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)