00 at Oct 25, 2019 expiration): +36.5%

= (+$425.32/$14,674.68) *(365/29 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $37.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $36.43 ($39.71 -$3.03 -$.25) provides 8.3% 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 met for this Tapestry Inc. Covered Calls position.

Early Assignment of United Parcel Service Inc. Covered Call

Early this morning, the Covered Calls Advisor was notified by Schwab that the UPS August 27th, 2021 $187.50 Call option was exercised early yesterday (on August 19th, 2021), the last business day prior to today's (August 20th) ex-dividend date.   The UPS stock price has increased from its purchase price of $191.25 to $194.06 at the market close yesterday.  The initial $1.22 time value per share declined to no time value per share remaining at market close yesterday, so the owner of the Calls exercised their right to buy the 100 shares of UPS at the $187.50 strike price and capture today's $1.02 ex-dividend.  

As detailed below, a +0.7% absolute return in 9 days (equivalent to a +26.4% annualized return-on-investment) was achieved for this position. 


United Parcel Service Inc. (UPS) -- Covered Call Position Closed by Early Assignment

The transactions were:
08/11/2021 Bought 100 UPS shares @ $191.25
08/11/2021 Sold 1 UPS 8/27/2021 $187.50 Call option @ $4.97 per share 08/20/2021 One UPS Call option exercised early, so the Call option expired and 100 shares of UPS stock were sold at the $187.50 strike price.

The overall performance results (including commissions) for this UPS Covered Call position are as follows:
Covered Call Cost Basis: $18,628.67
= ($191.25 - $4.97) * 100 shares + $.67 commissions

Net Profit Components:
(a) Option Income: +$496.33
= ($4.97 * 100 shares) - $.67 commissions
(b) Dividend Income (Call option exercised early on the business day prior to the Aug 20th ex-div date): +$0.00

(c) Capital Appreciation (UPS assigned early on August 20th): -$375.00
+($187.50 -$191.25) * 100 shares

Total Net Profit [Call option exercised on Aug 19th (business day prior to the August 20th ex-dividend date)]: +$121.33

= (+$496.33 +$0.00 - $375.00)

 

 Absolute Return-on-Investment: +0.7%

= +$121.33/$18,628.67

Annualized Return-on-Investment: +26.4%

= (+$121.33/$18,628.67)*(365/9 days)

Established Covered Calls in Raytheon Technologies Co.

Today a Covered Calls position was established in Raytheon Technologies Co. (ticker symbol RTX) when 200 shares were purchased at $87.82 and 2 August 27th, 2021 Call options were sold at $2.36 per share at the $86.00 strike price.  The net debit limit order at $85.46 was executed, so the time value was $.54 per share [$2.36 Call options premium - ($87.82 stock purchase price - $86.00 strike price)]. There is an upcoming ex-dividend of $.51 per share (a 2.3% annual dividend yield) on August 19th, 2021.  Two potential return-on-investment results for this position are detailed below and include the possibility of early exercise since the ex-dividend is prior to the August 27th, 2021 options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter outlook, a conservative in-the-money Covered Calls position was established -- the Delta was 70.5, which approximates the probability of 70.5% that the Call options will be in-the-money on the options expiration date.  Important to the Covered Calls Advisor, Raytheon has recently reported their Q2 2021 earnings report, so there is no intervening earnings report prior to the August 27th options expiration date.  

In early 2020, Raytheon merged with United Technologies (after they spun-out their Carrier and Otis Elevators divisions) making the new Raytheon a very strong company with approximately equal parts defense and commercial business revenues.  The Covered Calls Advisor has noticed that often in the second year after a big event like a merger or change of CEO, the company achieves a substantial earnings improvement, and this seems likely in this case for Raytheon.  In addition, Raytheon is in a very strong competitive position according to Morningstar, who rates it as having wide moats in 3 of its 4 business divisions (Collins Aerospace, Pratt & Whitney, and Raytheon Missiles and Defense) plus a narrow moat in its Intelligence and Space business.  Of the 21 analysts covering Raytheon and tracked by Reuters Research, 16 have Outperform or Buy ratings, 5 have Neutral ratings, and none have Underperform or Sell ratings.  Their average stock target price is $102.21 (16.4% above its current price).  

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

•  +0.6% absolute return (equivalent to +32.5% annualized return for the next 7 days) if the stock is assigned early (business day prior to the August 19th ex-dividend date); OR 

• +1.2% absolute return (equivalent to +27.8% annualized return over the next 16 days) if the stock is assigned on the August 27th options expiration date.

Raytheon Technologies Corporation (RTX) -- New Covered Calls Position
The buy/write transaction was:

08/12/2021 Bought 200 Raytheon shares @ $87.82
08/12/2021 Sold 2 Raytheon 08/27/2021 $86.00 Call options @ $2.36
08/19/2021 Upcoming quarterly ex-dividend of $.51 per share

Two possible overall performance results (including commissions) for this Raytheon Covered Calls position are as follows:
Covered Calls Cost Basis: $17,093.34
= ($87.82 - $2.36) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$470.66
= ($2.36 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Aug. 18th, 2021, the business day prior to the Aug. 19th ex-div date): +$0.00; or
(b) Dividend Income (If Raytheon stock assigned at Aug. 27th, 2021 options expiration): +$102.00
= ($.51 dividend per share x 200 shares)

(c) Capital Appreciation (If Raytheon Call options assigned early on Aug 18th): -$364.00
+($86.00 strike price - $87.82 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $86.00 strike price at options expiration): -$364.00
+($86.00 - $87.82) * 200 shares

1. Total Net Profit [If option exercised on Aug. 18th (business day prior to Aug. 19th ex-dividend date)]: +$106.66

= (+$470.66 options income +$0.00 dividend income -$364.00 capital appreciation); or

2. Total Net Profit (If Raytheon shares assigned at $86.00 strike price at the Aug. 27th, 2021 expiration): +$208.66

= (+$470.66 Call options income +$102.00 dividend income -$364.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised early on Aug. 18th -- day prior to the Aug. 19th ex-div date): +0.6%

= +$106.66/$17,093.34

Annualized Return-on-Investment (If option exercised early): +32.5%

= (+$106.66/$17,093.34) * (365/7 days); or

2. Absolute Return-on-Investment (If RTX shares assigned at $86.00 strike price at Aug. 27th, 2021 options expiration date): +1.2%

= +$208.66/$17,093.34

Annualized Return-on-Investment (If RTX shares assigned at $86.00 at Aug. 27th, 2021 expiration): +27.8%

= (+$208.66/$17,093.34) x (365/16 days)

Either outcome would provide a satisfactory return-on-investment result for this Raytheon Technologies 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 $84.95 ($87.82 -$2.36 -$.51) provides 3.3% 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 Raytheon Technologies position, all nine criteria were met.

Established Covered Call in United Parcel Service Inc.

A Covered Call position was established in United Parcel Service Inc. (ticker UPS) with an August 27th, 2021 options expiration date.   A buy/write transaction at the net debit limit order price of $186.28 executed when 100 shares of UPS were purchased at $191.25 and one August 27th, 2021 Call option at the $187.50 strike price was sold at $4.97 per share.  The net debit limit order was at $186.28, so the time value was $.1.22 per share [$4.97 Call option premium - ($191.25 stock purchase price - $187.50 strike price)]. 

There is an upcoming quarterly ex-dividend of $1.02 (annual dividend yield of 2.1%) on August 20th, so potential return-on-investment results for this position, as detailed below, include the possibility of early assignment since the ex-dividend is prior to the August 27th, 2021 options expiration date. As preferred by the Covered Calls Advisor, 2nd quarter earnings were announced two weeks ago so the next quarterly earnings report will be after the August 27th options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, a moderately in-the-money Covered Calls position was established with a Delta of 75.7 which approximates a probability of 75.7% that the stock will be in-the-money at the options expiration date. 

As detailed below, two potential return-on-investment results are: +0.7% absolute return (equivalent to +26.4% annualized return for the next 9 days) if the stock is assigned early (business day prior to the August 20th ex-date); OR +1.2% absolute return (equivalent to +25.7% annualized return for the next 17 days) if the stock is assigned on the August 27th options expiration date. 

United Parcel Service Inc. (UPS) -- New Covered Call Position

The transactions were:
08/11/2021 Bought 100 UPS shares @ $191.25
08/11/2021 Sold 1 UPS 8/27/2021 $187.50 Call option @ $4.97 per share 08/20/2021 Upcoming quarterly ex-dividend of $1.02 per share

Two possible overall performance results (including commissions) for this UPS Covered Call position are as follows:
Covered Call Cost Basis: $18,628.67
= ($191.25 - $4.97) * 100 shares + $.67 commissions

Net Profit Components:
(a) Option Income: +$496.33
= ($4.97 * 100 shares) - $.67 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Aug 20th ex-div date): +$0.00; or
(b) Dividend Income (If UPS shares assigned at August 27th, 2021 options expiration): +$102.00
= ($1.02 dividend per share x 100 shares)
(c) Capital Appreciation (If UPS assigned early on August 20th): -$375.00
+($187.50 -$191.25) * 100 shares ;or
(c) Capital Appreciation (If UPS shares assigned at $187.50 strike price at options expiration): -$375.00
+($187.50 -$191.25) * 100 shares

1. Total Net Profit [If option exercised on Aug 19th (business day prior to the August 20th ex-dividend date)]: +$121.33

= (+$496.33 +$0.00 - $375.00); or

2. Total Net Profit (If UPS shares assigned at $187.50 strike price at Aug 27th, 2021 expiration): +$223.33

= (+$496.33 + $102.00 - $375.00)

1. Absolute Return [If UPS Call option exercised on business day prior to ex-dividend date]: +0.7%

= +$121.33/$18,628.67

Annualized Return (If option exercised early): +26.4%

= (+$121.33/$18,628.67)*(365/9 days); or

2. Absolute Return (If UPS shares assigned at $187.50 strike price on Aug 27th, 2021 expiration): +1.2%

= +$223.33/$18,628.67

Annualized Return (If UPS stock assigned at $187.50 at Aug. 27th, 2021 expiration): +25.7%

= (+$223.33/$18,628.67) *(365/17 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $187.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $185.26 ($191.25 -$4.97 -$1.02) provides 3.1% 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 United Parcel Service Inc. Covered Call position.

Early Exercise of Call Options on the Day Prior to Ex-Dividend Date

Question: Can we predict whether our short Call Options will (or will not) be exercised on the day prior to the ex-dividend date? 

This morning, the Covered Calls Advisor was expecting to learn that my 3 short Cabot Oil & Gas August 20th $15.50 Calls had been exercised early on the day prior to today's ex-dividend date.  However, exercise of these Call options did NOT occur despite there being only $.02 time value remaining.  If the owner of the Calls had exercised, they would have collected today's ex-dividend at $.11 per share with only 11 days remaining until the options expiration date and the stock price currently 5.7% in-the-money.  

Today's surprising outcome was the opposite of five instances earlier this year (see chart below) when the opposite decision occurred, namely when the Covered Calls Advisor was surprised that early assignment DID occur given the relatively small ex-dividend amount minus time value remaining per day until expiration that the Call owners achieved by exercising early.  These early assignments always occurred on the day prior to the ex-dividend date and the Covered Calls Advisor was pleased to immediately receive the remaining time value as profit since the result of closing the Covered Calls positions early meant that a higher annualized return-on-investment (aroi) occurred (compared with the aroi that would be achieved if the position had instead been assigned later on the options expiration date).        

The higher the value in column 9 above, the greater the likelihood that the short Call options will be exercised early (on the day prior to the ex-dividend date).  However, in each case above, the Call owners' early exercise decisions were opposite of what the Covered Calls Advisor expected.  So, although we can often correctly guess whether our in-the-money Covered Calls positions will be assigned early (on the last business day prior to an ex-dividend date), these examples (experienced this year in the Covered Calls Advisor Portfolio) demonstrate that sometimes a Call owners' decision on the day prior to the ex-dividend date surprises us and is the opposite of what was expected.

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.

Jeff Partlow
Covered Calls Advisor
partlow@cox.net

 

Cash-Secured Puts Position Established in Cigna Corporation

A new position was established in Cigna Corp. (ticker CI) by selling two August 20th, 2021 100% Cash-Secured Put options at the $195.00 strike price at $2.30 when the price of Cigna stock was at $203.04 per share.  This is a moderately conservative position since the probability of assignment on the options expiration date was 73.4% when this position was established. 

The 30.6 Implied Volatility for these Cigna Put options was attractive to the Covered Calls Advisor since it is well above the current S&P 500 Volatility Index (VIX) of 17.5.   So the $458.66 ($2.30 per share x 200 shares - $1.34 commission) is a nice premium to receive for these out-of-the-money (i.e. strike price below the current stock price) Put options.  Importantly, Cigna reported their 2nd quarter earnings this morning and the stock had tanked by 12.3% when this transaction was made.  The steep decline was primarily in response to Cigna's news that its previous estimate that Covid would impact FY2021 earnings per share by $1.25 was increased to $2.50.  But on the other hand, this 2Q earnings report exceeded both revenue and earnings estimates and despite the Covid impact news, previous FY2021 earnings estimates were maintained at $20.20 (a P/E ratio of 10.1 which compares favorably to their prior 5-year average of 13) and the revenue estimate was increased from at least $166 billion to at least $170 billion. So the Covered Calls Advisor believes today's sell-off is an over-reaction, so a Cash-Secured Puts position was established.   

As detailed below, for this new Cigna Cash-Secured Puts position there is potential for a +1.2% absolute return in 16 days (equivalent to a +27.1% annualized return-on-investment).  


Cigna Corp. (CI) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
08/05/2021  Sold 2 Cigna August 20th, 2021 $195.00 100% Cash-Secured Put options @ $2.30 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 Cost Basis: $38,538.66
= ($195.00 - $2.30) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$458.66
= ($2.30 *200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Cigna is above $195.00 strike price at the August 20th expiration): +$0.00
= ($195.00 - $195.00) * 200 shares

Total Net Profit (If Cigna stock price is above $195.00 strike price at options expiration): +$506.66
= (+$458.66 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Cigna stock price is above $195.00 strike price at the Aug 20th options expiration) : +1.2%
= +$458.66/$38,538.66
Annualized Return: +27.1%
= (+$458.66/$38,538.66) * (365/16 days)

The downside 'breakeven price' at expiration is at $192.70 ($195.00 - $2.30), which is 5.1% below the current market price of $203.04.

Covered Calls Established in Cabot Oil and Gas Corporation Using Dividend Capture Strategy

Today, a Covered Calls position was established in Cabot Oil and Gas Corporation (ticker symbol COG) when the Covered Calls Advisor's buy/write limit order at $15.25 was executed.  Six hundred COG shares were purchased at $15.86 and six August 20th, 2021 Call options were sold for $.61 per share at the $15.50 strike price.  The net debit limit order at $15.25 was executed, so the time value was $.25 per share [$.61 Call options premium - ($15.86 stock purchase price - $15.50 strike price)]. There is an upcoming quarterly ex-dividend of $.11 (annual dividend yield of 2.8%) on August 11th, 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 20th, 2021 options expiration date.  As preferred by the Covered Calls Advisor, the next quarterly earnings report will be after the options expiration date since 2Q 2021 earnings were reported just two weeks ago.  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 63.8 when the buy/write limit order was executed. 

As detailed below, a potential return-on-investment result is +1.6% absolute return (equivalent to +97.0% annualized return for the next 6 days) if the stock is assigned early (business day prior to the August 11th ex-date); OR +2.3% absolute return (equivalent to +52.8% annualized return over the next 16 days) if the stock is assigned on the August 20th, 2021 options expiration date.

Cabot is an Exploration and Production (E&P) company currently focused on natural gas in the Marcellus Shale in Northeast Pennsylvania.  Its wells mainly yield dry gas which provides high gas flow rates and at below industry production average prices.  They will acquire Cimarex Energy in Q4 this year in a "merger of equals" which will diversify its geographic assets to include the Mid-Continent (in Oklahoma) and the Permian Basin (West Texas and New Mexico).  Expected cash flow per share is $2.67 this year with expected further growth to $3.76 in fiscal 2022.  Cabot ranks in the top 10% of all large-cap companies in the Covered Calls Advisor's Energy Sector screener and has the best valuation based on its current Enterprise Value to EBITDA ratio of the six large-cap U.S.-based companies identified by this screener.  In addition, the current average target price of the 26 analysts covering Cabot is $21.37 (+34.7% above its current price).  

Cabot Oil and Gas Corporation(COG) -- New Covered Calls Position

In the unlikely event that the current time value (i.e. extrinsic value) of $.25 per share remaining in the six short Call options decays substantially (to below about $.10 per share) by August 10th (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 600 Cabot Oil and Gas shares away to capture the dividend payment.

The transactions were:
08/05/2021 Bought 600 Cabot shares @ $15.86
08/05/2021 Sold 6 COG 8/20/2021 $15.50 Call options @ $.61
Note: A simultaneous buy/write transaction was executed.   The Implied Volatility of the Call options was 30.5 when this Covered Calls position was established.
08/11/2021 Upcoming quarterly ex-dividend of $.11 per share

Two possible overall performance results (including commissions) for this Cabot Oil and Gas Covered Calls position are as follows:
Covered Calls Cost Basis: $9,154.02
= ($15.86 - $.61) * 600 shares + $4.02 commissions

Net Profit Components:
(a) Options Income: +$361.98
= ($.61 * 600 shares) - $4.02 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Aug 11th ex-div date): +$0.00; or
(b) Dividend Income (If Cabot shares assigned at August 20th, 2021 options expiration): +$66.00
= ($.11 dividend per share x 600 shares)
(c) Capital Appreciation (If COG assigned early on August 10th): -$216.00
+($15.50 -$15.86) * 600 shares ;or
(c) Capital Appreciation (If COG shares assigned at $15.50 strike price at options expiration): -$216.00
+($15.50 -$15.86) * 600 shares

1. Total Net Profit [If options exercised on Aug 10th (business day prior to the August 11th ex-dividend date)]: +$145.98

= (+$361.98 +$0.00 - $216.00); or

2. Total Net Profit (If Cabot shares assigned at $15.50 strike price at Aug 20th, 2021 expiration): +$211.98

= (+$361.98 + $66.00 - $216.00)

1. Absolute Return [If COG Call options exercised on business day prior to ex-dividend date]: +1.6%

= +$145.98/$9,154.02

Annualized Return (If options exercised early): +97.0%

= (+$145.98/$9,154.02)*(365/6 days); or

2. Absolute Return (If Cabot shares assigned at $15.50 strike price on Aug 20th, 2021 expiration): +2.3%

= +$211.98/$9,154.02

Annualized Return (If Cabot stock assigned at $55.00 at Oct 25, 2019 expiration): +52.8%

= (+$211.98/$9,154.02) *(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 $15.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $15.14 ($15.86 -$.61 -$.11) 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, eight criteria are achieved for this Cabot Oil and Gas Corp. Covered Calls position.

Established Covered Calls in Delta Air Lines Inc.

A Covered Calls position was established in Delta Air Lines Inc. (ticker DAL) with an August 20th, 2021 options expiration date.   A buy/write transaction entered early in today's trading executed early this afternoon at 12:34 p.m. at the net debit limit order price of $35.46 when 300 shares of Delta were purchased at $38.22 and three August 20th, 2021 Call options at the $36.00 strike price were sold at $2.76 per share.  As preferred by the Covered Calls Advisor, 2nd quarter earnings were announced 3 weeks ago so the next quarterly earnings report will be after the August 20th options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, a moderately in-the-money Covered Calls position was established with a Delta of 75.6 which approximates a probability of 75.6% that the stock will be in-the-money at the options expiration date. 

As detailed below, a potential return-on-investment result is +1.5% absolute return (equivalent to +32.3% annualized return over the next 17 days) if the stock price is in-the-money (i.e. above the $36.00 strike price) and therefore assigned on the August 20th, 2021 options expiration date.

Delta Air Lines Inc. (DAL) -- New Covered Calls Position

The Buy/Write transaction was as follows:
08/04/2021 Bought 300 shares of Delta Air Lines @ $38.22 per share 
08/04/2021 Sold 3 DAL August 20th, 2021 $36.00 Call options @ $2.76 per share.  The Implied Volatility of these Call options was very high at 42.2 (given that VIX was 18.0) when this transaction was executed.

A possible overall performance result (including commissions) for this Delta Air Lines Covered Calls position is as follows:
Stock Purchase Cost: $10,640.01
= ($38.22 - $2.76) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$825.99
= ($2.76 *300 shares) - $2.01 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 300 Delta Air Lines shares assigned at $36.00 strike price at expiration): -$666.00
= +($36.00 -$38.22) * 300 shares

Total Net Profit (If 300 Delta Air Lines shares assigned at $36.00 strike price at Aug 20th, 2021 options expiration): +$159.99

= (+$825.99 options income +$0.00 dividend income -$666.00) capital appreciation

 

Absolute Return-on-Investment (If 300 DAL shares assigned at $36.00 strike price at expiration): +1.5%

= +$159.99/$10,640.01

Annualized Return-on-Investment: +32.3%

= (+$159.99/$10,640.01)*(365 days per year /17 days)

Closed Covered Call Position in Caterpillar Inc.

At last Friday's (July 30th) options expiration, the Covered Calls position in Caterpillar Inc. expired with the stock price below the $210.00 strike price so the 100 shares remained in the Covered Calls Advisor Portfolio. This morning, Caterpillar Inc. position was closed out by selling the 100 CAT shares at $208.24.

As detailed below, the return-on-investment result for this Caterpillar Inc. Covered Calls position was +1.1% absolute return in 20 days (equivalent to a +20.0% annualized return-on-investment). 

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

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
07/19/2021 $111.00 ex-dividend = ($1.11 per share x 100 shares)
07/30/2021 CAT shares closed out-of-the-money on the 7/30 options expiration date, so options expired and 100 shares remain in the Covered Calls Advisor Portfolio
08/02/2021 Closed CAT Covered Call position by selling 100 CAT shares @ $208.24 per share.

The overall performance result (including commissions) was 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 (CAT shares sold at $208.24): -$686.00
= ($208.24 -$215.10) * 100 shares

Total Net Profit: +$227.00
= (+$802.00 option income +$111.00 dividend income -$686.00 capital appreciation)

Absolute Return: +1.1%
= +$227.00/$20,708.67
Equivalent Annualized Return-on-Investment: +20.0%
= (+$403.00/$20,708.67)*(365/20 days)