Established Covered Calls Position in JPMorgan Chase & Co.

Today a Covered Calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) when the Covered Calls Advisor's buy/write limit order at $158.74 executed -- 200 shares were purchased at $165.29 and three October 15th, 2021 $160.00 Call options were sold at $6.55.  This is a moderately in-the-money position since the stock purchase price is 3.3% above the $160.00 strike price. 

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 October 15th, 2021 JPMorgan Chase 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 position are highlighted below and includes the possibility of early assignment since a quarterly $1.00 per share ex-dividend on October 5th is prior to the October 15th options expiration date.   An additional consideration in this position is that the next quarterly earnings report is on October 13th which is prior to the October 15th options expiration date.  Prior to the earnings report, the Covered Calls Advisor will be monitoring this position closely every day since closing out the position on or after the ex-dividend date but prior to the earnings date is a likely possibility.
  
As detailed below, two potential return-on-investment results are: 

•  +0.8% absolute return (equivalent to +57.6% annualized return for the next 5 days) if the stock is assigned early (business day prior to the October 5th ex-dividend date); OR 

• +1.4% absolute return (equivalent to +32.4% annualized return over the next 16 days) if the stock is assigned on the October 15th options expiration date.

JPMorgan Chase & Co. (JPM) -- New Covered Calls Position

If the stock price increases to the point where the current time value (i.e. extrinsic value) of $1.26 = [$6.55 options premium - ($165.29 stock price - $160.00 strike price)] remaining in the short Call options decays substantially (down to about $.25 or less) by October 4th (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 JPM shares away to capture the dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be a desirable outcome since its +57.6% annualized return-on-investment (aroi) exceeds the +32.4% aroi if assigned on the Oct. 15th, 2021 options expiration date.

The buy/write transaction was:
09/30/2021 Bought 200 JPM shares @ $165.29
09/30/2021 Sold 2 JPM 10/15/2021 $160.00 Call options @ $6.55
10/05/2021 Upcoming quarterly ex-dividend of $1.00 per share

Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost: $31,749.34
= ($165.29 - $6.55) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,308.66
= ($6.55 *200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Oct 4th, the business day prior to the Oct 5th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at the October 15th, 2021 expiration): +$200.00
= ($1.00 dividend per share x 200 shares)

(c) Capital Appreciation (If JPM assigned early): -$1,058.00
+($160.00 -$165.29) * 200 shares; or
(c) Capital Appreciation (If JPM assigned at $160.00 strike price at expiration): -$1,058.00
+($160.00-$165.29) * 200 shares

1. Total Net Profit [If option exercised on the last business day prior to the Oct. 5th ex-dividend date)]: +$250.66

= (+$1,308.66 options income +$0.00 dividend income -$1,058.00 capital appreciation); or

2. Total Net Profit (If JPM assigned at $160.00 at Oct. 15th, 2021 expiration): +$450.66

= (+$1,308.66 options income +$200.00 dividend income -$1,058.00 capital appreciation)

1. Absolute Return (If option exercised on business day prior to ex-dividend date): +0.8%

= +$250.66/$31,749.34

Annualized Return (If option exercised early): +57.6%

= (+$250.66/$31,749.34)*(365/5 days); or

2. Absolute Return (If JPM assigned at $160.00 at Oct. 15th, 2021 expiration date): +1.4%

= +$450.66/$31,749.34

Annualized Return (If JPM assigned at $140.00 at July 16th 2021 options expiration): +32.4%

= (+$450.66/$31,749.34)*(365/16 days)

Either outcome provides a very good return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $160.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $157.74 ($165.29 -$6.55 -$1.00) provides 4.6% downside protection below today's purchase price.

There is a 73.6% probability that the Calls will be above the $160.00 strike price at options expiration.  If so, the +32.4%  annualized roi profit detailed above would be achieved.

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.  Eight of the nine criteria are achieved in this JPMorgan position.

Established Covered Calls in Micron Technology Inc.

This morning at 9:32am just after the market opened, a short-term Covered Calls position was established in Micron Technology Inc. (ticker MU) with an October 8th, 2021 options expiration date.   A market order buy/write transaction was executed when 300 shares of Micron were purchased at $70.69 and three October 8th, 2021 Call options at the $68.00 strike price were sold at $3.19 per share.  The time value was $.50 = [$3.19 Call options premium - ($70.69 stock price - $68.00 strike price)] and a newly established initial quarterly dividend of $.10 per share goes ex-dividend tomorrow.  The Implied Volatility of these Calls was 32.5 when this transaction was executed and the Delta was 77.2 which approximates a 77.2% probability of the Call options being in-the-money at the options expiration date. 

Earnings were reported after the market close yesterday and the stock immediately declined in the after market primarily because Micron's guidance for revenue for the next quarter was 10.7% below analysts' estimates.  What the negative stock reaction seemed not to fully consider was that the guidance represents a +32% increase above the comparable quarter last year and the company is also maintaining its gross margin performance.  Based on this information, the FY22 P/E ratio would be about 9.5, an attractive valuation for a company with good ongoing prospects based on its ongoing 5G semiconductor supply prospects for the next several years. In addition, Micron's finances are strong and they have been 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 $108.82 (+53.9% above today's $70.69 purchase price).  I expect that as analysts re-evaluate their models for Micron after yesterday's earnings report, some will lower their price targets, but I believe these adjustments will be relatively modest and a wide margin of safety will remain. 

As detailed below, a potential return-on-investment result is +0.9% absolute return (equivalent to +32.1% annualized return for the next 10 days) if the stock price is in-the-money (i.e. above the $68.00 strike price) and therefore assigned on the October 8th options expiration date.

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

The Market Order Buy/Write transaction was as follows:
09/29/2021 Bought 300 shares of Micron Technology Inc. stock @ $70.69 per share 
09/29/2021 Sold 3 Micron Oct. 8th, 2021 $68.00 Call options @ $3.19 per share

A possible overall performance result (including commissions) for this Micron Technology Inc. Covered Calls position is as follows:
Stock Purchase Cost: $20,252.01
= ($70.69 - $3.19) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$954.99
= ($3.19 *300 shares) - $2.01 commission
(b) Dividend Income: +$30.00 = $.10 per share X 300 shares

(c) Capital Appreciation (If 300 Micron shares assigned at $68.00 strike price at expiration): -$807.00
+($68.00 -$70.69) * 300 shares

Total Net Profit (If 300 Micron shares assigned at $68.00 strike price at expiration): +$177.99 = (+$954.99 options income +$30.00 dividend income -$807.00) capital appreciation

 

Absolute Return-on-Investment: +0.9%

= +$177.99/$20,252.01

Annualized Return-on-Investment: +32.1%

= (+$177.99/$20,252.01) * (365/10 days)

Early Assignment of Fifth Third Bank and Pioneer Natural Resources Co.

Early this morning, the Covered Calls Advisor received email notifications from my broker (Schwab) that two Covered Calls positions [Fifth Third Bank (FITB) and Pioneer Natural Resources Co. (PXD)] were exercised early by the Call option owners.  As is normally the case, both early assignments occurred on the last business day prior to their ex-dividend dates when the stock prices were deep in-the-money and there was close to $0.00 time value remaining in the Call options.  The Covered Calls Advisor was pleased because the annualized return-on-investment (aroi) for both positions for early assignment was greater than the aroi if the Covered Calls would instead have been in-the-money and therefore assigned on their October 15th, 2021 options expiration date.

As detailed below, the return-on-investment results were as follows:

• Fifth Third Bank -- +1.1% absolute return (equivalent to +45.6% annualized return-on-investment for the 9 days this position was held).  This result exceeds the +27.3% that would have been achieved if this position had instead not been assigned until the October 15th, 2021 options expiration date.
  
• Pioneer Natural Resources Co. --  +2.3% absolute return (equivalent to +117.7% annualized roi for the 7 days this position was held).  This result exceeds the +40.3% that would have been achieved if this position had instead not been assigned until the October 15th, 2021 options expiration date.
  
  

1.  Fifth Third Bank (FITB) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction was:

09/20/2021 Bought 400 Fifth Third Bank shares @ $38.54
09/20/2021 Sold 4 FITB 10/15/2021 $36.00 Call options @ $2.94
Note 1: the Implied Volatility of the Calls was 33.7 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.40 per share = [$2.94 Call options premium - ($38.54 stock price - $36.00 strike price)].
09/29/2021 Early exercise of 4 FITB October 15th, 2021 $36.00 Call options, so 400 FITB shares were assigned (i.e. sold) at the $36.00 strike price.

The overall performance results (including commissions) for this Fifth Third Bank Covered Calls position were as follows:
Covered Calls Cost Basis: $14,242.68
= ($38.54 - $2.94) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,176.00
= ($2.94 * 400 shares)
(b) Dividend Income (4 FITB Call options exercised early on Sept 28th the last day prior to the Sept 29th ex-dividend ex-div date): +$0.00

(c) Capital Appreciation: -$1,016.00
+($36.00 - $38.54) * 400 shares

Total Net Profit [FITB Call options exercised early]: +$160.00

= (+$1,176.00 options income +$0.00 dividend income -$1,016.00 capital appreciation)

 

Absolute Return (Four FITB Call options exercised early on Sept 28th, 2021): +1.1%

= +$160.00/$14,242.68

Annualized Return: +45.6%

= (+$160.00/$14,242.68)*(365/9 days)

2.  Pioneer Natural Resources Company (PXD) -- Covered Call Position Closed by Early Assignment
The buy/write transaction was as follows:
9/22/2021 Bought 100 shares of Pioneer Natural Resources @ $150.43 per share 
9/22/2021 Sold 1 PXD Oct. 15th, 2021 $145.00 Call option @ $8.63 per share
Note: the Implied Volatility of this Call option was 35.0 when this position was established.
09/29/2021 Early exercise of 1 PXD October 15th, 2021 $145.00 Call option, so 100 PXD shares were assigned (i.e. sold) at the $145.00 strike price.
 
The overall performance results (including commissions) were as follows:
Covered Call Cost Basis: $14,180.67
= ($150.43 - $8.63) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$863.00
= ($8.63 * 100 shares)
(b) Quarterly Dividend Income (1 PXD Call option exercised early on Sept 28th the last day prior to the Sept 29th ex-dividend ex-div date): +$0.00
(c) Capital Appreciation: -$543.00
= ($145.00 -$150.43) * 100 shares

Total Net Profit: +$320.00 = ($863.00 options income +$0.00 dividend income -$543.00 capital appreciation)

Absolute Return-on-Investment: +2.3%
= +$320.00/$14,180.67
Equivalent Annualized Return-on-Investment: +117.7%
= (+$320.00/$14,180.67)*(365/7 days)

Roll Down and Out Covered Calls Positions in Best Buy Inc. and iShares China Large-Cap ETF

Both the Best Buy Inc. and iShares China Large-Cap ETF Covered Calls positions had Friday, September 24th, 2021 expiration dates and the Calls were out-of-the-money for both positions. So, during the last 30 minutes of trading yesterday, the Covered Calls continued the Covered Calls positions in Best Buy Inc. (ticker BBY) and iShares China Large-Cap ETF (ticker FXI) were continued by selling down and out to October 15th, 2021 options expiration dates. against the shares held in the Covered Calls Advisor Portfolio. The 2 September, 24th $112.00 Best Buy Calls were Bought-to-Close at $.02 per share and 2 October 15th, 2021 $105.00 Calls were simultaneously Sold-to-Open at $2.50 per share. The 5 September, 24th $39.00 iShares China Large-Cap ETF Calls were Bought-to-Close at $.01 per share and 5 October 15th, 2021 $38.00 Calls were simultaneously Sold-to-Open at $1.21 per share. As detailed below, the potential return-on-investment results if assigned at their Oct. 15th options expiration are: 

• Best Buy Inc.:  -2.4% absolute return (equivalent to -20.2% annualized return for 43 days).
  

• iShares China Large-Cap ETF:  +1.6% absolute return (equivalent to +18.4% annualized return for 31 days).

1. Best Buy Inc. (BBY) -- Continuation of Covered Calls Position

The transactions were as follows:
9/03/2021 Bought 200 shares of Best Buy shares @ $115.05 per share 
9/03/2021 Sold 2 Best Buy September 24th, 2021 $112.00 Call options @ $4.25 per share
Note: this was a net debit limit simultaneous Buy/Write transaction
09/13/2021 Quarterly ex-dividend of $.70 per share
09/24/2021 Rolled 2 Calls down-and-out to the $105.00 at a net credit of $2.48 by simultaneously buying back to close the Sept. 24th $112.00 Calls and selling to open the Oct. 15th $105.00 Calls.  Note: the Best Buy stock price closed at $104.74 on Friday, Sept. 24th.

A possible overall performance result (including commissions) for this Best Buy Covered Calls position if assigned at expiration is:
Covered Calls Cost Basis: $22,161.34
= ($115.05 - $4.25) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$1,343.32
= ($4.25 - $.02 +$2.50) * 200 shares - $2.68 commissions
(b) Dividend Income: +$140.00
= ($.70 dividend per share x 200 shares)
(c) Capital Appreciation (If Best Buy shares assigned at $105.00 strike price at options expiration): -$2,010.00
+($105.00 - $115.05) * 200 shares

Total Net Profit (If Best Buy shares assigned at $105.00 strike price at Oct. 15th, 2021 expiration): -$526.68

= (+$1,343.32 +$140.00 - $2,010.00)
 

Absolute Return-on-Investment (If BBY shares assigned at $105.00 strike price on Oct 15th, 2021 expiration): -2.4%

= -$526.68/$22,161.34

Annualized Return-on-Investment (If Best Buy stock assigned at $105.00 at Oct 15th, 2021 expiration): -20.2%

= (-$526.68/$22,161.34) *(365/43 days)

iShares China Large-Cap ETF (FXI) -- New Covered Calls Position 

The Buy/Write transaction was as follows:
09/15/2021 Bought 500 shares of iShares China Large-Cap ETF shares @ $39.8893 per share
09/15/2021 Sold 5 FXI Sept 24th, 2021 $39.00 Call options @ $1.28 per share
09/24/2021 Rolled 5 Calls down-and-out to the $38.00 at a net credit of $1.20 by simultaneously buying back to close the Sept. 24th $39.00 Calls and selling to open the five Oct. 15th $38.00 Calls.  Note: the FXI price closed at $38.24 on Friday, Sept. 24th.

 

A possible overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position is as follows:
Stock Purchase Cost: $19,308.00
= ($39.8893 - $1.28) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$1,246.70
= ($1.28 -$.01 + $1.21) * 500 shares - $6.70 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 500 iShares China Large-Cap ETF shares assigned at $38.00 strike price at expiration) -$944.65
+($38.00 - $39.8893) * 500 shares

Total Net Profit (If 500 iShares China Large-Cap ETF shares assigned at $38.00 strike price at expiration): +$302.05

= (+$1,246.70 options income +$0.00 dividend income -$944.65 capital appreciation)

 

Absolute Return-on-Investment: +1.6%

= +$302.05/$19,308.00

Annualized Return-on-Investment: +18.4%

= (+$302.05/$19,308.00) * (365/31 days)

Covered Calls Position Established in Nucor Corporation

During the final hour of trading this afternoon, the buy/write limit order in Nucor Corporation (ticker symbol NUE) was transacted when two hundred Nucor shares were purchased at $101.14 and two October 8th, 2021 Call options were sold for $7.01 per share at the $95.00 strike price.  The  buy/write net debit limit order at $94.13 was executed, so the time value was $.87 per share [$7.01 Call options premium - ($101.14 stock purchase price - $95.00 strike price)].  There is an upcoming quarterly ex-dividend of $.405 per share (annual dividend yield of 1.6%) on September 29th (next Wednesday), so the potential return-on-investment results for this position detailed below include the possibility of early assignment because the ex-dividend is prior to the October 8th, 2021 options expiration date.  

As preferred by the Covered Calls Advisor, Nucor's next quarterly earnings report on October 21st, 2021 will be after the October 8th, 2021 options expiration date.  Given the Covered Calls Advisor's current cautious market outlook, an in-the-money Covered Calls position was established with a Delta of 79.5 (a 79.5% probability of assignment) when the buy/write limit order was executed. 

Nucor has an attractive valuation since its P/E Ratio based on the average estimates for FY2020 and FY2021 only 6.0 compared with its prior 5-year historical average of 15.  The average target price of the 11 analysts that cover Nucor is $112.36 (+11.1% above today's stock purchase price). 

As detailed below, a potential return-on-investment result is +0.9% absolute return (equivalent to +66.9% annualized return for the next 5 days) if the stock is assigned early (business day prior to the September 29th ex-dividend date); OR +0.9% absolute return (equivalent to +32.8% annualized return over the next 15 days) if the stock is assigned on the October 8th, 2021 options expiration date.

Nucor Corporation (NUE) -- New Covered Calls Position
The simultaneous buy/write transaction today was as follows:
09/24/2021 Bought 200 Nucor shares @ $101.14
09/24/2021 Sold 2 Nucor 10/08/2021 $95.00 Call options @ $7.01
Note: the Implied Volatility of the Calls was 36.4 when this transaction was executed, well above the S&P 500 Volatility Index (VIX) of 17.7.
09/29/2021 Upcoming quarterly ex-dividend of $.405 per share

Two possible overall performance results (including commissions) for this Nucor Covered Calls position are as follows:
Covered Calls Cost Basis: $18,827.34
= ($101.14 - $7.01) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$1,400.66
= ($7.01 * 200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Sept 29th ex-div date): +$0.00; or
(b) Dividend Income (If Nucor shares assigned at the Oct. 8th, 2021 options expiration): +$81.00
= ($.405 dividend per share x 200 shares)
(c) Capital Appreciation (If Nucor shares assigned early on Sept.29th): -$1,228.00
+($95.00 - $101.14) * 200 shares ;or
(c) Capital Appreciation (If Nucor shares assigned at $95.00 strike price at options expiration): -$1,228.00
+($95.00 - $101.14) * 200 shares

1. Total Net Profit [If options exercised on Sept. 28th (last business day prior to the Sept. 29th ex-dividend date)]: +$172.66

= (+$1,400.66 +$0.00 - $1,228.00); or

2. Total Net Profit (If Nucor shares assigned at $95.00 strike price at the Oct. 8th, 2021 expiration): +$253.66

= (+$1,400.66 + $81.00 - $1,228.00)

1. Absolute Return-on-Investment [If NUE Call options exercised on business day prior to ex-dividend date]: +0.9%

= +$172.66/$18,827.34

Annualized Return-on-Investment (If options exercised early): +66.9%

= (+$172.66/$18,827.34) * (365/5 days); or

2. Absolute Return-on-Investment (If Nucor shares assigned at $95.00 strike price on October 8th, 2021 expiration): +1.3%

= +$253.66/$18,827.34

Annualized Return-on-Investment (If Nucor stock assigned at $95.00 at Oct.8th, 2021 expiration): +32.8%

= (+$253.66/$18,827.34) *(365/15 days)

These returns will be achieved as long as the Nucor stock is above the $95.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $93.725 ($101.14 -$7.01 -$.405) provides 7.3% 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 Nucor Corporation Covered Calls position.

Covered Call Established in Pioneer Natural Resources Company

A Covered Call position was established in the Pioneer Natural Resources Co. (ticker PXD), with an October 15th, 2021 options expiration date. One hundred shares of Pioneer were purchased at $150.43 and one Call option was sold at $8.63 per share at the $145.00 strike price.  This position is now the sole Energy Sector position in the Covered Calls Advisor Portfolio, having replaced the Select Sector Energy ETF Fund Covered Calls position that was closed out earlier today and the details of which were posted earlier today on this blog. 

The time value was $3.20 per share [$145.00 strike price - ($150.43 share price - $8.63 Call option premium)] when this buy/write limit order transaction was executed.  PXD also goes ex-dividend on September 29th, 2021 at $.56 per share (1.5% annualized dividend yield) so this income is included in the potential return-on-investment results detailed below.  There is no quarterly earnings report prior to the October 15th, 2021 options expiration date.

Pioneer Natural Resources Company is a leading pure-play oil and gas exploration and production (E&P) company that explores for, develops, and produces oil, natural gas, natural gas liquids (NGLs) and gas within the U.S., with operations primarily in the Permian Basin in West Texas.  Pioneer is known for its low breakeven costs and its strong balance sheet.  The recent acquisition of Parsley Energy provides additional assets and further diversifies its operations into the Delaware Basin (in West Texas and Southeastern New Mexico), one of the most prolific basins in the U.S. 

There are currently 34 analysts covering Pioneer and their average price target is $206.91 (+37.5% above today's purchase price of $150.43).

A potential return-on-investment result if this Covered Call position closes in-the-money at the October 15th options expiration date is +2.7% absolute return in 24 days (equivalent to a +40.3% annualized return-on-investment).   The Delta was 66.5 when this position was established, which is the approximate probability that it will close in-the-money on the options expiration date in which case the maximum potential profit for this position would be achieved.

Pioneer Natural Resources Company (PXD) -- New Covered Call Position
The buy/write transaction was as follows:
9/22/2021 Bought 100 shares of Pioneer Natural Resources @ $150.43 per share 
9/22/2021 Sold 1 PXD Oct. 15th, 2021 $145.00 Call option @ $8.63 per share
Note: the Implied Volatility of this Call option was 35.0 when this position was established.
9/29/2021 Ex-dividend of $.56 per share
 

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $14,180.67
= ($150.43 - $8.63) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$863.00
= ($8.63 * 100 shares)
(b) Quarterly Dividend Income: +$56.00
= $.56 per share x 100 shares 
(c) Capital Appreciation (If PXD is above $145.00 strike price at the October 15th, 2021 options expiration date): -$543.00
= ($145.00 -$150.43) * 100 shares

Total Net Profit: +$376.00 = ($863.00 options income +$56.00 dividend income -$543.00 capital appreciation)

Absolute Return-on-Investment: +2.7%
= +$376.00/$14,180.67
Equivalent Annualized Return-on-Investment: +40.3%
= (+$376.00/$14,180.67)*(365/24 days)

These returns will be achieved if the Pioneer Natural Resources Co. shares are above the $145.00 strike price at the market closing on the October 15th, 2021 options expiration date.  If the stock declines below the strike price, the breakeven price of $141.24 ($150.43 -$8.63 -$.56) provides 6.1% downside breakeven protection below today's $150.43 purchase price.

Please email me at partlow@cox.net if you have any comments or questions related to this post or anything related to Covered Calls investing.

Regards and Godspeed,

Jeff Partlow

Closed Covered Calls Position in the Energy Select Sector SPDR Fund ETF

Last Friday, a Covered Calls position was established in the Energy Select Sector SPDR Fund ETF (XLE) with an October 15th, 2021 options expiration date. On Monday, XLE went ex-distribution at $.5919 per share and today Energy is the leading Sector in a strong upward market. So I decided to close out the position today at an annualized return-on-investment (aroi) of +21.7% rather than waiting for a potential maximum aroi of +25.1% if the position were to be instead assigned on the Oct. 15th options expiration date.  Since XLE was the only Energy Sector position in the Covered Calls Advisor Portfolio, I decided to replace the XLE with another Covered Calls position in a different Energy Sector company (Pioneer Natural Resources Co.) also using the Dividend Capture Strategy.  This conservative Pioneer position provides a higher potential annualized return-on-investment of +40.3% than the potential +25.1% aroi if the XLE position had been maintained until the October 15th, 2021 options expiration.  

As detailed below, the return-on-investment results for this Energy Select Sector SPDR Fund ETF Covered Calls position was +0.3% absolute return in 5 days (equivalent to a +21.7% annualized return-on-investment). 

Energy Select Sector SPDR Fund ETF (XLE) -- Closed this Covered Calls Position
The buy/write transaction was as follows:
9/17/2021 Bought 300 shares of the Energy Select Sector SPDR Fund @ $49.39 per share 
9/17/2021 Sold 3 XLE Oct. 15th, 2021 $47.00 Call options @ $2.73 per share
Note: the Implied Volatility of these Call options was 24.2 when this position was established.
9/20/2021 Ex-distribution of $.5919 per share
9/22/2021 Unwound the XLE Covered Calls position by simultaneously selling-to-close 300 XLE shares at $49.14 per share and buying-to-close 3 XLE Oct. 15th $47.00 Calls @ $2.92 per share.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $14,000.01
= ($49.39 - $2.73) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: - $61.02
= ($2.73 - $2.92) * 300 shares -$4.02 commissions
(b) Quarterly Distribution Income: +$177.57
= $.5919 per share x 300 shares 
(c) Capital Appreciation (XLE shares sold at $49.14 per share): -$75.00
= ($49.14 -$49.39) * 300 shares

Total Net Profit: +$41.55
= (-$61.02 options income +$177.57 distribution income -$75.00 capital appreciation)

Absolute Return-on-Investment: +0.3%
= +$41.55/$14,000.01
Equivalent Annualized Return-on-Investment: +21.7%
= (+$41.55/$14,000.01)*(365/5 days)

Established Covered Calls Position in Cardinal Health Inc. Using the Dividend Capture Strategy

Today a Covered Calls position was established in Cardinal Health Inc. (ticker symbol CAH) when the Covered Calls Advisor's buy/write limit order was executed -- 300 shares were purchased at $51.50 and three October 15th, 2021 Call options were sold at $1.94 at the $50.00 strike price.  CAH has a September 30th, 2021 ex-dividend of $.4908 (3.8% annual dividend yield based on today's purchase price) which is included in the return-on-investment (roi) calculations below.  As preferred by the Covered Calls Advisor the next quarterly earnings report is on November 4th which is after the October 15th options expiration date.  The Delta of the CAH Call options was 70.4 which approximates a 70.4% probability that the stock will be in-the-money at the Oct. 15th expiration.

Just prior to establishing this CAH Covered Calls limit order, a comparison of whether a Covered Calls or its comparable Cash-Secured Puts position would be preferable.  As is normally the case when there is an intervening ex-dividend prior to options expiration, the Covered Calls position was preferable.  As shown in the chart below, there are two financial advantages to Covered Calls in this case: (1) the potential Annualized ROI at expiration for Covered Calls exceeds that of 100% Cash-Secured Puts (+28.6% for CCs versus +23.1% for CSPs); and (2) Covered Calls provide an additional possibility of early assignment (normally on the day prior to the ex-dividend date) with a potential Annualized ROI of +46.3% which is better than the +28.6% AROI if assigned at expiration.  When selling Cash-Secured Puts, dividends are never captured.  

Note: Click on image below for a larger view.    

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.  All nine criteria are achieved for this Cardinal Health position.

Established Covered Calls in Wynn Resorts Ltd.

A Covered Calls position was established in Wynn Resorts Ltd. (ticker WYNN) with an October 1st, 2021 options expiration date.   A buy/write transaction entered at a net debit of $73.56 was executed when 300 shares of Wynn Resorts Ltd. were purchased at $79.71 and three October 1st Call options at the $75.00 strike price were sold at $6.15 per share. The Implied Volatility of these Calls increased to 57.0 today when this transaction was executed and the Delta was 73.3 which approximates the probability of the Call options being in-the-money at the options expiration date.   

As detailed below, a potential return-on-investment result is +1.9% absolute return (equivalent to +64.6% annualized return for the next 11 days) if the stock price is in-the-money (i.e. above the $75.00 strike price) and therefore assigned on the October 1st options expiration date.

Wynn Resorts Ltd.(WYNN) -- New Covered Calls Position 

The Buy/Write transaction was as follows:
09/21/2021 Bought 300 shares of Wynn Resorts Ltd. shares @ $79.71 per share 
09/21/2021 Sold 3 WYNN October 1st, 2021 $75.00 Call options @ $6.15 per share

A possible overall performance result (including commissions) for this Wynn Resorts Ltd. Covered Calls position is as follows:
Stock Purchase Cost: $22,070.01
= ($79.71 - $6.15) * 300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,842.99
= ($6.15 * 300 shares) - $3.35 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 300 Wynn Resorts shares assigned at $75.00 strike price at expiration): -$1,413.00
+($75.00 - $79.71) * 300 shares

Total Net Profit (If 300 Wynn Resorts shares assigned at $75.00 strike price at expiration): +$429.99

= (+$1,842.99 options income +$0.00 dividend income -$1,413.00 capital appreciation)

 

Absolute Return-on-Investment: +1.9%

= +$429.99/$22,070.01

Annualized Return-on-Investment: +64.6%

= (+$429.99/$22,070.01) * (365/11 days)

Established Cash-Secured Puts Position in Cleveland-Cliffs Inc.

A new position was established in Cleveland-Cliffs Inc. (ticker CLF) by selling eight October 15th, 2021 100% Cash-Secured Put options at the $20.00 strike price at $1.59 per share when the price of Cleveland-Cliffs stock was slightly out-of-the-money at $19.79 per share. The Implied Volatility for these Put options increased to 69.8 today as the stock declined dramatically along with today's decrease in the price of iron ore.  This Implied Volatility was very attractive to the Covered Calls Advisor since it was substantially higher than the current S&P 500 Volatility Index (VIX) of 26.7.   So the $1,266.64 ($1.59 per share x 800 shares - $5.36 commission) is a nice premium to receive for selling these Put options.  As preferred by the Covered Calls Advisor, Q3 2021 earnings will be reported on October 22nd which is after the October 15th options expiration date.

With acquisitions completed of ArcelorMittal USA and AK Steel, Cleveland-Cliffs is now the largest flat-rolled steel producer in North America and is also now vertically integrated from mining through production.  Earnings this year are expected to exceed $5.00 per share which implies an extremely low P/E Ratio below 4.0.  This is a very attractive valuation and furthermore, the average analysts' target price is $29.59 (+49.5% above today's purchase price).   

As detailed below, for this Cleveland-Cliffs Inc. Cash-Secured Puts position two potential return-on-investment results are: (a) +7.5% absolute return in 26 days (equivalent to a +104.7% annualized return-on-investment) if the stock price is unchanged at $19.79 on the October 15th, 2021 options expiration date; and (b) +8.6% absolute return in 26 days (equivalent to a +120.7% annualized return-on-investment) if the stock price is above the $20.00 strike price on the October 15th, 2021 options expiration date.   

Cleveland-Cliffs Inc. (CLF) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
09/20/2021  Sold 8 Cleveland-Cliffs Inc. October 15th, 2021 $20.00 100% Cash-Secured Put options @ $1.59 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 eight Put options sold.

Two possible overall performance results (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $14,733.36
= ($20.00 - $1.59) * 800 shares + $5.36 commission

Net Profit:
(a) Options Income: +$1,266.64
= ($1.59 *800 shares) - $5.36 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If CLF stock is unchanged at $19.79 at the October 15th expiration): -$168.00
= ($19.79 - $20.00) * 800 shares
(c) Capital Appreciation (If CLF stock is above the $20.00 strike price at the Oct. 15th expiration): +$0.00
= ($20.00 - $20.00) * 800 shares

 
1. Total Net Profit (If CLF stock is unchanged at $19.79 at the October 15th expiration): +$1,098.64
= (+$1,266.64 options income +$0.00 dividend income -$168.00 capital appreciation); or
2. Total Net Profit (If CLF stock is above the $20.00 strike price at the Oct. 15th expiration): +$1,266.64
= (+$1,266.64 options income +$0.00 dividend income +$0.00 capital appreciation)

1. Absolute Return-on-Investment (If CLF stock is unchanged at $19.79 at the October 15th expiration): +7.5%
= +$1,098,.64/$14,733.36; and the
Equivalent Annualized Return-on-Investment: +104.7%
= (+$1,098,.64/$14,733.36) * (365/26 days) 

2. Absolute Return-on-Investment (If CLF stock is above the $20.00 strike price at the Oct. 15th expiration): +8.6%
= +$1,266,.64/$14,733.36; and the
Equivalent Annualized Return-on-Investment (If CLF stock is above the $20.00 strike price at the Oct. 15th expiration): +120.7%
= (+$1,266,.64/$14,733.36) * (365/26 days)

Continuation of Covered Calls Positions in American Eagle

Today, the Covered Calls positions in American Eagle Outfitters Inc. (ticker AEO) was continued by selling Call options against the shares held in the Covered Calls Advisor Portfolio.  Last Friday, AEO's $26.00 strike price Calls expired with the stock price substantially out-of-the-money at $23.05.  With the recent concerns regarding the extent of disruption that the Omicron variant might have for mall-based retailers, American Eagle's stock price suffered.  I believe the extent of the actual impact on mall traffic and sales will not be as significant as feared and there is a strong likelihood of a price rebound, so I decided to continue to sell Calls against the 500 AEO shares owned.  My current plan is to attempt to repair the damage done by continuing to sell short-term Calls against the 500 AEO shares owned.  Today 5 December 31st, 2021 $24.00 Calls were sold at $.22 per share when the stock price was $23.23--so this provides only one week until the next options expiration date at which time another decision will be made. 

As detailed below, two potential return-on-investment results are:  (a) -6.7% absolute return (equivalent to -64.6% annualized return over the 38 days this position is held) if the stock price is unchanged at $23.23 on the December 31st, 2021 options expiration date; and (b) -3.7% absolute return (equivalent to -35.4% annualized return over the 38 days this position is held) if AEO stock is in-the-money and therefore assigned on the December 31st, 2021 options expiration date.

American Eagle Outfitters Inc. (AEO) -- Continuation of Covered Calls Position
The transaction today was as follows:
11/24/2021 Bought 500 American Eagle Outfitters Inc. shares @ $27.43
11/24/2021 Sold 5 AEO 12/17/2021 $26.00 Call options @ $2.11
12/09/2021 Upcoming quarterly ex-dividend of $.18 per share
12/17/2021 5 Call options expired out-of-the-money and 500 shares of AEO retained in the Covered Calls Advisor Portfolio.
12/23/2021 Sold 5 AEO 12/31/2021 $24.00 Call options @ $.22 per share when the stock price was $23.23 per share. 

Two possible overall performance results (including commissions) for this American Eagle Outfitters Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $12,663.35
= ($27.43 - $2.11) * 500 shares + $3.35 commissions

Net Profit Components:
(a) Options Income: +$1,158.30
= ($2.11 + $.22) * 500 shares - $6.70 commissions
(b) Dividend Income: +$90.00
= $.18 per share x 500 shares
(c) Capital Appreciation (If American Eagle share price unchanged at $23.23 at Dec. 31st, 2021 expiration): -$2,100.00
= +($23.23 - $27.43) * 500 shares ;or
(c) Capital Appreciation (If AEO shares assigned at $24.00 strike price at 12/31/2021 options expiration): -$1,715.00
= +($24.00 - $27.43) * 500 shares

1. Total Net Profit (If American Eagle share price unchanged at $23.23 at Dec. 31st, 2021 expiration): -$851.70

= (+$1,158.30 options income +$90.00 dividend income - $2,100.00 capital appreciation); or

2. Total Net Profit (If AEO shares assigned at $24.00 strike price at Dec. 31st, 2021 expiration): -$466.70

= (+$1,158.30 + $90.00 - $1,715.00)

1. Absolute Return (If American Eagle share price unchanged at $23.23 at Dec. 31st, 2021 expiration): -6.7%

= -$851.70/$12,663.35

Annualized Return-on-Investment: -64.6%

= (-$851.70/$12,663.35) * (365/38 days); or

2. Absolute Return (If AEO shares assigned at $24.00 strike price at Dec. 31st, 2021 expiration): -3.7%

= -$466.70/$12,663.35

Annualized Return-on-Investment (If AEO stock assigned at $24.00 at Dec. 31st, 2021 expiration): -35.4%

= (-$466.70/$12,663.35) *(365/38 days)

Closed Covered Calls Position in Tyson Foods Inc.

At last Friday's (September 17th) options expiration, the Covered Calls position in Tyson Foods Inc. (TSN) expired with the stock price below the $77.50 strike price so the 400 shares remained in the Covered Calls Advisor Portfolio.  This morning, the Covered Calls Advisor decided not to attempt to repair this position back to profitability but instead to close it out at a small loss as detailed below.  The cash proceeds will remain in the Covered Calls Portfolio and will be available whenever a new Covered Calls (or Cash-Secured Puts) position is established.  

The return-on-investment results for this Tyson Foods Covered Calls position was -0.9% absolute return in 27 days (equivalent to a -12.7% annualized return-on-investment). 

Tyson Foods Inc. (TSN) -- Covered Calls Position Closed

The buy/write transaction was:
08/24/2021 Bought 400 Tyson Foods shares @ $79.25
08/24/2021 Sold 4 TSN 07/17/2021 $77.50 Call options @ $2.35
08/31/2021 Upcoming quarterly ex-dividend of $.445 per share
09/17/2021 4 Tyson Call options expired with the stock below the $77.50 strike price so the 400 shares remain in the Covered Calls Advisor Portfolio.
9/20/2021 Sold 400 Tyson Foods shares at $75.74 per share.

The overall performance results (including commissions) for this Tyson Foods Covered Calls position was as follows:
Covered Calls Cost Basis: $30,762.68
= ($79.25 - $2.35) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$937.32
= ($2.35 x 400 shares) - $2.68 commission
(b) Dividend Income: +$178.00
= ($.445 dividend per share x 400 shares)
(c) Capital Appreciation (400 shares sold at $75.74): -$1,404.00
+($75.74 - $79.25) * 400 shares

Total Net Profit (Covered Calls position closed by selling 400 shares at $75.74): -$288.68

= (+$937.32 Call options income +$178.00 dividend income - $1,404.00 capital appreciation)

 Absolute Return-on-Investment: -0.9%

= -$288.68/$30,762.68

Annualized Return-on-Investment: -12.7%

= (-$288.68/$30,762.68) * (365/27 days)

September 17th, 2021 Monthly Options Expiration Results

The Covered Calls Advisor Portfolio had twelve Covered Calls positions since last month's (August 20th, 2021) monthly options expiration date.  During this past month, the Covered Calls Advisor Portfolio closed out nine of these twelve positions.   All nine positions were closed at a profit and the other three Covered Calls expired out-of-the-money on yesterday's options expiration date.  A summary of results (for all twelve positions) since the last monthly options expiration date on Aug 20th, 2021 through yesterday's monthly options expiration date of Sept 17th are described below:

• Two Covered Calls positions expired in-the-money on the September 17th monthly options expiration date, so the options expired and the stocks were sold at the strike prices with the following results: 

1. Devon Energy Corp. (DVN) -- +3.8% absolute return in 16 days (equivalent to +85.9% annualized return-on-investment).  
2. Micron Technology Inc. (MU) -- +1.4% absolute return in 11 days (equivalent to +47.0% annualized return-on-investment). 

• Two Covered Calls positions expired in-the-money on their September 3rd weekly options expiration dates, so their options expired and their stocks were sold at their respective strike prices with the following results:
  

1. Cabot Oil and Gas Corp. (COG) -- +0.6% absolute return in 29 days (equivalent to +8.0% annualized return-on-investment).  
2. Micron Technology Inc. (MU) -- +3.9% absolute return in 12 days (equivalent to +118.8% 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 to unwind these Covered Calls positions prior to their options expiration dates with the following results:
  

1. Bank of America Corp. (BAC) -- +0.6% absolute return in 14 days (equivalent to +14.7% annualized return-on-investment).
2. Barrick Gold Corp. (GOLD) -- +1.7% absolute return in 20 days (equivalent to +31.5% annualized return-on-investment).
3. Raytheon Technologies Corporation (RTX) -- +0.3% absolute return in 19 days (equivalent to +5.5% annualized return-on-investment).

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

1. Cigna Corporation (CI) -- +0.6% absolute return in 9 days (equivalent to +31.2% annualized return-on-investment).
2. Tapestry Inc. (TPR) -- +2.2% absolute return in 14 days (equivalent to +57.8% annualized return-on-investment).

• Three Covered Calls positions (Boeing Co., Polaris Industries Inc., and Tyson Foods Inc.) expired out-of-the-money on the September 17th, 2021 options expiration date, so 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 these Covered Calls positions by selling future Call options against the shares currently held.

During the past year (last 12 months) 123 of 127 positions were closed out at a profit.  The average annualized return-on-investment was +36.6% and their average holding period was 22.0 days.  In comparison, the benchmark S&P 500 index returned +32.1% during the same prior one-year period.

As shown in the right sidebar, there are currently seven 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 Established in Energy Select Sector SPDR Fund ETF

A Covered Calls position was established in the Energy Select Sector SPDR Fund ETF (ticker XLE), with an October 15th, 2021 options expiration date. Three hundred shares of the Energy Select Sector SPDR Fund were purchased at $49.39 and three Call options were sold at $2.73 per share at the $47.00 strike price.  

The time value was $.34 per share [$47.00 strike price - ($49.39 share price - $2.73 options premium)] when this buy/write limit order transaction was executed.  XLE also goes ex-distribution on September 20th, 2021 (next Monday) at $.5919 per share so this income is included in the potential return-on-investment result detailed below. 

The Covered Calls Advisor expects that for Devon Energy (the only Energy Sector Covered Calls position currently in the Portfolio), the Call options will expire in-the-money today and the Devon shares will be sold.  In the Energy Sector, the Covered Calls Advisor prefers to establish positions using the Dividend Capture Strategy and this Energy Select Sector SPDR Fund ETF Covered Calls position not only achieves that objective, but also serves to replace Devon as the sole Energy Sector position in the Covered Calls Advisor's Portfolio.

A potential return-on-investment result if this position closes in-the-money at the October 15th options expiration date is +1.9% absolute return in 29 days (equivalent to a +23.5% annualized return-on-investment).   The Delta was 77.0 when this position was established, which is the approximate probability that it will close in-the-money on the options expiration date in which case the maximum potential profit for this position would be achieved.

Energy Select Sector SPDR Fund ETF (XLE) -- New Covered Calls Position
The buy/write transaction was as follows:
9/17/2021 Bought 300 shares of the Energy Select Sector SPDR Fund @ $49.39 per share 
9/17/2021 Sold 3 XLE Oct. 15th, 2021 $47.00 Call options @ $2.73 per share
Note: the Implied Volatility of these Call options was 24.2 when this position was established.
9/20/2021 Ex-distribution of $.5919 per share
 

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $14,000.01
= ($49.39 - $2.73) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$819.00
= ($2.73 * 300 shares)
(b) Quarterly Distribution Income: +$177.57
= $.5919 per share x 300 shares 
(c) Capital Appreciation (If XLE is above $47.00 strike price at the October 15th, 2021 options expiration date): -$717.00
= ($47.00 -$49.39) * 300 shares

Total Net Profit: +$279.57
= (+$819.00 options income +$177.57 distribution income -$717.00 capital appreciation)

Absolute Return-on-Investment: +2.0%
= +$279.57/$14,000.01
Equivalent Annualized Return-on-Investment: +25.1%
= (+$279.57/$14,000.01)*(365/29 days)

These returns will be achieved if the Energy Select Sector SPDR Fund  is above the $47.00 strike price at the market closing on the October 15th, 2021 options expiration date.  If the stock declines below the strike price, the breakeven price of $46.0681 ($49.39 -$2.73 -$.5919) provides 6.7% downside breakeven protection below today's XLE $49.39 purchase price.

Since the majority of the potential profit from this position comes from the ex-distribution amount and that occurs so quickly (next Monday), the Covered Calls Advisor will be watching this position closely during the next two weeks to see if a good opportunity arises to achieve an annualized return-on-investment greater than the +25.1% if this Covered Calls position instead were to expire in-the-money on its October 15th, 2021 options expiration date.

Please email me at partlow@cox.net if you have any comments or questions related to this post or anything related to Covered Calls investing.

Regards and Godspeed,

Jeff Partlow

Established Covered Calls in iShares China Large-Cap ETF

A Covered Calls position was established in iShares China Large-Cap ETF (ticker FXI) with a September 24th, 2021 options expiration date.   A buy/write transaction entered at a net debit of $38.61 was executed when 500 shares of iShares China Large-Cap ETF were purchased at $39.8893 and five Sept 24th, 2021 Call options at the $39.00 strike price were sold at $1.28 per share. The Implied Volatility of these Calls was 29.1 today when this transaction was executed and the Delta was 68.2 which approximates the probability of the Call options being in-the-money at the options expiration date.   

The iShares China Large-Cap ETF provides some geographic diversification to the Covered Calls Advisor Portfolio.  It holds 57 companies with the top 3 holdings (Meituan, Tencent, and Alibaba) representing about 25% of the total assets of $4.0 billion in this ETF.  Importantly to the Covered Calls Advisor, the FXI investment manager (BlackRock) is now managing all of FXI's assets on the Hong Kong Stock Exchange and not on the American OTC and NYSE Exchanges, thus avoiding some of the recent governance concerns and controls of the central governments of both China and the U.S. that have resulted in a 25% decline in FXI during the past 7 months.  But with this decline, FXI now seems undervalued relative to the S&P 500 ETF (SPY) since: (1) FXI's  Price-to-Cash Flow ratio is only 11.6 compared with SPY's 15.1; and (2) FXI's Price-to-Sales ratio is 1.5 compared with SPY's 2.9.     

As detailed below, a potential return-on-investment result is +1.0% absolute return (equivalent to +36.3% annualized return for the next 10 days) if the stock price is in-the-money (i.e. above the $39.00 strike price) and therefore assigned on the September 24th options expiration date.

iShares China Large-Cap ETF (FXI) -- New Covered Calls Position 

The Buy/Write transaction was as follows:
09/15/2021 Bought 500 shares of iShares China Large-Cap ETF shares @ $39.8893 per share 
09/15/2021 Sold 5 FXI Sept 24th, 2021 $39.00 Call options @ $1.28 per share

A possible overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position is as follows:
Stock Purchase Cost: $19,308.00
= ($39.8893 - $1.28) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$636.65
= ($1.28 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 500 iShares China Large-Cap ETF shares assigned at $39.00 strike price at expiration): -$444.65
+($39.00 - $39.8893) * 500 shares

Total Net Profit (If 500 iShares China Large-Cap ETF shares assigned at $39.00 strike price at expiration): +$192.00 

= (+$636.65 options income +$0.00 dividend income -$444.65 capital appreciation)

 

Absolute Return-on-Investment: +1.0%

= +$192.00/$19,308.00

Annualized Return-on-Investment: +36.3%

= (+$192.00/$19,308.00) * (365/10 days)

Covered Calls Position Established in Seagate Technology Holdings PLC

During the final hour of trading this afternoon, the buy/write limit order in Seagate Technology Holdings PLC (ticker symbol STX) was transacted when two hundred Seagate shares were purchased at $82.25 and two October 1st, 2021 Call options were sold for $3.35 per share at the $80.00 strike price.  The  buy/write net debit limit order at $78.90 was executed, so the time value was $1.10 per share [$3.35 Call options premium - ($82.25 stock purchase price - $80.00 strike price)].  There is an upcoming quarterly ex-dividend of $.67 (annual dividend yield of 3.3%) on September 21st, 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 October 1st, 2021 options expiration date.  

As preferred by the Covered Calls Advisor, Seagate's next quarterly earnings report on October 21st, 2021 will be after the October 1st, 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 67.0 when the buy/write limit order was executed. 

Seagate Technology stock has an attractive valuation since its P/E Ratio based on the next 12 months is only 10.0 compared with its prior 5-year historical average of 12.7.  In addition, the average target price of the 27 analysts that cover Seagate is $104.81 (+27.4% above today's stock purchase price). 

As detailed below, a potential return-on-investment result is +1.4% absolute return (equivalent to +72.2% annualized return for the next 7 days) if the stock is assigned early (business day prior to the September 21st ex-dividend date); OR +2.2% absolute return (equivalent to +45.3% annualized return over the next 18 days) if the stock is assigned on the October 1st, 2021 options expiration date.

Seagate Technology Holdings PLC (STX) -- New Covered Calls Position
The simultaneous buy/write transaction today was as follows:
09/14/2021 Bought 200 Seagate Technology Holdings PLC shares @ $82.25
09/14/2021 Sold 2 Seagate 10/01/2021 $80.00 Call options @ $3.35
Note: the Implied Volatility of the Calls was 27.2 and the comparable Puts was 34.1 when this transaction was executed, well above the S&P 500 Volatility Index (VIX) of 19.5.
09/21/2021 Upcoming quarterly ex-dividend of $.67 per share

Two possible overall performance results (including commissions) for this Seagate Technology Covered Calls position are as follows:
Covered Calls Cost Basis: $15,781.34
= ($82.25 - $3.35) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$668.66
= ($3.35 * 200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Sept 21st ex-div date): +$0.00; or
(b) Dividend Income (If Seagate shares assigned at Oct. 1st, 2021 options expiration): +$134.00
= ($.67 dividend per share x 200 shares)
(c) Capital Appreciation (If STX shares assigned early on Sept.20th): -$450.00
+($80.00 - $82.25) * 200 shares ;or
(c) Capital Appreciation (If Seagate shares assigned at $80.00 strike price at options expiration): -$450.00
+($80.00 - $82.25) * 200 shares

1. Total Net Profit [If options exercised on Sept. 20th (last business day prior to the Sept. 21st ex-dividend date)]: +$218.66

= (+$668.66 +$0.00 - $450.00); or

2. Total Net Profit (If STX shares assigned at $80.00 strike price at the Oct. 1st, 2021 expiration): +$352.66

= (+$668.66 + $134.00 - $450.00)

1. Absolute Return-on-Investment [If STX Call options exercised on business day prior to ex-dividend date]: +1.4%

= +$218.66/$15,781.34

Annualized Return-on-Investment (If options exercised early): +72.2%

= (+$218.66/$15,781.34) * (365/7 days); or

2. Absolute Return-on-Investment (If Seagate shares assigned at $80.00 strike price on October 1st, 2021 expiration): +2.2%

= +$352.66/$15,781.34

Annualized Return-on-Investment (If Seagate stock assigned at $80.00 at Oct.1st, 2021 expiration): +45.3%

= (+$352.66/$15,781.34) *(365/18 days)

These returns will be achieved as long as the stock is above the $80.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $78.23 ($82.25 -$3.35 -$.67) provides 4.9% 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 Seagate Technology Holdings PLC Covered Calls position.

Closed Positions in Bank of America Corp. and Barrick Gold Corp.

At last Friday's options expiration date, both of the September 10th, 2021 Covered Calls positions in the Covered Calls Advisor's Portfolio expired with the stock price below their strike prices.  Early in this morning's trading session, both positions (Bank of America and Barrick Gold) were closed out by selling the stocks. Fortunately, both positions were closed out profitably:

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

• Bank of America Corp. -- +0.6% absolute return in 14 days (equivalent to a +14.7% annualized return-on-investment); and 
• Barrick Gold Corp. -- +1.7% absolute return in 20 days (equivalent to a +31.5% annualized return-on-investment).
  
  
  Although these annualized return-on-investment results are less than what would have been achieved if these positions had closed in-the-money at last Friday's options expiration, these results still provide a good example of the advantage that can accrue from selling in-the-money Covered Calls.  Despite the stocks declining to below their strike prices, a net profit was still achieved for both positions from a combination of the: (a) dividend income received; and (b) time value decay in the Call options. 

 

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

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
09/10/2021 5 BAC 9/10/2021 $41.00 Call options expired and 500 BAC stock shares retained in the Covered Calls Advisor Portfolio. 
09/13/2021 Sold 500 BAC shares at $40.76 per share.

The overall performance results (including commissions) are 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: +$105.00
= $.21 per share x 500 shares
(c) Capital Appreciation (BAC shares sold at $40.76 per share): -$510.00
= ($40.76 sales price -$41.78 purchase price) * 500 shares

Net Profit: +$115.00
= (+$520.00 options income + $105.00 dividend income - $510.00 capital appreciation)

Absolute Return-on-Investment: +0.6%
= +$115.00/$20,373.35
Equivalent Annualized Return (If assigned on 6/18/2021 options expiration date): +14.7%
= (+$235.00/$20,373.35)*(365/14 days)


2.  Barrick Gold Corp. (GOLD) -- Covered Calls Position Closed
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 Ex-dividend of $.23 per share
09/10/2021 5 Barrick Gold 9/10/2021 $19.50 Call options expired and 500 GOLD shares retained in the Covered Calls Advisor Portfolio. 
09/13/2021 Sold 500 Barrick shares at $40.76 per share. 

The 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: +$115.00
= ($.23 dividend per share x 500 shares)
(c) Capital Appreciation: -$310.00
+($19.42 - $20.04) * 500 shares

Total Net Profit: +$166.65

= (+$361.65 Call options income +$115.00 dividend income -$310.00 capital appreciation)
 

Absolute Return-on-Investment: +1.7%

= +$166.65/$9,658.35

Annualized Return-on-Investment: +31.5%

= (+$166.65/$9,658.35) x (365/20 days)

Stick With Covered Calls

I posted an article on this blog in 2009 that identifies four common alternative investing strategies to Covered Calls.  The article explains why throughout my investing career I decided to "Stick With Covered Calls".  

You can read it here.

Established Covered Calls in Micron Technology Inc.

A Covered Calls position was established in Micron Technology Inc. (ticker MU) with a September 17th, 2021 options expiration date.   A buy/write transaction entered at a net debit of $71.48 was executed when 300 shares of Micron were purchased at $73.48 and three Sept 17th, 2021 Call options at the $72.50 strike price were sold at $2.00 per share. The Implied Volatility of these Calls was 28.7 today when this transaction was executed and the Delta was 61.2 which approximates a 61.2% probability of the Call options being in-the-money at the options expiration date.  The next quarterly earnings report on September 28th is after the September 17th options expiration date. 

A prior Covered Calls position in Micron expired in-the-money last Friday, so the shares were assigned.  The Covered Calls Advisor decided to re-establish a position in Micron today and it is now the sole position in the Information Technology sector in the Portfolio.  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 $114.81 which is +56.2% above today's $73.48 purchase price. 

As detailed below, a potential return-on-investment result is +1.4% absolute return (equivalent to +47.0% annualized return for the next 11 days) if the stock price is in-the-money (i.e. above the $72.50 strike price) and therefore assigned on the September 17th options expiration date.

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

The Buy/Write transaction was as follows:
09/07/2021 Bought 300 shares of Micron Technology Inc. stock @ $73.48 per share 
09/07/2021 Sold 3 Micron Sept 17th, 2021 $72.50 Call options @ $2.00 per share

A possible overall performance result (including commissions) for this Micron Technology Inc. Covered Calls position is as follows:
Stock Purchase Cost: $21,446.01
= ($73.48 - $2.00) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$597.99
= ($2.00 *300 shares) - $2.01 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 300 Micron shares assigned at $72.50 strike price at expiration): -$294.00
+($72.50 -$73.48) * 300 shares

Total Net Profit (If 300 Micron shares assigned at $72.50 strike price at expiration): +$303.99 = (+$597.99 options income +$0.00 dividend income -$294.00) capital appreciation

 

Absolute Return-on-Investment: +1.4%

= +$303.99/$21,446.01

Annualized Return-on-Investment: +47.0%

= (+$303.99/$21,446.01) * (365/11 days)

September 3rd, 2021 Options Expiration Results

The Covered Calls Advisor Portfolio had two Covered Calls positions (Cabot Oil & Gas Corporation and Micron Technology Inc.) with September 3rd, 2021 options expirations.  Both positions closed in-the-money with the following results:

• Cabot Oil & Gas Corp. (COG) -- +0.6% absolute return (equivalent to +8.0% annualized return-on-investment) for the 29 days of this investment
• Micron Technology Inc. (MU) -- +3.9% absolute return (equivalent to +118.8% annualized roi) for the 12 days of this investment
  

The cash now available from the assignment (i.e. closing) of these two in-the-money positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Given the Covered Calls Advisor's currently cautious Overall Market outlook, new positions will be hedged by continuing to establish Covered Calls at moderately in-the-money strike prices with good downside protection. 

The detailed transactions and results for these two closed positions are as follows:

1. Cabot Oil & Gas Corp. (COG) -- Covered Calls Closed by Assignment at Options Expiration

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.
09/03/2021 Covered Calls position closed out -- 6 COP Call options expired in-the-money, so 600 shares were sold at the $15.00 strike price. Note: the stock price was well in-the-money at $17.81 per share at options expiration.

The overall performance results (including commissions) for this Cabot Oil and Gas Covered Calls position were 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 (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

 

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

= (+507.96 options income + $66.00 dividend income - $516.00 capital appreciation)
 

Absolute Return-on-Investment: +0.6%

= +$57.96/$9,154.02

Annualized Return-on-Investment: +8.0%

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

2. Micron Technology Inc. (MU) -- Covered Calls Closed by Assignment at Options Expiration

The original Buy/Write transaction was:
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
9/03/2021 Covered Calls position closed out -- 3 MU Call options expired in-the-money, so 300 shares were sold at the $73.00 strike price. Note: the stock price was in-the-money at $73.81 per share at options expiration.
 

The overall performance results (including commissions) for this Micron Technology Inc. Covered Calls position were:
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 (300 Micron shares assigned at $73.00 strike price at expiration): +$525.00
+($73.00 -$71.25) * 300 shares

Total Net Profit (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

 

Absolute Return-on-Investment: +3.9%

= +$822.99/$21,077.01

Annualized Return-on-Investment: +118.8%

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