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
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)
