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.