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)