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
