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
