Early in this morning's trading, a new Covered Calls position was established in Devon Energy Corp. when 500 shares were purchased at $28.69 and 5 September 17th, 2021 Call options were sold at $1.24 per share at the $28.00 strike price. The net debit limit order at $27.45 was executed, so the time value was $.55 per share [$1.24 Call options premium - ($18.69 stock purchase price - $18.00 strike price)]. There is an upcoming ex-dividend of $.49 per share ($.11 regular dividend plus a $.38 special dividend), both on September 10th, 2021. So two potential return-on-investment results for this position are detailed below and include the possibility of early exercise since these ex-dividends are prior to the September 17th, 2021 options expiration date. Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, an in-the-money Covered Calls position was established -- the Delta was 64.2, which approximates a probability of 64.2% that the Call options will be in-the-money on the options expiration date.
Devon is very highly rated by analysts that cover the company since 27 of 31 total analysts rate it as either strong buy or buy and their average target
price is $37.97 which is +32.3% above
today's $28.69 purchase price. Credit Suisse currently identifies Devon as one of only three 'Top Stocks for an Accelerating Economy' in the Energy Sector.
The Covered Calls Advisor expects the current Cabot Oil & Gas Covered Calls position to be in-the-money and therefore assigned tomorrow at its 9/3/2021 options expiration. This Devon Energy position will replace it as the sole Energy Sector position in the Covered Calls Advisor Portfolio.
As detailed below, a potential return-on-investment result is +2.0% absolute return (equivalent to +90.3% annualized
return for the next 8 days) if the stock is assigned early (business day
prior to the September 10th ex-date); OR +3.8%
absolute return (equivalent to +85.9% annualized return over the next 16
days) if the stock is assigned on the September 17th, 2021 options expiration date.
The transaction today was as follows:
09/02/2021 Bought 500 Devon Energy shares @ $28.69
09/02/2021 Sold 5 Devon 9/17/2021 $28.00 Call options @ $1.24 Note: the Implied Volatility of these Call options was 34.3 when this position was established.
09/10/2021 Upcoming quarterly ex-dividend of $.49 per share
Two possible overall performance results (including commissions) for this Devon Energy Covered Calls position are as follows:
Covered Calls Cost Basis: $13,718.35
= ($28.69 - $1.24) * 500 shares + $3.35 commissions
Net Profit Components:
(a) Options Income: +$616.65
= ($1.24 * 500 shares) - $3.35 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Sept 10th ex-div date): +$0.00; or
(b) Dividend Income (If Devon shares assigned at Sept 17th, 2021 options expiration): +$245.00
= ($.49 dividend per share x 500 shares)
(c) Capital Appreciation (If Devon shares assigned early on Sept.10th): -$345.00
+($28.00 - $28.69) * 500 shares ;or
(c) Capital Appreciation (If Devon shares assigned at $28.00 strike price at options expiration): -$345.00
+($28.00 - $28.69) * 500 shares
These returns will be achieved as long as the stock is above the $28.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $26.96 ($28.69 -$1.24 -$.49) provides 6.0% 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, eight of the nine criteria are met for this Devon Energy Corp. Covered Calls position.
