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.
