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
