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
