Today, the Covered Calls positions in American Eagle Outfitters Inc. (ticker AEO) was continued by selling Call options against the shares held in the Covered Calls Advisor Portfolio. Last Friday, AEO's $26.00 strike price Calls expired with the stock price substantially out-of-the-money at $23.05. With the recent concerns regarding the extent of disruption that the
Omicron variant might have for mall-based retailers, American Eagle's stock price suffered. I believe the extent of
the actual impact on mall traffic and sales will not be as significant
as feared and there is a strong likelihood of a price rebound, so I decided to continue to sell Calls against the 500 AEO shares owned. My current plan is to attempt to repair
the damage done by continuing to sell short-term Calls against the 500 AEO shares owned. Today 5 December 31st, 2021 $24.00 Calls were sold at $.22 per share when the stock price was $23.23--so this provides only one week until the next options expiration date at which time another decision will be made.
As detailed below, two potential return-on-investment results are: (a) -6.7%
absolute return (equivalent to -64.6% annualized return over the 38 days this position is held) if the stock price is unchanged at $23.23 on the December 31st, 2021 options expiration date; and (b) -3.7%
absolute return (equivalent to -35.4% annualized return over the 38 days this position is held) if AEO stock is in-the-money and therefore assigned on the December 31st, 2021 options expiration date.
American Eagle Outfitters Inc. (AEO) -- Continuation of 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
12/17/2021 5 Call options expired out-of-the-money and 500 shares of AEO retained in the Covered Calls Advisor Portfolio.
12/23/2021 Sold 5 AEO 12/31/2021 $24.00 Call options @ $.22 per share when the stock price was $23.23 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: +$1,158.30
= ($2.11 + $.22) * 500 shares - $6.70 commissions
(b) Dividend Income: +$90.00
= $.18 per share x 500 shares
(c) Capital Appreciation (If American Eagle share price unchanged at $23.23 at Dec. 31st, 2021 expiration): -$2,100.00
= +($23.23 - $27.43) * 500 shares ;or
(c) Capital Appreciation (If AEO shares assigned at $24.00 strike price at 12/31/2021 options expiration): -$1,715.00
= +($24.00 - $27.43) * 500 shares
1. Total Net Profit (If American Eagle share price unchanged at $23.23 at Dec. 31st, 2021 expiration): -$851.70
= (+$1,158.30 options income +$90.00 dividend income - $2,100.00 capital appreciation); or
2. Total Net Profit (If AEO shares assigned at $24.00 strike price at Dec. 31st, 2021 expiration): -$466.70
= (+$1,158.30 + $90.00 - $1,715.00)
1. Absolute Return (If American Eagle share price unchanged at $23.23 at Dec. 31st, 2021 expiration): -6.7%
= -$851.70/$12,663.35
Annualized Return-on-Investment: -64.6%
= (-$851.70/$12,663.35) * (365/38 days); or
2. Absolute Return (If AEO shares assigned at $24.00 strike price at Dec. 31st, 2021 expiration): -3.7%
= -$466.70/$12,663.35
Annualized Return-on-Investment (If AEO stock assigned at $24.00 at Dec. 31st, 2021 expiration): -35.4%
= (-$466.70/$12,663.35) *(365/38 days)
