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
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.
