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)