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.