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.
