Covered Calls Established in Bank of America Corp. Using Dividend Capture Strategy

Today, a Covered Calls position was established in Bank of America Corp. (ticker BAC) with the purchase of 500 shares at $45.50 per share and five December 17th, 2021 Call options were sold for $2.04 per share at the $44.00 strike price.  This transaction occurred via a simultaneous buy/write transaction at a net debit of $43.46 per share.  The corresponding time value (aka extrinsic value) in the Call options was $.54 per share = [$2.04 Call options premium received - ($44.50 stock purchase price - $44.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at approximately 70.4 when this buy/write transaction was executed, which approximates the probability of assignment on the December 17th, 2021 options expiration date. 

Bank of America goes ex-dividend at $.21 per share (1.8% annualized dividend yield at the current stock price) this Thursday, December 2nd, which is prior to the Dec. 17th options expiration date, so this dividend is included in the potential return-on-investment results shown below.  Also shown below, all nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and (as preferred by the Covered Calls Advisor) the next quarterly earnings report on January 19th, 2022 is after the December 17th, 2021 options expiration date. 

Most companies in the Financial Sector provide only modest growth prospects, but they often provide good annual dividend yields.  Consequently, the Covered Calls Advisor targets opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions.  This new December 17th, 2021 Bank of America Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of five very large U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, and Morgan Stanley) for each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup and/or Morgan Stanley for Feb, May, Aug, and Nov options expirations; and
Bank of America and/or Goldman Sachs for Mar, Jun, Sep, and Dec options expirations).  This Bank of America Covered Calls position using the Covered Calls Advisor's Dividend Capture Strategy is very comparable to the BAC Covered Calls position done last quarter (see here).

The goal of these monthly Covered Calls in these banks is to both provide an opportunity to either: (1) potentially capture the quarterly dividend payment and if the stock price remains above the strike price at options expiration, the maximum possible return-on-investment result on the options expiration date for the position would be achieved; or (2) have the stock assigned early on the day prior to the ex-dividend date in which case the Covered Calls Advisor is usually very pleased since the Dividend Capture Strategy criteria are designed such that most often the annualized return-on-investment for early assignment is greater than that would be achieved if the stock was instead assigned on the options expiration date.  So far, applying this approach has provided attractive annualized return results -- much better than would be achieved if Covered Calls positions for these bank stocks were held in the Covered Calls Advisor Portfolio in the other two non-dividend paying months each quarter.  

Two potential return-on-investment results for this Bank of America Covered Calls position are: (a) +1.2% absolute return (equivalent to +151.2% annualized return for the next 3 days) in the very unlikely event that the stock is assigned early [this Wednesday which is the last trading day prior to the Dec. 2nd ex-dividend date]; OR (b) +1.7% absolute return (equivalent to +33.1% annualized return over the next 19 days) if the stock is assigned on the December 17th, 2021 options expiration date. 

Bank of America Corp. (BAC) -- New Covered Calls Position

The buy/write transaction was as follows:
11/29/2021 Bought 500 shares of Bank of America Corp. stock @ $45.50 per share 
11/29/2021 Sold 5 BAC Dec. 17th, 2021 $44.00 Call options @ $2.04 per share
Note: The Open Interest in these Calls was 16,908 contracts and their Implied Volatility was 28.3
12/02/2021 Ex-dividend of $.21 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $21,733.35
= ($45.50 - $2.04) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$1,020.00
= ($2.04 * 500 shares)
(b) Dividend Income (If BAC shares assigned on 12/1/2021, the business day prior to the 12/2/2021 ex-dividend date): = +$0.00; or
(b) Dividend Income (If BAC shares assigned at 12/17/2021 options expiration): +$105.00
= $.21 per share x 500 shares
(c) Capital Appreciation (If BAC shares assigned early on 9/01/2021): -$750.00
= ($44.00 -$45.50) * 500 shares; or
(c) Capital Appreciation (If shares above $44.00 strike price at the Dec. 17th options expiration): -$750.00
= ($44.00 -$45.50) * 500 shares

1. Potential Net Profit (If Bank of America shares assigned on 12/1/2021, the day prior to the Dec. 2nd ex-dividend date): +$270.00
= (+$1,020.00 options income +$0.00 dividend income - $750.00 capital appreciation)
2. Potential Net Profit (If BAC price is above $44.00 strike price at the Dec. 17th options expiration): +$375.00
= (+$1,020.00 options income +$105.00 dividend income - $750.00 capital appreciation)

1. Absolute Return (If BAC shares assigned on 12/1/2021, the day prior to the Dec.2nd ex-dividend date): +1.2%
= +$270.00/$21,733.35
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +151.2%
= (+$270.00/$21,733.35)*(365/3 days)
2. Absolute Return (If BAC price is above $44.00 strike price at the Dec. 17th options expiration): +1.7%
= +$375.00/$21,733.35
Equivalent Annualized Return (If assigned on 6/18/2021 options expiration date): +33.1%
= (+$375.00/$21,733.35)*(365/19 days)

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  As shown below, all nine criteria are achieved for this Bank of America Covered Calls position.

Covered Calls Established in Uber Technologies Inc.

At 11:05am this morning, a Covered Calls position was established by buying 500 shares of Uber Technologies Inc.(ticker symbol UBER) stock at $39.26 and simultaneously selling 5 December 17th, 2021 $37.50 Call options at $2.80 per share -- a net debit of $36.46 per share -- so the time value was $1.04 per share [$2.80 Call options premium - ($39.26 stock purchase price - $37.50 strike price)]. The Implied Volatility of these Call options was very high at 48.6 when this position was established.  This elevated IV level is especially true given that the Q3 2021 earnings have already been reported, so there is no increased Implied Volatility because of an upcoming earnings report.  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 67.9 which approximates the probability that this Covered Calls position will be in-the-money and therefore assigned on the Dec. 17th options expiration date.  

According to Reuters Research, the average current target price is $68.01 (+73.2% above today's purchase price) for the forty analysts now covering Uber.  Their estimated 2021 revenue is +38.2% above the prior year and next year's estimates are +47.1% above this year's.

As detailed below, a potential outcome for this Uber Technologies investment is +2.8% absolute return-on-investment for the next 19 days (equivalent to +54.4% on an annualized return basis) if the stock closes above the $37.50 strike price on the December 17th options expiration date.

Uber Technologies Inc. (UBER) -- New Covered Calls Position

The net debit buy/write limit order was executed as follows:
11/29/2021 Bought 500 shares of Uber Technologies Inc. stock @ $39.26 per share 
11/29/2021 Sold 5 Uber Dec. 17th, 2021 $37.50 Call options @ $2.80 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: $18,233.35
= ($39.26 - $2.80) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$1,396.65
= ($2.80 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Uber stock is above the $37.50 strike price at the Dec. 17th expiration): -$880.00
= ($37.50 -$39.26) * 500 shares

Potential Total Net Profit (If assigned at expiration): +$516.65
= (+$1,396.65 options income +$0.00 dividend income -$880.00 capital appreciation)

Absolute Return: +2.8%
= +$516.65/$18,233.35
Equivalent Annualized Return: +54.4%
= (+$516.65/$18,233.35)*(365/19 days)

The downside 'breakeven price' at expiration is at $36.46 ($39.26 - $2.80), which is 7.1% below the current market price of $39.26.  This is good protection given the high +54.4% potential annualized ROI for this investment.

Covered Call Established in Boeing Co.

A Covered Calls buy/write limit order for Boeing Co. (ticker BA) at a net debit price of $179.82 at the December 17th, 2021 $185.00 strike price was executed today when 100 shares were purchased at $194.38 and one December 17th, 2021 Call option was sold at $14.56.  The Implied Volatility of this Call option was very high at 48.0 compared to Boeing's IV historical norm.  

Boeing is one of the world's duopoly companies (along with Airbus) in the commercial airline industry and is also a top 5 U.S. Defense contractor.  The company has struggled from the two 737MAX crashes and the associated aircraft groundings.  The Covered Calls Advisor believes the current price decline to below $200 per share could provide a near-term bottom of the substantial price decline.  Supporting this thesis is the fact that 175 of 195 countries have give recertification approval to the MAX.  China has not yet approved the MAX but it is currently in the process of re-testing it.    

Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Calls position was established.  The Delta was 68.4 which approximates the probability that the Call options will be in-the-money on the options expiration date.  Importantly for the Covered Calls Advisor, there is not a quarterly earnings report prior to the options expiration date.

As detailed below, potential return-on-investment results +2.9% absolute return (equivalent to +47.8% annualized return over the next 22 days) if the stock is assigned on the December 17th options expiration date.

Boeing Co. (BA) -- New Covered Call Position

The buy/write transaction was as follows:
11/26/2021 Bought 100 shares of Boeing Co. stock @ $194.38 per share 
11/26/2021 Sold 1 Boeing Dec.17th, 2021 $185.00 Call option @ $14.56 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $17,982.67
= ($194.38 - $14.56) * 100 shares + $.67 commission

Net Profit Components:
(a) Option Income: +$1,456.00
= ($14.56 * 100 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BA stock is above $185.00 strike price at the Dec.17th, 2021 expiration): -$938.00
= ($185.00 - $194.38) * 100 shares

Total Net Profit: +$518.00
= (+$1,456.00 Call option income +$0.00 dividend income -$938.00 capital appreciation)

Absolute Return-on-Investment: +2.9%
= +$518.00/$17,982.67
Equivalent Annualized Return-on-Investment: +47.8%
= (+$518.00/$17,982.67)*(365/22 days)

The downside 'breakeven price' at expiration is at $179.82 ($194.38 - $14.56), which is 7.5% below the current market price of $194.38.

Covered Calls Established in Alcoa Corporation

During the first half-hour in this morning's trading, a Covered Calls position was established by buying 500 shares of Alcoa Corporation (ticker symbol AA) stock at $46.32 and simultaneously selling 5 December 17th, 2021 $42.00 Call options at $5.40 per share -- a net debit of $40.92 per share.   Because of the overnight news related to a new Covid variant, the Dow was down about 900 points when this position was established and the $46.32 purchase price of Alcoa shares was down from its prior close of $50.46 (a sharp -8.2% decline).  This position is very similar to the successful Alcoa Covered Calls position that was assigned at last month's November 19th monthly options expiration date: Link 

The Implied Volatility of these Call options was very high at 59.7 when this position was established.  This elevated IV level 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.  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 76.2 which approximates the probability that this Covered Calls position will be in-the-money and therefore assigned on the Dec. 17th options expiration date.  

According to Reuters Research, the average current target price is $59.19 (+27.8% 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 $6.32 per share, a P/E ratio of only 7.3 based on today's purchase price of $46.32.

As detailed below, a potential outcome for this investment is +2.6% absolute return-on-investment for the next 22 days (equivalent to +43.5% on an annualized return basis) if the stock closes above the $42.00 strike price on the December 17th options expiration date.

Alcoa Corporation (AA) -- New Covered Calls Position

The net debit buy/write limit order was executed as follows:
11/26/2021 Bought 500 shares of Alcoa stock @ $46.32 per share 
11/26/2021 Sold 5 Alcoa Dec. 17th, 2021 $42.00 Call options @ $5.40 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: $20,463.35
= ($46.32 - $5.40) * 500 shares + $3.35 commission
 

Net Profit Components:
(a) Options Income: +$2,696.65
= ($5.40 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Alcoa stock is above the $42.00 strike price at the Dec. 17th expiration): -$2,160.00
= ($42.00 -$46.32) * 500 shares

Potential Total Net Profit (If assigned at expiration): +$536.65
= (+$2,696.65 options income +$0.00 dividend income -$2,160.00 capital appreciation)

Absolute Return: +2.6%
= +$536.65/$20,463.35
Equivalent Annualized Return: +43.5%
= (+$536.65/$20,463.35)*(365/22 days)

The downside 'breakeven price' at expiration is at $40.92 ($46.32 - $5.40), which is 11.7% below the current market price of $46.32.  This is good protection given the relatively high +43.5% potential annualized ROI for this investment.

Covered Calls Position Established in American Eagle Outfitters Inc.

This morning, a Covered Calls position was established in American Eagle Outfitters Inc.(ticker symbol AEO) when five hundred American Eagle shares were purchased at $27.43 and five December 17th, 2021 Call options were sold for $2.11 per share at the $26.00 strike price.  The  buy/write net debit limit order at $25.32 was executed, so the time value was $.68 per share [$2.11 Call options premium - ($27.43 stock purchase price - $26.00 strike price)].  There is an upcoming quarterly ex-dividend of $.18 (annual dividend yield of 2.5%) on December 9th, so potential return-on-investment results for this position, as detailed below, include the possibility of early assignment because the ex-dividend is prior to the December 17th, 2021 options expiration date.  

Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Calls position was established with a Delta of approximately 69.5 and an Implied Volatility of the Calls was approximately 41 when the buy/write limit order was executed. 

American Eagle reported their Q3 2021 earnings before market open yesterday and the beat analysts estimates for both revenue and earnings.  Their revenue was up in excess of 20% versus the same quarter last year in both their American Eagle brand and their Aerie brand and their earnings increase more than doubled.  They have made some proactive acquisitions this year to accelerate their delivery times to their stores and their customers with their recent all-cash purchase of Quiet Logistics and or AirTerra earlier this year.  AEO's valuation is relatively attractive with its current fiscal year P/E ratio at 12.1 and an expected single digit increase in earnings next year.  

As detailed below, a potential return-on-investment result is +2.7% absolute return (equivalent to +64.7% annualized return for the next 15 days) if the stock is assigned early on December 8th (the last business day prior to the December 9th ex-date); OR +3.4% absolute return (equivalent to +51.2% annualized return over the next 24 days) if the stock is assigned on the December 17th, 2021 options expiration date.

American Eagle Outfitters Inc. (CI) -- New Covered Calls Position
The transaction today was as follows:
11/24/2021 Bought 500 American Eagle Outfitters Inc. shares @ $27.43
11/24/2021 Sold 5 AEO 12/17/2021 $26.00 Call options @ $2.11
12/09/2021 Upcoming quarterly ex-dividend of $.18 per share

Two possible overall performance results (including commissions) for this American Eagle Outfitters Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $12,663.35
= ($27.43 - $2.11) * 500 shares + $3.35 commissions

Net Profit Components:
(a) Options Income: +$1,051.65
= ($2.11 * 500 shares) - $3.35 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Dec. 9th ex-div date): +$0.00; or
(b) Dividend Income (If AEO shares assigned at Dec. 17th, 2021 options expiration): +$90.00
= ($.18 dividend per share x 500 shares)
(c) Capital Appreciation (If American Eagle shares assigned early on Dec. 8th): -$715.00
+($26.00 - $27.43) * 500 shares ;or
(c) Capital Appreciation (If AEO shares assigned at $26.00 strike price at options expiration): -$715.00
+($26.00 - $27.43) * 500 shares

1. Total Net Profit [If options exercised on Dec. 8th (business day prior to the Dec. 9th ex-dividend date)]: +$336.65

= (+$1,051.65 options income +$0.00 dividend income - $715.00 capital appreciation); or

2. Total Net Profit (If AEO shares assigned at $26.00 strike price at Dec. 17th, 2021 expiration): +$426.65

= (+$1,051.65 + $90.00 - $715.00)

1. Absolute Return [If American Eagle Call options exercised on final business day prior to ex-dividend date]: +2.7%

= +$336.65/$12,663.35

Annualized Return (If options exercised early): +64.7%

= (+$336.65/$12,663.35) * (365/15 days); or

2. Absolute Return (If AEO shares assigned at $26.00 strike price on Dec. 17th, 2021 expiration): +3.4%

= +$426.65/$12,663.35

Annualized Return (If AEO stock assigned at $26.00 at Dec. 17th, 2021 expiration): +51.2%

= (+$426.65/$12,663.35) *(365/24 days)

These returns will be achieved as long as the stock is above the $26.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $25.14 ($27.43 -$.18 -$2.11) provides 8.3% 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, eight of the nine criteria are met for this American Eagle Outfitters Inc. Covered Calls position.

Covered Calls Position Established in Cigna Corporation

This morning, a Covered Calls position was established in Cigna Corp. (ticker symbol CI) when two hundred Cigna shares were purchased at $212.64 and two December 17th, 2021 Call options were sold for $10.00 per share at the $205.00 strike price.  The  buy/write net debit limit order at $202.64 was executed, so the time value was $2.36 per share [$10.00 Call options premium - ($212.64 stock purchase price - $205.00 strike price)].  There is an upcoming quarterly ex-dividend of $1.00 (annual dividend yield of 1.9%) on December 6th, so potential return-on-investment results for this position, as detailed below, include the possibility of early assignment because the ex-dividend is prior to the December 17th, 2021 options expiration date.  

As preferred by the Covered Calls Advisor, Cigna's next quarterly earnings report will be after the December 17th options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Calls position was established with a Delta of approximately 71.6 and an Implied Volatility of the Calls was approximately 24.2 when the buy/write limit order was executed. 

Cigna stock has an attractive valuation since its projected Next Fiscal Year P/E Ratio is only 9.5 compared with its prior 5-year historical average of 13.  In addition, the average target price for the 22 analysts that follow Cigna is $262.08 (+23.3% above today's stock purchase price). 

As detailed below, a potential return-on-investment result is +1.2% absolute return (equivalent to +32.6% annualized return for the next 13 days) if the stock is assigned early on Friday, December 3rd (the last business day prior to the December 6th ex-date); OR +1.7% absolute return (equivalent to +24.2% annualized return over the next 25 days) if the stock is assigned on the December 17th, 2021 options expiration date.

Cigna Corp. (CI) -- New Covered Calls Position
The transaction today was as follows:
11/23/2021 Bought 200 Cigna Corp. shares @ $212.64
11/23/2021 Sold 2 Cigna 12/17/2021 $205.00 Call options @ $10.00
12/06/2021 Upcoming quarterly ex-dividend of $1.00 per share

Two possible overall performance results (including commissions) for this Cigna Covered Calls position are as follows:
Covered Calls Cost Basis: $40,529.34
= ($212.64 - $10.00) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$1,998.66
= ($10.00 * 200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Dec. 6th ex-div date): +$0.00; or
(b) Dividend Income (If Cigna shares assigned at Dec. 17th, 2021 options expiration): +$200.00
= ($1.00 dividend per share x 200 shares)
(c) Capital Appreciation (If CI shares assigned early on Dec. 3rd): -$1,528.00
+($205.00 - $212.64) * 200 shares ;or
(c) Capital Appreciation (If Cigna shares assigned at $205.00 strike price at options expiration): -$1,528.00
+($205.00 - $212.64) * 200 shares

1. Total Net Profit [If options exercised on Dec. 3rd (business day prior to the Dec. 6th ex-dividend date)]: +$470.66

= (+$1,998.66 options income +$0.00 dividend income - $1,528.00 capital appreciation); or

2. Total Net Profit (If Cigna shares assigned at $205.00 strike price at Dec. 17th, 2021 expiration): +$670.66

= (+$1,998.66 + $200.00 - $1,528.00)

1. Absolute Return [If Cigna Call options exercised on final business day prior to ex-dividend date]: +1.2%

= +$470.66/$40,529.34

Annualized Return (If options exercised early): +32.6%

= (+$470.66/$40,529.34) * (365/13 days); or

2. Absolute Return (If Cigna shares assigned at $205.00 strike price on Dec. 17th, 2021 expiration): +1.7%

= +$670.66/$40,529.34

Annualized Return (If Cigna stock assigned at $205.00 at Sept 17th, 2021 expiration): +24.2%

= (+$670.66/$40,529.34) *(365/25 days)

These returns will be achieved as long as the stock is above the $205.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $201.64 ($212.64 -$10.00 -$1.00) provides 5.2% 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 met for this Cigna Corp. Covered Calls position.

Closed Positions in Diamondback Energy Inc. and Goodyear Tire & Rubber Co.

At last Friday's options expiration date, two November 19th, 2021 Covered Calls positions in the Covered Calls Advisor's Portfolio expired with the stock price below their strike prices.  Early in this morning's trading session, both positions (Diamondback Energy Inc. and Goodyear Tire & Rubber Co.) were closed out by selling the stocks.  Fortunately, both positions were closed out profitably:

As detailed below, the return-on-investment results are as follows: 

• Diamondback Energy Inc. -- +1.8% absolute return in 20 days (equivalent to a +33.3% annualized return-on-investment); and 
• Goodyear Tire & Rubber Co. -- +2.3% absolute return in 13 days (equivalent to a +63.9% annualized return-on-investment).
  
  
  Although these annualized return-on-investment results are less than what would have been achieved if these positions had closed in-the-money at last Friday's options expiration, these results still provide a good example of the advantage that can accrue from selling in-the-money Covered Calls.  Despite the stocks declining to below their strike prices, a net profit was still achieved for both positions from a combination of the: (a) dividend income received; and (b) time value decay in the Call options. 

 

1.  Diamondback Energy Inc. (FANG) -- Covered Calls Position Closed

The transactions were as follows:
11/02/2021 Bought 200 shares of Diamondback stock @ $109.20 per share 
11/02/2021 Sold 2 Diamondback Nov. 19th, 2021 $105.00 Call options @ $6.90 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of the Call options was 36.2.
11/09/2021 Upcoming ex-dividend of $.50 per share
11/19/2021 2 FANG Call options expired out-of-the-money, so 200 FANG stock shares remain in the Covered Calls Advisor Portfolio.
11/22/2021 Sold 200 FANG shares at $103.67 to close out this position.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $20,461.34
= ($109.20 - $6.90) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,378.66
= ($6.90 * 200 shares) - $1.34 commission
(b) Dividend Income: $100.00
= $.50 dividend per share x 200 shares
(c) Capital Appreciation (FANG stock sold at $103.6735 per share): -$1,105.30
= ($103.6735 - $109.20) * 200 shares

Total Net Profit: +$373.36
= (+$1,378.66 options income +$100.00 dividend income -$1,105.30 capital appreciation)

Absolute Return (If stock assigned on May 21st options expiration date): +1.8%
= +$373.36/$20,461.34
Equivalent Annualized Return: +33.3%
= (+$373.36/$20,461.34)*(365/20 days)

2.  Goodyear Tire & Rubber Co. (GT) -- Covered Calls Position Closed

The buy/write transaction was as follows:
11/09/2021 Bought 600 shares of Goodyear stock @ $23.03 per share 
11/09/2021 Sold 6 Goodyear November 19th, 2021 $22.00 Call options @ $1.37 per share
Note: The Implied Volatility of the Call option was 42.4 when this transaction was executed which provides an excellent return-on-investment potential (as detailed below).
11/19/2021 6 Goodyear Call options expired out-of-the-money, so 600 GT stock shares remain in the Covered Calls Advisor Portfolio.
11/22/2021 Sold 600 Goodyear shares at $22.16 to close out this position.

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $13,000.02
= ($23.03 - $1.37) * 600 shares + $4.02 commission

Net Profit Components:
(a) Option Income: +$817.98
= ($1.37 * 600 shares) - $4.02 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation: -$522.00
= ($22.16 -$23.03) * 600 shares

Total Net Profit: +$295.98
= (+$817.98 Call options income +$0.00 dividend income -$522.00 capital appreciation)

Absolute Return-on-Investment: +2.3%
= +$295.98/$13,000.02
Equivalent Annualized Return-on-Investment: +63.9%
= (+$295.98/$13,000.02) * (365/13 days)

Monthly Options Expiration Results through November 19th, 2021

The Covered Calls Advisor Portfolio had twelve positions since last month's (October 15th, 2021) monthly options expiration date.  During this past month, the Covered Calls Advisor Portfolio closed out ten of these twelve positions.   Nine positions were closed out at a profit, one was closed at a loss, and two were Covered Calls positions that expired out-of-the-money on yesterday's options expiration date.  A summary of results (for all twelve positions) since the last monthly options expiration date on Oct. 15th, 2021 through yesterday's monthly options expiration date of November 19th are summarized below:

• Four Covered Calls positions expired in-the-money (stock price above the strike price) on the November 19th 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) -- +4.5% absolute return in 31 days (equivalent to +53.1% annualized return-on-investment).  
2. Alcoa Corporation (AA) -- +3.8% absolute return in 22 days (equivalent to +62.8% annualized return-on-investment). 
3. Cleveland-Cliffs Inc. (CLF) -- +5.0% absolute return in 32 days (equivalent to +57.1% annualized return-on-investment).  
4. Discovery Inc. (DISCA) -- +2.2% absolute return in 15 days (equivalent to +53.0% annualized return-on-investment).

 

• One Cash-Secured Puts position in Bristol-Myers Squibb Co. expired out-of-the-money (stock price above the strike price) on the Nov. 19th monthly options expiration date with the following result -- +1.3% absolute return in 24 days (equivalent to +19.4% annualized return-on-investment). 
  

 

• Three 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. Cardinal Health Corp. (CI) Covered Calls -- -1.9% absolute return in 27 days (equivalent to -25.3% annualized return-on-investment).
2. Facebook Inc. (FB) Covered Calls -- +2.6% absolute return in 10 days (equivalent to +94.2% annualized return-on-investment).
3. Signet Jewelers Ltd. (SIG) Covered Calls -- +4.6% absolute return in 28 days (equivalent to +59.6% 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. Citigroup Inc. (C) -- +0.8% absolute return in 7 days (equivalent to +41.1% annualized return-on-investment).
2. Capital One Financial (COF) -- +1.3% absolute return in 14 days (equivalent to +32.6% annualized return-on-investment).

 

• Two Covered Calls positions expired out-of-the-money on yesterday's November 19th, 2021 options expiration date.  Two hundred shares of Diamondback Energy Inc. and and six hundred shares of Goodyear Tire & Rubber Co. now remain in the Covered Calls Advisor Portfolio (shown in the right sidebar of this blog).  Decisions will be made soon to either sell these shares or to continue with their Covered Calls positions by selling future Call options against the shares currently held.

 

During the past year (last 12 months) 121 of 128 positions (94.5%) 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 +38.5% during the past year and the average holding period of the 128 positions was 22.3 days.  In comparison, the benchmark S&P 500 index returned +32.1% during the same prior one-year period.

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 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).  

My current sentiment regarding each of the 11 sectors is:         

•  Bullish -- Consumer Discretionary, Financials, Healthcare, and Information Technology; 
•  Neutral -- Communication Services, Energy, and Materials; and 
•  Bearish -- Consumer Staples, Industrials, Real Estate, and Utilities    
  

As shown in the right sidebar, there are currently six 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

Covered Calls Established in Devon Energy Corp.

This morning, a new Covered Calls position was established in Devon Energy Corp. when 300 shares were purchased at $42.08 and 3 December 17th, 2021 Call options were sold at $3.80 per share at the $39.00 strike price.  The net debit limit order at $38.28 was executed, so the time value was $.72 per share [$3.80 Call options premium - ($42.08 stock purchase price - $39.00 strike price)]. There is an upcoming ex-dividend totaling $.84 per share ($.11 regular dividend plus a $.73 special dividend), both on December 9th, 2021.  Two potential return-on-investment results for this position are detailed below and include the possibility of early exercise since these ex-dividends are prior to the December 17th, 2021 options expiration date.  Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, an in-the-money Covered Calls position was established -- the Delta was 72.9, which approximates a probability of 72.9% that the Call options will be in-the-money on the options expiration date.  Although the Covered Calls Advisor gives minor emphasis to technical indicators, Devon stock seemed oversold on a short-term basis since its RSI(2) was 16.4 when this transaction was executed. 

Devon is highly rated by analysts that cover the company since 27 of 31 total analysts rate it as either strong buy or buy and their average target price is $49.16 which is +16.8% above today's $42.08 purchase price.  The $.73 special dividend (almost double the $.38 special dividend last quarter) is testimony to the growing profitability of the company and its commitment to shareholders. Also, Credit Suisse currently identifies Devon as one of only three 'Top Stocks for an Accelerating Economy' in the Energy Sector.   

The Covered Calls Advisor expects the current Diamondback Energy Covered Calls position to be in-the-money and therefore assigned tomorrow at its 11/19/2021 options expiration.  This Devon Energy position will replace Diamondback as another Energy Sector position (in addition to the current Pioneer Natural Resources Covered Calls position with its Dec. 3rd options expiration ) in the Covered Calls Advisor Portfolio. 

As detailed below, a potential return-on-investment result is +1.9% absolute return (equivalent to +32.4% annualized return for the next 21 days) if the stock is assigned early (business day prior to the December 9th ex-date); OR +4.1% absolute return (equivalent to +49.4% annualized return over the next 30 days) if the stock is assigned on the December 17th, 2021 options expiration date.

Devon Energy Corp. (DVN) -- New Covered Calls Position
The net debit limit order buy/write transaction today was as follows:
11/18/2021 Bought 300 Devon Energy shares @ $42.08
11/18/2021 Sold 3 Devon 12/17/2021 $39.00 Call options @ $3.80   Note: the Implied Volatility of these Call options was 45.6 when this position was established and their Bid/Ask spread was $3.75/$3.90.
12/09/2021 Upcoming quarterly ex-dividends of $.84 per share

Two possible overall performance results (including commissions) for this Devon Energy Covered Calls position are as follows:
Covered Calls Cost Basis: $11,486.01
= ($42.08 - $3.80) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$1,137.99
= ($3.80 * 300 shares) - $2.01 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Dec. 9th ex-div date): +$0.00; or
(b) Dividend Income (If Devon shares assigned at Dec.17th, 2021 options expiration): +$252.00
= ($.84 dividend per share x 300 shares)
(c) Capital Appreciation (If Devon shares assigned early on Dec. 8th): -$924.00
+($39.00 - $42.08) * 300 shares ;or
(c) Capital Appreciation (If Devon shares assigned at $39.00 strike price at options expiration): -$924.00
+($39.00 - $42.08) * 300 shares

1. Total Net Profit [If options exercised on Dec. 8th (business day prior to the Dec. 9th ex-dividend date)]: +$213.99

= (+$1,137.99 +$0.00 - $924.00); or

2. Total Net Profit (If Devon shares assigned at $39.00 strike price at Dec. 17th, 2021 expiration): +$465.99

= (+$1,137.99 + $252.00 - $924.00)

1. Absolute Return-on-Investment [If Devon Call options exercised on business day prior to ex-dividend date]: +1.9%

= +$213.99/$11,486.01

Annualized Return-on-Investment (If options exercised early): +32.4%

= (+$213.99/$11,486.01) * (365/21 days); or

2. Absolute Return-on-Investment (If Devon shares assigned at $39.00 strike price on Dec. 17th, 2021 expiration): +4.1%

= +$465.99/$11,486.01

Annualized Return-on-Investment (If Devon stock assigned at $39.00 strike at Dec. 17th, 2021 expiration): +49.4%

= (+$465.99/$11,486.01) *(365/30 days)

These returns will be achieved as long as the stock is above the $39.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $37.44 ($42.08 -$3.80 -$.84) provides 11.0% 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 met for this Devon Energy Corp. Covered Calls position.

Covered Calls Position Established in Discover Financial Services

This afternoon with less than 10 minutes remaining prior to the market closing, a Covered Calls position was established in Discover Financial Services (ticker DFS), with a December 3rd, 2021 options expiration date. Two hundred shares of Discover were purchased at $118.03 and two Call options were sold at $5.37 per share at the $114.00 strike price. Hence, the time value was $1.34 per share [$114.00 strike price - ($118.03 share price - $5.73 Call options premium)] when this buy/write limit order transaction was executed.  Discover also has an upcoming ex-dividend date exactly one week from tomorrow (November 23rd, 2021 at $.50 per share, so this is included in the potential return-on-investment results detailed below.  There is no quarterly earnings report prior to the Dec. 3rd, 2021 options expiration date.

You might recall that a prior Financial sector Covered Calls position in Capital One Financial was closed out by early assignment last Friday (see details here) and the Covered Calls Advisor indicated that the cash from that position would likely be used to establish another Covered Calls position in the Financial sector to replace it -- Discover Financial is that position.  Capital One and Discover are similar in two respects (1) both are primarily in the Consumer Finance industry; and (2) both reported estimate-beating results in their recent quarterly earnings reports and they both also have good valuations at less than a 10 P/E based on 2021's expected annual earnings per share. Finally, there are currently 21 analysts covering Discover and their average target price target is $141.21 (+19.6% above today's purchase price of $118.03).

Two potential return-on-investment results are as follows: (a) +1.2% absolute return-on-investment (equivalent to +54.3% annualized roi) for 8 days if this Covered Calls position is assigned early on November 22nd (the last business day prior to the Nov. 23rd ex-dividend date); OR  (b) +1.6% absolute return-on-investment (equivalent to +31.4% annualized roi) for 19 days if this Covered Call position is in-the-money on the December 3rd, 2021 options expiration date.

Discover Financial Services (DFS) -- New Covered Calls Position Established
The buy/write transaction was as follows:
11/15/2021 Bought 200 shares of Discover Financial Services @ $118.03 per share 
11/15/2021 Sold 2 DFS Dec. 3rd, 2021 $114.00 Call options @ $5.37 per share
11/23/2021 Ex-dividend of $.50 per share
 
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $22,533.34
= ($118.03 - $5.37) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,074.00
= ($5.37 * 200 shares)
(b) Dividend Income (If option exercised early on the last business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If DFS shares assigned at Dec. 3rd, 2021 expiration): +$100.00
= ($.50 dividend per share x 200 shares)
(c) Capital Appreciation (If Discover shares assigned early): -$806.00
+($114.00 strike price - $118.03 stock purchase cost) * 200 shares; or
(c) Capital Appreciation (If DFS shares assigned at $114.00 strike price at options expiration): -$806.00
+($114.80- $118.03) * 200 shares

1. Total Net Profit [If option exercised on Nov. 22nd, 2021 (the last business day prior to the Nov. 23rd ex-dividend date)]: +$268.00

= (+$1,074.00 options income +$0.00 dividend income -$806.00 capital appreciation); or

2. Total Net Profit (If Discover Financial shares assigned at $114.00 at December 3rd, 2021 options expiration): +$368.00

= (+$1,074.00 +$100.00 -$806.00)

1. Absolute Return-on-Investment (If DFS options exercised early on the last business day prior to the ex-dividend date): +1.2%

= +$268.00/$22,533.34

Annualized Return-on-Investment (If DFS Call options exercised early on Nov. 23rd): +54.3%

= (+$268.00/$22,533.34)*(365/8 days); or

2. Absolute Return-on-Investment (If DFS shares assigned at $114.00 at December 3rd, 2021 options expiration date): +1.6%

= +$368.00/$22,533.34

Annualized Return-on-Investment (If DFS stock assigned at $114.00 at December 3rd, 2021 options expiration date): +31.4%

= (+$368.00/$22,533.34)*(365/19 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 $114.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $112.26 ($118.03 -$5.37 -$.50) provides 4.9% 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 Discover Financial Services Covered Calls position.

Early Assignment of Capital One Financial Corporation Covered Calls

Early this morning, the Covered Calls Advisor was notified by Schwab that the two Capital One Financial November 19th, 2021 $145.00 Call options were exercised yesterday (the last business day prior to today's ex-dividend date).   The Capital One Financial stock price has increased from its purchase price of $150.52 to $156.55 at the market close yesterday.  

This early exercise by the Capital One Financial Call owners was expected by the Covered Calls Advisor since the remaining time value was very close to $0.00, so they elected to purchase the 200 shares at the $145.00 strike price and thus also capture today's $.60 ex-dividend.  Despite not capturing today's dividend, this is a good outcome for the Covered Calls Advisor since the resulting +32.6% annualized return-on-investment (aroi) achieved is slightly better than the +27.7% maximum possible aroi that might have been achieved later on the November 19th options expiration date if the stock remained above the $145.00 strike price.  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:

Capital One Financial Corporation (COF) -- Covered Calls Position Closed by Early Assignment

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
11/12/2021 Capital One Financial Covered Calls position closed out when two COF Call options exercised early, so these Calls expired and 200 COF shares were sold at the $145.00 strike price.

The overall performance result (including commissions) for this Capital One Covered Calls position was 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: +$0.00 

(c) Capital Appreciation (200 COF shares assigned at $145.00 strike price on Nov. 11th, the last day prior to the COF Nov. 12th ex-dividend date): -$1,104.00
+($145.00 -$150.52) * 200 shares

Total Net Profit: +$358.66

= (+$1,462.66 options income +$0.00 dividend income -$1,104.00 capital appreciation)

 

Absolute Return-on-Investment: +1.3%

= +$358.66/$28,641.34

Annualized Return-on-Investment: +32.6%

= (+$478.66/$28,641.34) * (365/14 days)

Covered Call Established in Pioneer Natural Resources Company

A Covered Call position was established in the Pioneer Natural Resources Co. (ticker PXD), with a December 17th, 2021 options expiration date. One hundred shares of Pioneer were purchased at $180.80 and one Call option was sold at $13.70 per share at the $170.00 strike price. The time value was $2.90 per share [$170.00 strike price - ($180.80 share price - $13.70 Call option premium)] when this buy/write limit order transaction was executed.  PXD also has a special/variable dividend that goes ex-dividend on November 29th, 2021 at $3.02 per share, so this income is included in the potential return-on-investment results detailed below.  There is no quarterly earnings report prior to the Dec. 17th, 2021 options expiration date.

Pioneer Natural Resources Company is a leading pure-play oil and gas exploration and production (E&P) company that explores for, develops, and produces oil, natural gas, natural gas liquids (NGLs) and gas within the U.S., with operations primarily in the Permian Basin in West Texas.  Pioneer is known for its low breakeven costs and its strong balance sheet.  The recent acquisition of Parsley Energy provides additional assets and further diversifies its operations into the Delaware Basin (in West Texas and Southeastern New Mexico), one of the most prolific basins in the U.S. 

There are currently 34 analysts covering Pioneer and their average price target is $221.85 (+22.7% above today's purchase price of $180.80).

Two potential return-on-investment results are as follows: (a) +1.7% absolute return-on-investment (equivalent to +33.3% annualized roi) for 19 days if this Covered Call position is assigned early on November 26th (the last business day prior to the Nov. 29th ex-dividend date); OR  (b) +3.5% absolute return-on-investment (equivalent to +34.0% annualized roi) for 38 days if this Covered Call position is in-the-money on the December 17th, 2021 options expiration date.

Pioneer Natural Resources Company (PXD) -- New Covered Call Position Established
The buy/write transaction was as follows:
11/10/2021 Bought 100 shares of Pioneer Natural Resources @ $180.80 per share 
11/10/2021 Sold 1 PXD Dec. 17th, 2021 $170.00 Call option @ $13.70 per share
11/29/2021 Ex-dividend of $3.02 per share (a Special/Variable Dividend)
 
Two possible overall performance results (including commissions) would be as follows:
Covered Call Cost Basis: $16,710.67
= ($180.80 - $13.70) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$1,370.00
= ($13.70 * 100 shares)
(b) Dividend Income (If option exercised early on the last business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If PXD shares assigned at Dec. 17th, 2021 expiration): +$302.00
= ($3.02 dividend per share x 100 shares)
(c) Capital Appreciation (If Pioneer shares assigned early): -$1,080.00
+($170.00 strike price - $180.80 stock purchase cost) * 100 shares; or
(c) Capital Appreciation (If PXD shares assigned at $170.00 strike price at options expiration): -$1,080.00
+($180.80- $170.00) * 100 shares

1. Total Net Profit [If option exercised on Nov. 26th, 2021 (the last business day prior to the Nov. 29th ex-dividend date)]: +$290.00

= (+$1,370.00 option income +$0.00 dividend income -$1,080.00 capital appreciation); or

2. Total Net Profit (If Pioneer Natural Resources shares assigned at $170.00 at December 17th, 2021 options expiration): +$592.00

= (+$1,370.00 +$302.00 -$1,080.00)

1. Absolute Return-on-Investment (If PXD options exercised early on the last business day prior to the ex-dividend date): +1.7%

= +$290.00/$16,710.67

Annualized Return-on-Investment (If PXD Call option exercised early on Nov. 26th): +33.3%

= (+$290.00/$16,710.67)*(365/19 days); or

2. Absolute Return-on-Investment (If PXD shares assigned at $170.00 at December 17th, 2021 options expiration date): +3.5%

= +$592.00/$16,710.67

Annualized Return-on-Investment (If Pioneer Natural Resources stock assigned at $170.00 at December 17th, 2021 options expiration date): +34.0%

= (+$592.00/$16,710.67)*(365/38 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 $170.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $164.08 ($180.80 -$13.70 -$3.02) provides 9.2% 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 of the nine criteria are achieved for this Pioneer Natural Resources Co. Covered Calls position.

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 $101.17 and two December 17th, 2021 Call options were sold at $11.77 per share at the $95.00 strike price.  This is the first position established by the Covered Calls Advisor with a December 2021 options expiration date.  The  buy/write net debit limit order at $89.40 was executed, so the time value was $5.60 per share [$11.77 Call options premium - ($101.17 stock purchase price - $95.00 strike price)]. 

A prior Covered Calls position in Signet with a November 17th, 2021 expiration was closed out yesterday with an annualized return-on-investment of +59.6% (see blog post here).  When this position was closed, the price of Signet stock was $106.15 and today the new Covered Calls position was established when the stock price had declined to $101.17.  The Implied Volatility of the Call options for today's new position was elevated at 66.0, a reflection of the fact that the Q3 2022 earnings report on December 2nd is prior to the December 17th options expiration date.  Although I prefer to establish Covered Calls without any intervening earnings report prior to the options expiration date, in this instance I am confident that analysts' estimates of $1.4 billion revenue and $.72 earnings per share will be exceeded.  Nevertheless, an in-the-money Covered Calls position was established with a Delta of 65.3 (a 65.3% 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.  

Despite Signet's dramatic price increase in the past 6 weeks, its valuation remains attractive given that its P/E Ratio based on the average estimates for Current FY is only about 10.0 compared with its estimated long-term future revenue growth rate of 8%. 

As detailed below, a potential return-on-investment result is +6.3% absolute return (equivalent to +60.1% annualized return over the next 38 days) if the stock is assigned on the December 17th, 2021 options expiration date.

Signet Jewelers Ltd. (SIG) -- New Covered Calls Position
The simultaneous buy/write transaction today was as follows:
11/10/2021 Bought 200 Signet Jewelers shares @ $101.17
11/10/2021 Sold 2 Signet 12/17/2021 $95.00 Call options @ 11.77 

A possible overall performance result (including commissions) for this Signet Covered Calls position are as follows:
Covered Calls Cost Basis: $17,881.34
= ($101.17 - $11.77) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$2,352.66
= ($11.77 * 200 shares) - $1.34 commissions
(b) Dividend Income: +$0.00;
(c) Capital Appreciation (If Signet shares assigned at $95.00 strike price at Dec. 17th options expiration): -$1,234.00
+($95.00 - $101.17) * 200 shares

Total Net Profit (If Signet shares assigned at $95.00 strike price at the Dec. 17th, 2021 expiration): +$1,118.66

= (+$2,352.66 + $0.00 - $1,234.00)
 

Absolute Return-on-Investment (If SIG shares assigned at $95.00 strike price on the Dec. 17th, 2021 expiration): +6.3%

= +$1,118.66/$17,881.34

Annualized Return-on-Investment (If Signet stock assigned at $95.00 strike on Dec. 17th, 2021 expiration): +60.1%

= (+$1,118.66/$17,881.34) *(365/38 days)

Covered Calls Position Established in Goodyear Tire & Rubber Co.

Today a Covered Calls position was established in Goodyear Tire & Rubber Co. (ticker symbol GT) when the Covered Calls Advisor's buy/write limit order was executed.  Six hundred shares were purchased at $23.03 and six November 19th, 2021 Call options were sold at $1.37 at the $22.00 strike price.  The time value when this Covered Call was established was $.34 per share = [$1.37 Call options price - ($23.03 stock price - $22.00 strike price)], so the downside breakeven price is $21.66 ($22.00 strike price - $.34 time value).  Given the Covered Calls Advisor's current cautious outlook, an in-the-money Covered Calls position was established with the Delta at 72.2, which approximates a probability of 72.2% that the Call options will be in-the-money on the options expiration date. 

This short-term (11 days) position is a replacement in the Consumer Discretionary sector for the Signet Covered Calls position that was closed out earlier this morning.  Goodyear completed their acquisition of Cooper Tire in June of this year and recently reported their first quarter (Q3 2021) results of the combined company.  There is relatively modest number of  only 8 analysts following Goodyear and the company crushed the analysts' revenue estimates and earnings per share results exceeded their estimates by 56%.  The company's current valuation is attractive since the current year EPS estimate of about $1.95 represents a P/E ratio of 11.8 and only 8.7 based on next year's current average $2.65 EPS estimates.  A significant caveat is that the current estimates are highly variable since about two-thirds of Goodyear's input costs for materials are petroleum-based.  Finally, on a positive note, the company also indicated that the they are exceeding the synergy estimates from the Cooper Tire acquisition and this trend will continue.

As detailed below, a potential return-on-investment result for this Goodyear Tire & Rubber Co. position is +1.5% absolute return (equivalent to +51.0% annualized return over the next 11 days) if the stock is in-the-money and therefore assigned on the November 19th, 2021 options expiration date.

 

Goodyear Tire & Rubber Co. (GT) -- New Covered Calls Position

The buy/write transaction was as follows:
11/09/2021 Bought 600 shares of Goodyear stock @ $23.03 per share 
11/09/2021 Sold 6 Goodyear November 19th, 2021 $22.00 Call options @ $1.37 per share
Note: The Implied Volatility of the Call option was 42.4 when this transaction was executed which provides an excellent return-on-investment potential (as detailed below). 

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $13,000.02
= ($23.03 - $1.37) * 600 shares + $4.02 commission

Net Profit Components:
(a) Option Income: +$817.98
= ($1.37 * 600 shares) - $4.02 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If Goodyear stock is above $22.00 strike price at Nov. 19th, 2021 expiration): -$618.00
= ($22.00 -$23.03) * 600 shares

Total Net Profit: +$199.98
= (+$817.98 Call options income +$0.00 dividend income -$618.00 capital appreciation)

Absolute Return-on-Investment: +1.5%
= +$199.98/$13,000.02
Equivalent Annualized Return-on-Investment: +51.0%
= (+$199.98/$13,000.02)*(365/11 days)

Rolled-Up Covered Calls in Abercrombie & Fitch Co.

On October 20th, 2021 the Covered Calls Advisor established a Covered Calls position in Abercrombie & Fitch Co. (ticker ANF) at the November 19th, 2021 $43.00 strike price.  The price of the 300 ANF shares has increased from the purchase price of $38.07 to $45.63 this morning.   I decided to roll up from the $35.00 strike price to the $43.00 strike and at the same November 19th, 2021 options expiration date.  A vertical debit spread transaction was executed at a net debit of $7.40 ($10.80 - $3.40) per share -- so $.60 time value per share ($43.00 new strike price - $35.00 old strike price - $7.40 net debit) was added to the Covered Calls position profit potential.  The price of Abercrombie & Fitch stock was $45.63 when this roll-up transaction was executed and the Delta of the $43.00 Call options was 77.1 which was close to the 73.7 Delta for the original Covered Calls position when it was established.

A potential return-on-investment result for this Abercrombie & Fitch Co. Covered Calls position is now +4.5% absolute return in 31 days (equivalent to a +53.1% annualized return-on-investment) if the stock price closes above the $43.00 strike price on the November 19th options expiration date. 
By rolling up the original Covered Calls, if assigned on the Nov. 19th expiration date, this result would exceed the +2.8% absolute return (+32.6% annualized) that was the maximum potential roi of the original Covered Calls position at the $35.00 strike price.  

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

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
11/09/2021 Rolled-Up the ANF Covered Calls position by the following debit spread transaction:  Simultaneously Bought-to-Close the three Nov. 19th $35.00 Calls @ $10.80 per share and Sold-to-Open three Nov. 19th $43.00 Calls @ $3.40 per share. 

A possible overall performance result (including commissions) for this rolled-up 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: -$1,018.02
= ($4.02 - $10.80 + $3.40) *300 shares - $4.02 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 300 ANF shares assigned at $43.00 strike price at expiration): +1,479.00
+($43.00 -$38.07) * 300 shares

Total Net Profit (If 300 Abercrombie shares assigned at $43.00 strike price at expiration): 

+$460.98

= (-$1,018.02 options income +$0.00 dividend income +$1,479.00 capital appreciation)

 

Absolute Return-on-Investment: +4.5%

= +$460.98/$10,217.01

Annualized Return-on-Investment: +53.1%

= (+$460.98/$10,217.01) * (365/31 days)

Closed Covered Calls Position in Signet Jewelers Ltd.

On October 12th, 2021, a Covered Calls position was established in Signet Jewelers Ltd. (SIG) with an November 19th, 2021 options expiration date.  Signet stock has been on a very strong uptrend since this position was established and with only $.05 time value remaining in the Call options this morning, I decided to close out the position and secure an annualized return-on-investment (aroi) of +59.6% rather than waiting 10 more days for a potential maximum aroi of +43.7% if the position were to instead be assigned on the Nov. 19th options expiration date.    

As detailed below, the return-on-investment results for this Signet Jewelers Ltd. Covered Calls position was +4.6% absolute return in 28 days (equivalent to a +59.6% annualized return-on-investment). 

Signet Jewelers Ltd. (SIG) -- Covered Calls Position Closed
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
11/09/2021 Unwound the Signet Covered Calls position by simultaneously selling-to-close 200 SIG shares at $106.15 per share and buying-to-close 2 SIG Nov. 19th $75.00 Calls @ $31.26 per share.

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

Net Profit Components:
(a) Options Income: -$4,584.68
= ($8.30 -$31.21) * 200 shares - $2.68 commissions
(b) Dividend Income (Signet went ex-dividend on Oct. 28th at $.18 per share): +$36.00
= ($.18 dividend per share x 200 shares)
(c) Capital Appreciation (Signet shares sold at $106.15 per share): +$5,206.00
+($106.15 - $80.12) * 200 shares

Total Net Profit: +$657.32

= (-$4,584.68 options income + $36.00 dividend income + $5,206.00)

Note: this Total Net Profit is 98% of the maximum potential profit of $670.66 that would be achieved if the original Covered Calls position would have been held for 10 more days and assigned at the Nov. 19th expiration date.  A new position will be established today or tomorrow with the proceeds from closing this position that will certainly have the potential to achieve more profit than the additional $13.34 = ($670.66 - $657.32) that might have been achieved by holding the original Signet Covered Calls position until its Nov. 19th options expiration date.
 

Absolute Return-on-Investment: +4.6%

= +$657.32/$14,365.34

Annualized Return-on-Investment: +59.6%

= (+$657.32/$14,365.34) *(365/28 days)

Roll-Up Covered Calls in Alcoa Corporation

On October 29th, 2021 the Covered Calls Advisor established a Covered Calls position in Alcoa Corporation at the November 19th, 2021 $42.00 strike price.  The price of the 500 Alcoa shares has increased from the purchase price of $45.55 to $49.13 this afternoon.   Based on the suggestion of an astute subscriber to The Covered Calls Advisor blog, I decided to roll up from the $42.00 strike price to the $46.00 strike at the same November 19th, 2021 options expiration date.  A vertical debit spread transaction was executed at a net debit of $3.38 ($7.35 - $3.97) per share -- so $.62 time value per share ($46.00 new strike price - $42.00 old strike price - $3.38 net debit) was added to the Covered Calls position profit potential.  The price of Alcoa stock was $49.13 this afternoon when the roll-up transaction was executed and the Delta of the $46.00 Call options was 74.7 which was very close to the 75.0 Delta for the original Covered Calls position when it was established.

A potential return-on-investment result for this Alcoa Covered Calls position is +3.8% absolute return in 22 days (equivalent to a +62.8% annualized return-on-investment) if the stock price closes above the $46.00 strike price on the November 19th options expiration date. 
By rolling up the original Covered Calls, if assigned on the Nov. 19th expiration date, this result would exceed the +2.3% absolute return (+38.1% annualized) that was the maximum potential roi of the original Covered Calls position at the $42.00 strike price.  In Covered Calls investing parlance, this is sometimes referred to as "hitting a double" (instead of the usual "single"), since the roll-up enables us to sell Calls twice against the original stock purchase with both positions being at the same options expiration date.

Alcoa Corporation (AA) -- Covered Calls Position Rolled-Up

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
11/08/2021 Rolled-Up the Alcoa Covered Calls position by the following debit spread transaction:  Simultaneously Bought-to-Close the five Nov. 19th $42.00 Calls @ $7.35 per share and Sold-to-Open five Nov. 19th $46.00 Calls @ $3.97 per share.
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: +$553.30
= ($4.50 - $7.35 + $3.97) * 500 shares - $6.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Alcoa stock is above the $46.00 strike price at Nov 19th expiration): +$225.00
= ($46.00 -$45.55) * 500 shares

Potential Total Net Profit (If assigned at expiration): +$778.30
= (+$553.30 options income +$0.00 dividend income +$225.00 capital appreciation)

Absolute Return: +3.8%
= +$778.30/$20,528.35
Equivalent Annualized Return: +62.8%
= (+$778.30/$20,528.35) * (365/22 days)

Covered Calls Position Established in Discovery Inc.

Today a Covered Calls position was established in Discovery Inc. (ticker symbol DISCA) when the Covered Calls Advisor's buy/write limit order was executed.  Five hundred shares were purchased at $25.80 and five November 19th, 2021 Call options were sold at $1.34 at the $25.00 strike price.  The time value when this Covered Call was established was $.54 per share = [$1.34 Call option price - ($25.80 stock price - $25.00 strike price)], so the downside breakeven price is $24.46 ($25.00 strike price - $.54 time value).  Given the Covered Calls Advisor's current cautious outlook, an in-the-money Covered Calls position was established with the Delta at 65.8, which approximates a probability of 65.8% that the Call option will be in-the-money on the options expiration date. 

Discovery Inc. has agreed to merge with AT&T's Warner Media and will most likely be approved to become Warner Bros. Discovery, hopefully in mid-2022 which will likely catapult them into third position (behind only Netflix and Disney) in the streaming entertainment media industry.  It is difficult to determine when investors will appreciate the growth potential of Discovery given the uncertainty around the merger and its timing.  But if the merger is approved by regulators (which the Covered Calls Advisor believes is likely), the stock would likely be much higher than its current price.  Discovery had an earnings per share miss on their just released Q3 2021 earnings report and Discovery's stock has been in a recent decline in anticipation of this outcome.  However, I think Discovery's current price represents a good entry point and the downside risk to the stock is now low compared with its upside potential over the next year.  Twenty-three analysts that follow Discovery agree since their current average target price is $38.22 (+48.1% above today's purchase price).  In addition, its current valuation is attractive given its forward fiscal year P/E ratio is only 9.2.  

As detailed below, a potential return-on-investment result for this Discovery Inc. position is +2.2% absolute return (equivalent to +53.0% annualized return over the next 15 days) if the stock is in-the-money and therefore assigned on the November 19th, 2021 options expiration date.

 

Discovery Inc. (DISCA) -- New Covered Calls Position

The buy/write transaction was as follows:
11/05/2021 Bought 500 shares of Discovery Inc. stock @ $25.80 per share 
11/05/2021 Sold 5 Discovery November 19th, 2021 $25.00 Call options @ $1.34 per share
Note: The Implied Volatility of the Call option was 41.2 when this transaction was executed which provides an excellent return-on-investment potential (as detailed below). 

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $12,233.35
= ($25.80 - $1.34) * 500 shares + $3.35 commission

Net Profit Components:
(a) Option Income: +$666.65
= ($1.34 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If DISCA stock is above $25.00 strike price at Nov. 19th, 2021 expiration): -$400.00
= ($25.00 -$25.80) * 500 shares

Total Net Profit: +$266.65
= (+$666.65 Call options income +$0.00 dividend income -$400.00 capital appreciation)

Absolute Return-on-Investment: +2.2%
= +$266.65/$12,233.35
Equivalent Annualized Return-on-Investment: +53.0%
= (+$266.65/$12,233.35)*(365/15 days)

Closed Covered Call Position in Facebook Inc.

Today the Covered Calls Advisor decided to close the Covered Call position in Facebook Inc. (now Meta Platforms Inc.) early (i.e. prior to the November 19th, 2021 options expiration date).  The detailed post when this position was originally established is here:Link

There are still 15 days remaining until the November 19th, 2021 options expiration date, but this Covered Call position was closed today since: (1) the stock has increased from its original $325.92 purchase price on October 25th to $335.86; and (2) the Implied Volatility of the Nov. 19th $320.00 Call option has declined from 39.4 when the position was established to 31.4 today when this position was closed.  Importantly, the original $11.03 time value per share = [$16.95 Call option premium - ($325.92 stock purchase price - $320.00 Call option strike price)] had declined to only $3.04 today [$18.90 Call option premium - ($335.86 sales price of stock - $320.00 strike price of Call option)] when the position was closed.  So, 72.4% of the potential maximum profit per share was achieved in only 10 days.  

As detailed below, the absolute return-on-investment achieved was +2.6% (equivalent to an annualized roi of +94.2% for the 10-day holding period).  For comparison, if the Covered Calls position had instead been held until the November 19th, 2021 expiration date and the stock remained above the $320.00 strike price, then the absolute roi would have been +3.6% and the annualized roi would have been +50.1% over the 26 days the position would have been held.   

Facebook Inc. (FB) -- Covered Call Position Closed
The buy/write transaction was:
10/25/2021 Bought 100 Facebook shares @ $325.92
10/25/2021 Sold 1 Facebook 11/19/2021 $320.00 Call option @ $16.95. 
11/04/2021 Closed the FB Covered Call position by unwinding the position at a limit order net credit of $316.96 per share which was executed as follows: Sold-to-Close 100 FB shares @ $335.86 per share and simultaneously Bought-to-Close 1 FB Nov. 19th $320.00 Call option at $18.90 per share.

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

Net Profit Components:
(a) Option Income: -$196.34
= ($16.95 - $18.90) * 100 shares - $1.34 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation: +$994.00

= +($335.86 stock sales price - $325.92 stock purchase price) * 100 shares

 Total Net Profit: (Facebook CC position closed out): +$797.66

= (-$196.34 option income +$0.00 dividend income +$994.00 capital appreciation)

Absolute Return-on-Investment: +2.6%

= +$797.66/$30,897.67

Annualized Return-on-Investment: +94.2%

= (+$797.66/$30,897.67)*(365/10 days)