Established Covered Calls in Capital One Financial Corporation

This morning a Covered Calls net debit limit order was entered for 200 shares of Capital One Financial Corporation (ticker COF) with a November 19th, 2021 options expiration date at the $145.00 strike price and at a net debit price of $143.20 per share.   I didn't really expect that the Capital One stock would decline by enough today to execute the order, but at 1:48pm this afternoon the order was executed. 200 Capital One shares were purchased at $150.52 and two November 19th, 2021 Call options at the $145.00 strike price were sold at $7.32 per share.  The time value was $1.80 = [$7.32 Call options premium - ($150.52 stock price - $145.00 strike price)]. The Covered Calls Advisor expects a quarterly dividend of $.60 per share (1.6% annualized dividend yield) to be announced soon with an ex-dividend date no later than November 12th which would be prior to the November 19th options expiration date, so this dividend amount is included in the return-on-investment calculations below. The Implied Volatility of these Call options was 27.9 when this transaction was executed and the Delta was 71.4 which approximates a 71.4% probability of the Call options being in-the-money at the options expiration date. 

Q3 2021 earnings were reported earlier this week and the stock has declined substantially (by about 10%) since then despite beating analysts' estimates by 26.0% and also being 34.1% above the same quarter last year. A few analysts have changed their price targets since the earnings report earlier this week, but in each case the change was minor and more analysts raised their targets slightly rather than lowered them. The average target price is now $190.18 (+26.3% above today's purchase price).  The RSI(2) [Relative Strength Index (2 days)] is now deeply oversold since any rating below 30 is considered oversold and the current RSI(2) for Capital One is only 2.6.  So, hopefully the recent price reaction has been overdone and the stock price will soon rebound higher (or at least remain above the $145.00 strike price at options expiration). Indeed, if the current earnings estimates for this year and next are achieved, the Trailing Twelve-Month (TTM) P/E ratio will never exceed 10.0.  Additionally, the current 1.38 Price-to-Tangible Book Value ratio provides another attractive valuation metric. 

As detailed below, a potential return-on-investment result is +1.7% absolute return (equivalent to +27.7% annualized return for the next 22 days) if the stock price is in-the-money (i.e. above the $145.00 strike price) and therefore assigned on the November 19th options expiration date.

Capital One Financial Corporation (COF) -- New Covered Calls Position

The Buy/Write limit order transaction was as follows:
10/29/2021 Bought 200 shares of Capital One stock @ $150.52 per share 
10/29/2021 Sold 2 COF Nov. 19th, 2021 $145.00 Call options @ $7.32 per share

A possible overall performance result (including commissions) for this Capital One Covered Calls position is as follows:
Stock Purchase Cost: $28,641.34
= ($150.52 - $7.32) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,462.66
= ($7.32 * 200 shares) - $1.34 commission
(b) Dividend Income: +$120.00 = $.60 per share X 200 shares

(c) Capital Appreciation (If 200 COF shares assigned at $145.00 strike price at expiration): -$1,104.00
+($145.00 -$150.52) * 200 shares

Total Net Profit (If 200 Capital One shares assigned at $145.00 strike price at expiration): +$478.66

= (+$1,462.66 options income +$120.00 dividend income -$1,104.00 capital appreciation)

 

Absolute Return-on-Investment: +1.7%

= +$478.66/$28,641.34

Annualized Return-on-Investment: +27.7%

= (+$478.66/$28,641.34) * (365/22 days)

Covered Calls Established in Alcoa Corporation

Today, a Covered Calls position was established by buying 500 shares of Alcoa Corporation (ticker symbol AA) stock at $45.55 and simultaneously selling 5 November 19th, 2021 $42.00 Call options at $4.50 per share -- a net debit of $41.05 per share.   The Implied Volatility of these Call options was very high at 52.8  when this position was established.  This is especially true given that the Q3 2021 earnings have already been reported (on October 14th), so there is no increased Implied Volatility because of an upcoming earnings report.  Surprisingly, the $45.55 purchase price was lower than just prior to the earnings report.  This was a surprise since the Q3 earnings beat analysts' estimates by a wide margin and the company's future guidance was also raised.  Given the Covered Calls Advisor's current Overall Market Meter sentiment of Slightly Bearish, a moderately in-the-money position was established.  The Delta of these Call options was 75.0 which approximates the probability that this Covered Calls position will be in-the-money and therefore assigned on the Nov. 19th options expiration date.  

According to Reuters Research, the average current target price is $57.75 (+26.8% above today's purchase price) for the thirteen analysts now covering Alcoa.  Their estimated 2021 earnings per share has increased since the outstanding Q3 results to a current level of $6.54 per share, a P/E ratio of only 7.0 based on today's purchase price.

As detailed below, a potential outcome for this investment is +2.3% absolute return-on-investment for the next 22 days (equivalent to +38.1% on an annualized return basis) if the stock closes above the $42.00 strike price on the November 19th options expiration date.

Alcoa Corporation (AA) -- New Covered Calls Position

The transactions were as follows:
10/29/2021 Bought 500 shares of Alcoa stock @ $45.55 per share 
10/29/2021 Sold 5 Alcoa Nov 19th, 2021 $42.00 Call options @ $4.50 per share
Note: this was a simultaneous Buy/Write transaction

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $20,528.35
= ($45.55 - $4.50) * 500 shares + $3.35 commission
 

Net Profit Components:
(a) Options Income: +$2,246.65
= ($4.50 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Alcoa stock is above the $42.00 strike price at Nov 19th expiration): -$1,775.00
= ($42.00 -$45.55) * 500 shares

Potential Total Net Profit (If assigned at expiration): +$471.65
= (+$2,246.65 options income +$0.00 dividend income -$1,775.00 capital appreciation)

Absolute Return: +2.3%
= +$471.65/$20,528.35
Equivalent Annualized Return: +38.1%
= (+$471.65/$20,528.35)*(365/22 days)

The downside 'breakeven price' at expiration is at $41.05 ($45.55 - $4.50), which is 9.9% below the current market price of $45.55.  This is good protection given the relatively high +38.1% potential annualized ROI for this investment.

Early Assignment of Citigroup Inc. Covered Calls

Early this morning, the Covered Calls Advisor was notified by Schwab that the three Citigroup Inc. November 5th, 2021 $69.00 Call options were exercised early yesterday (the last business day prior to today's ex-dividend date.   The Citigroup stock price has increased slightly from its purchase price of $70.30 to $70.37 at the market close yesterday.  

This early exercise by the Citigroup Call owners was surprising to the Covered Calls Advisor since they decided to immediately forgo the remaining $.52 time value in the Call options [$1.89 midpoint value of the Call options' $1.84/$1.94 Bid/Ask price - ($70.37 current stock price - $69.00 strike price)], and  7 days remaining until the options expiration date, to buy the stock and therefore also capture today's $.51 ex-dividend. 

This is a good outcome for the Covered Calls Advisor since the resulting +41.1% annualized return-on-investment (aroi) achieved is slightly better than the +35.0% maximum possible aroi that might have been achieved later at the options expiration date if the stock remained above the $69.00 strike price on next Friday's (Nov. 5th) expiration date.  The cash received from this position will most likely be invested in another Dividend Capture Strategy position in the Finance sector.

The transactions and detailed results for this position are as follows:

Citigroup Inc. (C) -- Covered Calls Position Closed by Early Assignment
The transactions were:
10/21/2021 Bought 300 Citigroup shares @ $70.30
10/21/2021 Sold 3 Citigroup 11/05/2021 $69.00 Call options @ $1.84
Note: the Implied Volatility of these Call options was 19.4 when this position was established.
10/28/2021 3 Citigroup Calls exercised early, so these Call options were assigned and the Covered Calls position was closed by the selling of the 300 Citigroup shares at their $69.00 strike price.

The overall performance results (including commissions) for this
Citigroup Covered Calls position were as follows:
Covered Calls Cost Basis: $20,540.01
= ($70.30 - $1.84) *300 + $2.01 commission

Net Profit Components:
(a) Options Income: +$552.00
= ($1.84 *300 shares)
(b) Dividend Income (Call options exercised early on the business day prior to the ex-div date): +$0.00 (c) Capital Appreciation (Citigroup shares assigned early): -$390.00
+($69.00 strike price -$70.30 stock purchase cost) *300 shares

Total Net Profit [Citigroup Call options exercised on Oct. 28th, 2021 (business day prior to a October 29th ex-dividend date)]: +$162.00

= (+$552.00 +$0.00 -$390.00)

 

 Absolute Return-on-Investment: +0.8%

= +$162.00/$20,540.01

Annualized Return-on-Investment: +41.1%

= (+$162.00/$20,540.01)*(365/7 days)

Cash-Secured Puts Position Established in Bristol-Myers Squibb Co.

Today, five 100% Cash-Secured Put options were sold in the Bristol-Myers Squibb Co. (ticker BMY) at the November 19th, 2021 $55.00 strike price at $.70 per share when Bristol-Myers' price was $56.57. This out-of-the-money position has a probability of expiration of 68.4% at the options expiration date. Cash-Secured Puts were sold instead of their comparable Covered Calls in this case.  The time value available was an identical $.70 for either position so the positions (Cash-Secured Puts or Covered Calls) had identical risk/reward profiles.

Bristol-Myers reported the Q3 2021 earnings this morning which were in line with expectations with revenues of $11.6B (10% above last year's quarter) and Non-GAAP earnings per share of $2.00.  This earnings season it seems that stocks get punished when earnings only meet expectations and that is true in this case with Bristol-Myers since the stock declined by 2.87% today when this position was established.  But I like BMY's compelling valuation with the midpoint of their full-year earnings at $7.47 per share which is a P/E ratio of only 7.6 based on the price today when this transaction was made.  Further single-digit earnings growth is currently expected for next year and analysts are bullish with 14 of the 18 analysts following the company have a Buy or Outperform rating, 4 have Hold ratings, and none have an Underperform or Sell rating.  Their average target price is $74.63 (+31.9% above the current price).  

As detailed below for this Bristol-Myers 100% Cash-Secured Puts position, there is potential for a +1.3% absolute return in 24 days (equivalent to a +19.4% annualized return-on-investment). 

 

Bristol-Myers Squibb Co. (BMY) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
10/27/2021  Sold 5 Bristol-Myers November 19th, 2021 $55.00 100% Cash-Secured Put options @ $.70 per share.  The Implied Volatility of the Puts was 22.9 when they were sold, which as desired by the Covered Calls Advisor is above the S&P 500 Volatility Index (VIX) which is currently at 15.6.

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 five Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $27,153.35
= ($55.00 - $.70) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$346.65
= ($.70 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Bristol-Myers stock is above $55.00 strike price at the Nov.19th expiration): +$0.00
= ($55.00 - $55.00) * 500 shares

Total Net Profit (If Bristol-Myers is above the $55.00 strike price at options expiration): +$346.65
= (+$346.65 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return: +1.3%
= +$346.65/$27,153.35
Annualized Return: +19.4%
= (+$346.65/$27,153.35)*(365/24 days)

The downside 'breakeven price' at expiration is at $54.30 ($55.00 - $.70), which is 4.0% below the current market price of $56.57.

Covered Call Position Established in Facebook Inc.

A new Covered Call position was established today in Facebook Inc. (FB) this afternoon by purchasing 100 shares at $325.92 per share and selling one Call option at the $320.00 strike price with a November 19th, 2021 options expiration date for $16.95 per share.  The Call option premium received was very attractive since the Implied Volatility (IV) of the Call was 39.4 when this position was established.  A primary reason for this abnormally high IV for Facebook is because of the elevated uncertainty given the quarterly earnings report after market close today.  The whistleblower testimony along with concerns about the impact of Apple's anti-tracking initiative on Facebook has caused a 17% decline in Facebook's stock price since the beginning of September.  But most analysts believe this decline is excessive given their average price target remains above $400 for Facebook.  The Covered Calls Advisor does not normally establish positions in advance of earnings, but I am reasonably confident that earnings will exceed analysts' projections of $29.5B revenue and $3.19 per share given the continued growing consumption of online advertising by traditionally brick-and-mortar retailers among others.  Facebook would thereby retain its position as the megacap tech stock with the most attractive valuation metrics such as the PEG ratio.  

As detailed below, a potential return-on-investment result for this Facebook position is:
+3.6% absolute return in 26 days (equivalent to a +50.1% annualized return-on-investment) if the stock closes above the $320.00 strike price at the November 19th, 2021 options expiration date.
  

Facebook Inc. (FB) -- New Covered Call Position

The Covered Calls Advisor's buy/write limit order was transacted as follows:
10/25/2021 Bought 100 Facebook shares @ $325.92
10/25/2021 Sold 1 Facebook 11/19/2021 $320.00 Call option @ $16.95. 

A possible overall performance result (including commissions) for this Facebook Inc. Covered Call position is as follows:
Covered Call Cost Basis: $30,897.67
= ($325.92 - $16.95) * 100 shares + $.67 commission

Net Profit Components:
(a) Option Income: +$1,694.33
= ($16.95 * 100 shares) - $.67 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If FB shares assigned at $320.00 strike price at options expiration): -$592.00
+($320.00 - $325.92) * 100 shares

 Total Net Profit (If Facebook shares assigned at $320.00 strike price at November 19th, 2021 expiration): +$1,102.33

= (+$1,694.33 option income +$0.00 dividend income -$592.00 capital appreciation)

Absolute Return  (If Facebook shares assigned at $320.00 on the Nov. 19th, 2021 expiration date): +3.6%

= +$1,102.33/$30,897.67

Annualized Return-on-Investment: +50.1%

= (+$1,102.33/$30,897.67)*(365/26 days)

Covered Calls Position Established in Citigroup Inc.

Today, a Covered Calls position was established in Citigroup Inc. (ticker symbol C) with the purchase of 300 shares at $70.30 per share and three November 5th, 2021 weekly Call options were sold for $1.84 per share at the $69.00 strike price.  Given the Covered Calls Advisor's currently cautious  Overall Market Meter sentiment, a moderately in-the-money Covered Calls positions was established.  The Delta of the Calls was 67.1 when this buy/write transaction was executed which approximates the probability of assignment on the November 5th, 2021 options expiration date.  

Citigroup reported their 2021 Q3 earnings one week ago.  Their earnings exceeded analysts' estimates by 30% and their trailing twelve-month P/E Ratio is currently only 6.9.  Citigoup appeared in the Covered Calls Advisor's screener of Financial Sector companies and its current Price-to-Tangible Book Value of .85 is slightly less than their prior 5-year average value.  Citigroup is also one of only 8 banks (and the only one of the six U.S.-based mega-cap banks) to appear in the Covered Calls Advisor's screener for Shareholder Yield.  The four primary factors in this Shareholder Yield screener are: (1) increasing dividend history; (2) recent share buyback history; (3) recent decreasing total debt; and (4) forecasted next fiscal year earnings growth above 7%.   Finally, according to Reuters Research, the average target price of the 28 analysts' following Citigroup is $84.76 (+20.6% above today's purchase price).    

Most mid- to large-cap companies in the Financial Sector provide only modest growth prospects, but they often pay 2.0%+ annual dividend yields.  Consequently, the Covered Calls Advisor is targeting opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions.  Citigroup has not yet declared their quarterly dividend by I expect them continue with their pattern of the past two Octobers in which case they would go ex-dividend on October 29th at $.51 per share (a 2.9% annual dividend yield).  Updated Note: Citi announced that their ex-dividend date will be 10/29 and at $.51 per share.  This new November 5th Citigroup weekly Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of the six U.S. mega-cap banks (Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, and Morgan Stanley) during each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup, Wells Fargo, and Morgan Stanley for Feb, May, Aug, and Nov options expirations; and
Bank of America and Goldman Sachs for Mar, Jun, Sep, and Dec options expirations).

The goal of these Covered Calls is to both capture the quarterly dividend payment and for the stock prices to remain above the strike price at options expiration, thereby achieving the maximum possible return-on-investment result for the position.  So far, this approach has provided higher annualized return results than would be achieved with either: (1) Covered Calls in these same stocks during their non-ex-dividend months; or (2) A simple buy-and-hold stock purchase of these bank stocks.    

Two potential return-on-investment results are: (a) +0.8% absolute return (equivalent to +36.0% annualized return for the next 8 days) if the stock is assigned early [on the last trading day prior to the ex-dividend date]; OR (b) +1.5% absolute return (equivalent to +35.0% annualized return over the next 16 days) if the stock is assigned on the November 5th options expiration date. 

Citigroup Inc. (C) -- New Covered Calls Position
The transactions were:
10/21/2021 Bought 300 Citigroup shares @ $70.30
10/21/2021 Sold 3 Citigroup 11/05/2021 $69.00 Call options @ $1.84
Note: the Implied Volatility of these Call options was 19.4 when this position was established.
10/29/2021 Expected upcoming quarterly ex-dividend estimated at $.51 per share

Two possible overall performance results (including commissions) for this
Citigroup Covered Calls position are as follows:
Covered Calls Cost Basis: $20,540.01
= ($70.30 - $1.84) *300 + $2.01 commission

Net Profit Components:
(a) Options Income: +$552.00
= ($1.84 *300 shares)
(b) Dividend Income (If option exercised early on the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If Citi shares assigned at Nov. 5th, 2021 expiration): +$153.00
= ($.51 dividend per share x 300 shares)
(c) Capital Appreciation (If Citigroup shares assigned early): -$390.00
+($69.00 strike price -$70.30 stock purchase cost) *300 shares; or
(c) Capital Appreciation (If Citi shares assigned at $69.00 strike price at options expiration): -$390.00
+($69.00- $70.30) *300 shares

1. Total Net Profit [If option exercised on Oct. 28th, 2021 (business day prior to a October 29th ex-dividend date)]: +$162.00

= (+$552.00 +$0.00 -$390.00); or

2. Total Net Profit (If Citi shares assigned at $69.00 at Nov. 5th, 2021 options expiration): +$315.00

= (+$552.00 +$153.00 -$390.00)

1. Absolute Return (If Citigroup options exercised early on the business day prior to the expiration date): +0.8%

= +$162.00/$20,540.01

Annualized Return (If option exercised early): +36.0%

= (+$162.00/$20,540.01)*(365/8 days); or

2. Absolute Return (If Citigroup shares assigned at $69.00 at Nov. 5th, 2021 expiration): +1.5%

= +$315.00/$20,540.01

Annualized Return (If Citi stock assigned at $69.00 at Nov. 5th expiration): +35.0%

= (+$315.00/$20,540.01)*(365/16 days)

Either outcome would provide a very good return-on-investment result.  These returns will be achieved as long as the stock is above the $69.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $67.95 ($70.30 -$1.84 -$.51) provides 3.3% 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 achieved for this Citigroup Inc. Covered Calls position.

Established Covered Calls in Abercrombie & Fitch Co.

Soon after market open this morning a Covered Calls position was established in Abercrombie & Fitch Co. (ticker ANF) with a November 19th, 2021 options expiration date.   A limit order buy/write transaction was executed when 300 shares of Abercrombie were purchased at $38.07 and three November 19th, 2021 Call options at the $35.00 strike price were sold at $4.02 per share.  The time value was $.95 = [$4.02 Call options premium - ($38.07 stock price - $35.00 strike price)].  The Implied Volatility of these Calls was 47.3 when this transaction was executed and the Delta was 73.7 which approximates a 73.7% probability of the Call options being in-the-money at the options expiration date.  The next earnings report on November 23rd is after the November 19th options expiration date. 

Abercrombie & Fitch currently is currently priced at a very reasonable valuation with an estimated current Fiscal Year P/E of 8.6.  They have done a good job of implementing and increasing their digital platform sales to 44% during the most recent quarter.  Analysts' target price is $52.00 (+36.6% above today's purchase price).  

As detailed below, a potential return-on-investment result is +2.8% absolute return (equivalent to +32.6% annualized return for the next 31 days) if the stock price is in-the-money (i.e. above the $35.00 strike price) and therefore assigned on the November 19th options expiration date.

Abercrombie & Fitch Co. (ANF) -- New Covered Calls Position

The Buy/Write limit order was executed as follows:
10/20/2021 Bought 300 shares of Abercrombie & Fitch Co. stock @ $38.07 per share 
10/20/2021 Sold 3 A&F November 19th, 2021 $35.00 Call options @ $4.02 per share

A possible overall performance result (including commissions) for this Abercrombie & Fitch Co. Covered Calls position is as follows:
Stock Purchase Cost: $10,217.01
= ($38.07 - $4.02) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,203.99
= ($4.02 *300 shares) - $2.01 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 300 ANF shares assigned at $35.00 strike price at expiration): -$921.00
+($35.00 -$38.07) * 300 shares

Total Net Profit (If 300 Abercrombie shares assigned at $35.00 strike price at expiration): 

+$282.99 

= (+$1,203.99 options income +$0.00 dividend income -$921.00) capital appreciation

 

Absolute Return-on-Investment: +2.8%

= +$282.99/$10,217.01

Annualized Return-on-Investment: +32.6%

= (+$282.99/$10,217.01) * (365/31 days)

Established Covered Calls in Cleveland-Cliffs Inc.

A November 19th, 2021 Covered Calls buy/write limit order was placed this morning in Cleveland-Cliffs Inc. (ticker CLF) at a net debit price of $19.04 per share. At 2:10pm this afternoon the order was executed by purchasing 1,000 shares at $21.04 and simultaneously selling ten November 19th, 2021 Call options at the $20.00 strike price for $2.00 per share.  When this in-the-money position was established today it had a probability of assignment on the options expiration date of 64.7%.

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.  They also recently announced the acquisition of Ferrous Processing and Trading Co. which further enhances their vertical integration by establishing a significant foothold in the prime scrap metal market.  Earnings this fiscal year are expected to approach $6.00 per share which implies a very attractive valuation with a P/E Ratio below 4.0.  Furthermore, the average analysts' target price is $28.31 (+34.6% above today's purchase price).

The Implied Volatility of the Call options was very high at 58.8 when this Covered Calls position was established.  As shown below, this results in a very attractive maximum potential annualized return-on-investment of +57.1%.  A primary reason for this unusually high Implied Volatility of the CLF Calls is because of the elevated uncertainty associated with release of their Q3 earnings before market open this Friday.  But given the positive earnings and revenue beats by a somewhat comparable company in the same industry, Steel Dynamics, which reported their Q3 earnings yesterday afternoon and given the positive market reaction to this news during today's trading, the Covered Calls Advisor's confidence increased that Cleveland-Cliffs should also have a good earnings report.  Another major steel producer (Nucor) reports earnings this Thursday and I considered establishing a Covered Calls position in it instead of in CLF, however the Implied Volatility in the Nucor Calls was 38.6 so the potential annualized roi was substantially less than what might be achieved with this Cleveland-Cliffs position.

As detailed below for this Cleveland-Cliffs Inc. Covered Calls position, the maximum potential return-on-investment result is +5.0% absolute return in 32 days (equivalent to a +57.1% annualized return-on-investment) if the stock price is above the $20.00 strike price on the November 19th, 2021 options expiration date.   

Cleveland-Cliffs Inc. (CLF) -- New Covered Calls Position Established
The Buy/Write limit order was executed as follows:
10/19/2021 Bought 1,000 shares of Cleveland-Cliffs Inc. stock @ $21.04 per share 
10/19/2021 Sold 10 CLF Nov. 19th, 2021 $20.00 Call options @ $2.00 per share

A possible overall performance result (including commissions) for this Cleveland-Cliffs Covered Calls position is as follows:
Stock Purchase Cost: $19,046.70
= ($21.04 - $2.00) * 1,000 shares + $6.70 commission

Net Profit:
(a) Options Income: +$1,993.30
= ($2.00 * 1,000 shares) - $6.70 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 1,000 CLF shares assigned at $20.00 strike price at options expiration): -$1,040.00
+($20.00 -$21.04) * 1,000 shares

Total Net Profit (If 1,000 Cleveland-Cliffs shares assigned at $20.00 strike price at expiration): +$953.30

= (+$1,993.30 options income +$0.00 dividend income -$1,040.00) capital appreciation

 

Absolute Return-on-Investment: +5.0%

= +$953.30/$19,046.70

Annualized Return-on-Investment: +57.1%

= (+$953.30/$19,046.70) * (365/32 days)

Closed Covered Calls Position in Cardinal Health Inc.

At last Friday's (October 15th) options expiration, the Covered Calls position in Cardinal Health Inc. (CAH) expired with the stock price below the $50.00 strike price so the 300 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 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 Cardinal Health Inc. Covered Calls position was -1.9% absolute return in 27 days (equivalent to a -25.3% annualized return-on-investment). 

Cardinal Health Inc. (CAH) -- Covered Calls Position Closed

The buy/write transaction was:
09/22/2021 Bought 300 Cardinal Health Inc. shares @ $51.50
09/22/2021 Sold 3 CAH 10/15/2021 $50.00 Call options @ $1.94 per share
09/30/2021 Quarterly ex-dividend of $.4908 per share
10/15/2021 3 Cardinal Health Call options expired with the stock below the $50.00 strike price so the 300 shares remain in the Covered Calls Advisor Portfolio.
10/19/2021 Sold 300 CAH shares at $48.15 per share.

The overall performance results (including commissions) for this Cardinal Health Covered Calls position was as follows:
Covered Calls Cost Basis: $14,870.01
= ($51.50 - $1.94) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$579.99
= ($1.94 x 300 shares) - $2.01 commission
(b) Dividend Income: +$147.24
= ($.4908 dividend per share x 300 shares)
(c) Capital Appreciation (300 shares sold at $48.15): -$1,005.00
+($48.15 - $51.50) * 300 shares

Total Net Profit (Covered Calls position closed by selling 300 shares at $48.15): -$277.77

= (+$579.99 Call options income +$147.24 dividend income - $1,005.00 capital appreciation)

 Absolute Return-on-Investment: -1.9%

= -$277.77/$14,870.01

Annualized Return-on-Investment: -25.3%

= (-$277.77/$14,870.01) * (365/27 days)

Monthly Options Expiration Results through October 15th, 2021

The Covered Calls Advisor Portfolio had seventeen positions since last month's (September 17th, 2021) monthly options expiration date.  During this past month, the Covered Calls Advisor Portfolio closed out sixteen of these seventeen positions.   Fourteen positions were closed out at a profit, two were closed at a loss, and one was a Covered Calls position that expired out-of-the-money on yesterday's options expiration date.  A summary of results (for all seventeen positions) since the last monthly options expiration date on Sept. 17th, 2021 through yesterday's monthly options expiration date of October 15th are summarized below:

• Four Covered Calls positions expired in-the-money (stock price above the strike price) on the October 15th monthly options expiration date, so the options expired and the stocks were sold at their respective strike prices with the following results: 

1. Abercrombie & Fitch Co. (ANF) -- +1.3% absolute return in 10 days (equivalent to +48.6% annualized return-on-investment).  
2. Best Buy Inc. (BBY) -- -2.4% absolute return in 43 days (equivalent to -20.2% annualized return-on-investment). 
3. iShares China Large-Cap ETF (FXI) -- +1.6% absolute return in 31 days (equivalent to +18.4% annualized return-on-investment).  
4. Polaris Industries Inc. (PII) -- +4.9% absolute return in 50 days (equivalent to +35.7% annualized return-on-investment).

 

• One Cash-Secured Puts position in Cleveland-Cliffs Inc. expired out-of-the-money (stock price above the strike price) on the October 15th monthly options expiration date with the following result -- +8.6% absolute return in 26 days (equivalent to +120.7% annualized return-on-investment). 
  

 

• Five Covered Calls positions expired in-the-money on their Weekly options expiration dates that occurred after the prior Monthly options expiration date (on September 17th) but prior to yesterday's (October 15th, 2021) Monthly options expiration date.  So, their options expired and their stocks were sold at their respective strike prices with the following results:
  

1. Boeing Co. (BA) -- +3.5% absolute return in 35 days (equivalent to +36.9% annualized return-on-investment).  
2. Micron Technology Inc. (MU) -- +1.3% absolute return in 15 days (equivalent to +32.8% annualized return-on-investment).
   
3. Nucor Corporation (NUE) -- +0.9% absolute return in 10 days (equivalent to +32.1% annualized return-on-investment).  
4. Seagate Technology Holdings PLC (STX) -- +2.2% absolute return in 18 days (equivalent to +45.3% annualized return-on-investment).
5. Wynn Resorts Ltd. (WYNN) -- +1.9% absolute return in 11 days (equivalent to +64.6% annualized return-on-investment).  

 

• Four positions were closed out prior to their options expiration dates based on decisions made by the Covered Calls Advisor to unwind these positions prior to their options expiration dates with the following results:
  

1. Cigna Corp. (CI) Cash-Secured Puts -- +1.4% absolute return in 2 days (equivalent to +249.4% annualized return-on-investment).
2. JPMorgan Chase & Co. (JPM) Covered Calls -- +0.9% absolute return in 5 days (equivalent to +66.5% annualized return-on-investment).
3. Energy Select Sector SPDR ETF (XLE) Covered Calls -- +0.3% absolute return in 5 days (equivalent to +21.7% annualized return-on-investment).  
4. Tyson Foods Inc. (TSN) Covered Calls -- -0.9% absolute return in 27 days (equivalent to -12.7% 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. Fifth Third Bank (FITB) -- +1.1% absolute return in 9 days (equivalent to +45.6% annualized return-on-investment).
2. Pioneer Natural Resources Co. (PXD) -- +2.3% absolute return in 7 days (equivalent to +117.7% annualized return-on-investment).

 

• One Covered Calls position in Cardinal Health Inc. expired out-of-the-money on the October 15th, 2021 options expiration date, so the 300 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 this Covered Calls positions by selling future Call options against the shares currently held.

 

During the past year (last 12 months) 122 of 128 positions (95.3%) in the Covered Calls Advisor Portfolio (CCAP) were closed out at a profit.  The Covered Calls Advisor's objective is that at least two-thirds (66.7%) of positions be closed profitably.  The bullish market during the past year aided the CCAP to exceed this objective by a wide margin.  The CCAP average annualized return-on-investment was +38.3% during the past year and the average holding period of the 128 positions was 21.8 days.  In comparison, the benchmark S&P 500 index returned +28.3% during the same prior one-year period.

Given that only the first week of 3rd quarter earnings reports is now completed and most of the companies reporting were in the Financials sector, the Covered Calls Advisor will continue to monitor companies' upcoming earnings reports (including their future guidance) for the next few weeks.  Special caution will be undertaken to establish new positions only after earnings reports in companies and/or other similar companies in their industries have been reported.  

My preference is to identify opportunities to utilize my Dividend Capture Strategy (with ex-dividend dates prior to the options expiration dates) for relatively low-growth dividend-paying companies within these lower-growth Sectors -- Consumer Staples, Energy, Financials, Industrials, Materials, Real Estate, and Utilities.  Higher growth companies in Sectors with fewer dividend-paying companies includes the Communication Services, Consumer Discretionary, Healthcare, and Information Technology Sectors.  There is a much greater likelihood that Covered Calls or Cash-Secured Puts positions in these higher-growth Sectors will be established without utilizing the Dividend Capture Strategy (i.e. without ex-dividend dates prior to their options expiration dates).   

As shown in the right sidebar, there are currently only two open positions in the Covered Calls Advisor Portfolio.  Future transactions and return-on-investment results for these positions and the details of all other newly established positions will be posted on this blog site on the same day the transactions occur.  

This Covered Calls Advisor blog is a free service available to anyone interested in becoming a more effective Covered Calls investor.  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 and Godspeed,
Jeff Partlow
Covered Calls Advisor
partlow@cox.net

Cash-Secured Puts Position in Cigna Corporation Closed

The price of Cigna Corp. stock increased swiftly from $198.06 when these two 11/19/2021 Puts were sold only two days ago to $207.60 today when the Covered Calls Advisor decided to close out the position. More than half of the potential profit has already been achieved since the Puts were Sold-to-Open at $4.40 and were Bought-to-Close today at $1.85 per share. The Covered Calls Advisor prefers not to retain positions on the quarterly earnings reporting day and when this position was established, the post said: "The Covered Calls Advisor will be monitoring this position closely every day to determine if the position should be closed out prior to the November 4th earnings report", and today was an opportune time to do so.

As detailed below, this position achieved a +1.4% absolute return in 2 days (equivalent to a +249.4% annualized return-on-investment).  This compares to a maximum potential  of +2.4% absolute return in 38 days (equivalent to a +22.7% annualized return-on-investment) if the position had instead been assigned on the November 19th, 2021 options expiration date.  

Cigna Corp. (CI) -- Cash-Secured Puts Position Closed
10/13/2021  Sold 2 Cigna November 19th, 2021 $190.00 100% Cash-Secured Put options @ $4.40 per share.
10/15/2021 Bought-to-Close 2 CI 11/19/2021 $190.00 Put options @ $1.85

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 two Put options sold.

The overall performance result (including commissions) was as follows:
100% Cash-Secured Cost Basis: $37,121.34
= ($190.00 - $4.40) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$507.32
= ($4.40 - $1.85) *200 shares - $2.68 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Cigna 11/19/2021 $190.00 Cash-Secured Puts position closed out): +$0.00
= ($190.00 - $190.00) * 200 shares

Total Net Profit: +$507.32
= (+$507.32 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return-on-Investment: +1.4%
= +$507.32/$37,121.34
Annualized Return: +249.4%
= (+$507.32/$37,121.34) * (365/2 days)

The funds available from closing this position will be used to establish a new Cash-Secured Puts or Covered Calls position early next week.

Cash-Secured Puts Position Established in Cigna Corporation

A new position was established in Cigna Corp. (ticker CI) by selling two November 19th, 2021 100% Cash-Secured Put options at the $190.00 strike price at $4.40 per share when the price of Cigna stock was at $198.06 per share.  This is a moderately conservative position since the probability of assignment on the options expiration date was 66.8% when this position was established. 

The 29.8 Implied Volatility for these Cigna Put options was attractive to the Covered Calls Advisor since it is well above the current S&P 500 Volatility Index (VIX) of 19.8.   So the $878.66 ($4.40 per share x 200 shares - $1.34 commission) is a nice premium to receive for these out-of-the-money (i.e. strike price below the current stock price) Put options.  

The average target price of the 22 analysts covering Cigna is $261.28 which is +31.9% above today's stock price when the Put options were sold.  Cigna stock has an attractive valuation since its Current Fiscal Year P/E Ratio is only 9.8 compared with its prior 5-year historical average of 12.5.  An additional consideration in this position is that the next quarterly earnings report is on November 4th which is prior to the November 19th options expiration date.  The Covered Calls Advisor will be monitoring this position closely every day to determine if the position should be closed out prior to the November 4th earnings report.   

As detailed below, for this new Cigna Cash-Secured Puts position there is potential for a +2.4% absolute return in 38 days (equivalent to a +22.7% annualized return-on-investment).  

Cigna Corp. (CI) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
10/13/2021  Sold 2 Cigna November 19th, 2021 $190.00 100% Cash-Secured Put options @ $4.40 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 two Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Cost Basis: $37,121.34
= ($190.00 - $4.40) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$878.66
= ($4.40 *200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Cigna is above $190.00 strike price at the November 19th expiration): +$0.00
= ($190.00 - $190.00) * 200 shares

Total Net Profit (If Cigna stock price is above $190.00 strike price at options expiration): +$878.66
= (+$878.66 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return-on-Investment (If Cigna stock price is above $190.00 strike price at the Nov 19th options expiration) : +2.4%
= +$878.66/$37,121.34
Annualized Return: +22.7%
= (+$878.66/$37,121.34) * (365/38 days)

The downside 'breakeven price' at expiration is at $185.60 ($190.00 - $4.40), which is 6.3% below the current market price of $198.06.

Covered Calls Position Established in Signet Jewelers Ltd.

A Covered Calls position in Signet Jewelers Ltd. (SIG) was established when two hundred Signet shares were purchased at $80.12 and two November 19th, 2021 Call options were sold at $8.30 per share at the $75.00 strike price.  This is the first position established by the Covered Calls Advisor with a November options expiration date.  The  buy/write net debit limit order at $71.82 was executed, so the time value was $3.18 per share [$8.30 Call options premium - ($80.12 stock purchase price - $75.00 strike price)].  There is an upcoming quarterly ex-dividend of $.18 per share (annual dividend yield of 0.9%) on October 28th, 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 November 19th, 2021 options expiration date.  

As preferred by the Covered Calls Advisor, Signet's Q3 earnings report on December 2nd, 2021 will be after the November 19th, 2021 monthly 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 68.5 (a 68.5% probability of assignment) when the buy/write limit order was executed. 

Signet is the largest specialty retail jeweler and it serves the middle to upper-middle market with its Zales, Kay, and Jared brands among others. Under the visionary leadership of Gina Drosos (CEO since 2017 and on the Board of Directors since 2012), the company is now thriving both in its primary mall-based locations but also in its growing digital e-commerce business. What triggered my purchase today was the announcement of its $490 million cash purchase agreement of Diamonds Direct and their simultaneous announcement of increased current year revenue and net income guidance which comes only 5 weeks after they raised guidance as part of their Q2 earnings report.

Signet has an attractive valuation since its P/E Ratio based on the average estimates for Current FY is only about 8.0 compared with its estimated future revenue growth rate of 8%. The average target price of the five analysts that cover Signet is $90.00 (+12.3% above today's stock purchase price). 

As detailed below, a potential return-on-investment result is +4.4% absolute return (equivalent to +94.9% annualized return for the next 17 days) if the stock is assigned early (business day prior to the October 28th ex-dividend date); OR +4.7% absolute return (equivalent to +43.7% annualized return over the next 39 days) if the stock is assigned on the November 19th, 2021 options expiration date.

Signet Jewelers Ltd. (SIG) -- New Covered Calls Position
The simultaneous buy/write transaction today was as follows:
10/12/2021 Bought 200 Signet Jewelers shares @ $80.12
10/12/2021 Sold 2 Signet 11/19/2021 $75.00 Call options @ $8.30
Note: the Implied Volatility of the Calls was 50.2 when this transaction was executed, well above the S&P 500 Volatility Index (VIX) of 19.5.
10/28/2021 Upcoming quarterly ex-dividend of $.18 per share

Two possible overall performance results (including commissions) for this Signet Covered Calls position are as follows:
Covered Calls Cost Basis: $14,365.34
= ($80.12 - $8.30) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$1,658.66
= ($8.30 * 200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Oct. 28th ex-div date): +$0.00; or
(b) Dividend Income (If Signet shares assigned at the Nov. 19th, 2021 options expiration): +$36.00
= ($.18 dividend per share x 200 shares)
(c) Capital Appreciation (If Signet shares assigned early on Oct. 27th -- day prior to the ex-div date): -$1,024.00
+($75.00 - $80.12) * 200 shares ;or
(c) Capital Appreciation (If Signet shares assigned at $75.00 strike price at options expiration): -$1,024.00
+($75.00 - $80.12) * 200 shares

1. Total Net Profit [If options exercised on October 27th (last business day prior to the Oct. 28th ex-dividend date)]: +$634.66

= (+$1,658.66 +$0.00 - $1,024.00); or

2. Total Net Profit (If Signet shares assigned at $75.00 strike price at the Nov. 19th, 2021 expiration): +$670.66

= (+$1,658.66 + $36.00 - $1,024.00)

1. Absolute Return-on-Investment [If Signet Call options exercised on business day prior to ex-dividend date]: +4.4%

= +$634.66/$14,365.34

Annualized Return-on-Investment (If options exercised early): +94.9%

= (+$634.66/$14,365.34) * (365/17 days); or

2. Absolute Return-on-Investment (If SIG shares assigned at $75.00 strike price on November 19th, 2021 expiration): +4.7%

= +$670.66/$14,365.34

Annualized Return-on-Investment (If Signet stock assigned at $75.00 at Nov. 19th, 2021 expiration): +43.7%

= (+$670.66/$14,365.34) *(365/39 days)

These returns will be achieved as long as the Signet stock is above the $75.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $71.64 ($80.12 -$8.30 -$.18) provides 10.6% 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 criteria are met for this Signet Jewelers Corporation Covered Calls position.

October 8th, 2021 Options Expiration Results

The Covered Calls Advisor Portfolio had two Covered Calls positions (Nucor Corporation and Micron Technology Inc.) with October 8th, 2021 options expirations.  Both positions closed in-the-money with the following results:

• Nucor Corporation (NUE) -- +1.3% absolute return (equivalent to +32.8% annualized return-on-investment) for the 15 days of this investment
• Micron Technology Inc. (MU) -- +0.9% absolute return (equivalent to +32.1% annualized roi) for the 10 days of this investment
  

The results from both of these positions shows how hedging stocks by establishing in-the-money Covered Calls can provide nice returns despite experiencing a decline in the stock price.  As detailed below, the original purchase price for Nucor was $101.14 and the stock closed today at $97.79 and the purchase price for Micron was $70.69 and its stock price closed today at $70.12.  

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 current 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.  Nucor Corporation (NUE) -- Covered Calls Position Closed by Assignment at Options Expiration
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 Quarterly ex-dividend of $.405 per share
10/08/2021 Two NUE Call options expired in-the-money so 200 shares of Nucor stock were assigned (i.e. sold) at the $95.00 strike price.

The overall performance results (including commissions) for this Nucor Covered Calls position were 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 (Nucor shares assigned at the Oct. 8th, 2021 options expiration): +$81.00
= ($.405 dividend per share x 200 shares)
(c) Capital Appreciation (Nucor shares assigned at $95.00 strike price at options expiration): -$1,228.00
+($95.00 - $101.14) * 200 shares

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

= (+$1,400.66 + $81.00 - $1,228.00)
 

Absolute Return-on-Investment: +1.3%

= +$253.66/$18,827.34

Annualized Return-on-Investment: +32.8%

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

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

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
10/08/2021 Three MU Call options expired in-the-money so 300 shares of Micron stock were assigned (i.e. sold) at the $68.00 strike price.

The overall performance result (including commissions) for this Micron Technology Inc. Covered Calls position was 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 (300 Micron shares assigned at $68.00 strike price at 10/08/2021 options expiration): -$807.00
+($68.00 -$70.69) * 300 shares

Total Net Profit (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)

Established Covered Calls in Abercrombie & Fitch Co.

This morning a short-term Covered Calls position was established in Abercrombie & Fitch Co. (ticker ANF) with an October 15th, 2021 options expiration date.   A market order buy/write transaction was executed when 300 shares of Abercrombie were purchased at $38.32 and three October 15th, 2021 Call options at the $36.00 strike price were sold at $2.80 per share.  The time value was $.48 = [$2.80 Call options premium - ($38.32 stock price - $36.00 strike price)].  The Implied Volatility of these Calls was 51.4 when this transaction was executed and the Delta was 76.1 which approximates a 76.1% probability of the Call options being in-the-money at the options expiration date.  The next earnings report on November 23rd is after the October 15th options expiration date. 

Abercrombie & Fitch currently is currently priced at a very reasonable valuation with an estimated current Fiscal Year P/E of 8.6.  They have done a good job of implementing and increasing their digital platform sales to 44% during the most recent quarter.  Analysts' target price is $52.13 (+36.0% above today's purchase price).  

As detailed below, a potential return-on-investment result is +1.3% absolute return (equivalent to +48.6% annualized return for the next 10 days) if the stock price is in-the-money (i.e. above the $36.00 strike price) and therefore assigned on the October 15th options expiration date.

Abercrombie & Fitch Co. (ANF) -- New Covered Calls Position

The Buy/Write limit order was executed as follows:
10/06/2021 Bought 300 shares of Abercrombie & Fitch Co. stock @ $38.32 per share 
10/06/2021 Sold 3 A&F Oct. 15th, 2021 $36.00 Call options @ $2.80 per share

A possible overall performance result (including commissions) for this Abercrombie & Fitch Co. Covered Calls position is as follows:
Stock Purchase Cost: $10,658.01
= ($38.32 - $2.80) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$837.99
= ($2.80 *300 shares) - $2.01 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 300 ANF shares assigned at $36.00 strike price at expiration): -$696.00
+($36.00 -$38.32) * 300 shares

Total Net Profit (If 300 Abercrombie shares assigned at $36.00 strike price at expiration): +$141.99 = (+$837.99 options income +$0.00 dividend income -$696.00) capital appreciation

 

Absolute Return-on-Investment: +1.3%

= +$141.99/$10,658.01

Annualized Return-on-Investment: +48.6%

= (+$141.99/$10,658.01) * (365/10 days)

Closed Covered Calls Position in JPMorgan Chase & Co.

Last Thursday, a Covered Calls position was established in JPMorgan Chase & Co. (JPM) with an October 15th, 2021 options expiration date. Today, JPM went ex-dividend at $1.00 per share so the Covered Calls Advisor Portfolio captured this dividend. In addition, JPMorgan's stock price has increased from a purchase price of $165.29 to $170.04 today when I decided to close the Covered Calls position via an unwind transaction of Selling-to-Close the 200 shares @ $170.04 and simultaneously Buying-to-Close two October 15th, 2021 $160.00 Call options @ $10.84 per share. Since the Covered Calls Advisor prefers to avoid holding positions on quarterly earnings reporting dates and JPM's next report is on October 13th which is prior to the October 15th options expiration date, I decided to close out the position today at an annualized return-on-investment (aroi) of +66.5% rather than waiting for a potential maximum aroi of +32.4% if the position were to instead be assigned on the Oct. 15th options expiration date.

The details of today's results are as follows:

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

The original JPMorgan buy/write transaction was as follows:
9/30/2021 Bought 200 shares of JPMorgan Chase & Co. @ $170.04 per share 
9/30/2021 Sold 2 JPM Oct. 15th, 2021 $160.00 Call options @ $10.84 per share
10/05/2021 Ex-dividend of $1.00 per share
10/05/2021 Unwound the JPM Covered Calls position by simultaneously selling-to-close 200 JPM shares at $170.04 per share and buying-to-close 2 JPM Oct. 15th $160.00 Calls @ $10.84 per share.

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

Net Profit:
(a) Options Income: -$860.68
= ($6.55 -$10.84) *200 shares - $2.68 commission
(b) Dividend Income: +$200.00
= ($1.00 dividend per share x 200 shares)
(c) Capital Appreciation (Sold-to-Close 200 JPM shares at $170.04 per share): +$950.00
+($170.04 -$165.29) * 200 shares

Total Net Profit: +$289.32

= (-$860.68 options income +$200.00 dividend income +$950.00 capital appreciation)
 

Absolute Return-on-Investment: +0.9%

= +$289.32/$31,749.34

Annualized Return-on-Investment: +66.5%

= (+$289.32/$31,749.34)*(365/5 days)

October 1st, 2021 Options Expiration Results

The Covered Calls Advisor Portfolio had three Covered Calls positions (Boeing Co., Seagate Technology Holdings PLC, and Wynn Resorts Ltd.) with October 1st, 2021 options expirations.  All three positions closed in-the-money with the following results:

• Boeing Co. (BA) -- +3.5% absolute return (equivalent to +36.9% annualized return-on-investment) for the 35 days of this investment
• Seagate Technology Holdings PLC (STX) -- +2.2% absolute return (equivalent to +45.3% annualized roi) for the 18 days of this investment
• Wynn Resorts Ltd. (WYNN) -- +1.9% absolute return (equivalent to +64.6% annualized roi) for the 11 days of this investment

The cash now available from the assignment (i.e. closing) of these 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 three closed positions are as follows:

1. Boeing Co. (BA) -- Covered Call Position Assigned at the Options Expiration Date

The buy/write transaction was as follows:
8/27/2021 Bought 100 shares of Boeing Co. stock @ $218.59 per share 
8/27/2021 Sold 1 Boeing Sept 17th, 2021 $215.00 Call option @ $8.53 per share
9/17/2021 Boeing Call option expired out-of-the-money so 100 BA shares remain in the Covered Calls Advisor Portfolio.
9/20/2021 Sold 1 Boeing October 1st, 2021 $212.50 Call option @ $5.00 per share when the stock was trading at $212.10.
Note: the Implied Volatility was 32.5 when this Call option was sold.
10/01/2021 Covered Call position closed out -- 1 BA Call option expired in-the-money, so 100 shares were sold at the $112.50 strike price. Note: the stock price was well in-the-money at $226.00 per share at options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $21,006.67
= ($218.59 - $8.53) * 100 shares + $.67 commission

Net Profit Components:
(a) Option Income: +$1,351.66
= ($8.53 + $5.00) * 100 shares - $1.34 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (BA stock above $212.50 strike price at the Oct. 1st, 2021 expiration): -$609.00
= ($212.50 - $218.59) * 100 shares

Total Net Profit (BA stock was above $212.50 strike price at the Oct. 1st, 2021 expiration): +$742.66
= (+$1,351.66 Call option income +$0.00 dividend income -$609.00 capital appreciation)

Absolute Return-on-Investment : +3.5%
= +$742.66/$21,006.67
Equivalent Annualized Return-on-Investment: +36.9%
= (+$742.66/$21,006.67)*(365/35 days)

 

2. Seagate Technology Holdings PLC (STX) -- Covered Calls Position Assigned at the Options Expiration Date
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
10/01/2021 Covered Calls position closed out -- 2 STX Call options expired in-the-money, so 200 shares were sold at the $80.00 strike price. Note: the stock price was well in-the-money at $84.41 per share at options expiration.

The overall performance results (including commissions) for this Seagate Technology Covered Calls position was 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 (Seagate shares assigned at Oct. 1st, 2021 options expiration): +$134.00
= ($.67 dividend per share x 200 shares)
(c) Capital Appreciation (Seagate shares assigned at $80.00 strike price at options expiration): -$450.00
+($80.00 - $82.25) * 200 shares

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

= (+$668.66 + $134.00 - $450.00)
 

Absolute Return-on-Investment: +2.2%

= +$352.66/$15,781.34

Annualized Return-on-Investment: +45.3%

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

3. Wynn Resorts Ltd.(WYNN) -- Covered Calls Position  Closed by Assignment at Options Expiration

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
10/01/2021 Covered Calls position closed out -- 3 WYNN Call options expired in-the-money, so 300 shares were sold at the $75.00 strike price. Note: the stock price was deep in-the-money at $87.21 per share at options expiration.

The overall performance result (including commissions) for this Wynn Resorts Ltd. Covered Calls position was 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 (300 Wynn Resorts shares assigned at $75.00 strike price at expiration): -$1,413.00
+($75.00 - $79.71) * 300 shares

Total Net Profit: +$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)