Established Covered Calls in Cleveland-Cliffs Inc.

A December 17th, 2021 Covered Calls buy/write limit order was placed in Cleveland-Cliffs Inc. (ticker CLF) at a net debit price of $17.57 per share. At 3:05pm this afternoon the order was executed by purchasing 500 shares at $19.96 and simultaneously selling five December 17th, 2021 Call options at the $18.00 strike price for $2.39 per share.  When this in-the-money position was established today it had a probability of assignment on the options expiration date of 77.1%.

With acquisitions completed of ArcelorMittal USA and AK Steel, Cleveland-Cliffs is now the largest flat-rolled steel producer in North America and is also now vertically integrated from mining through production.  They also recently announced the acquisition of Ferrous Processing and Trading Co. which further enhances their vertical integration by establishing a significant foothold in the prime scrap metal market.  Earnings this fiscal year are expected to approximate $6.00 per share which implies a very attractive valuation with a P/E Ratio of 3.3.  Furthermore, the average analysts' target price is $30.62 (+53.4% above today's purchase price).

The Implied Volatility of the Call options was very high at 70.4 when this Covered Calls position was established.  As shown below, this results in a very attractive maximum potential annualized return-on-investment of +53.4%.  Their Q4 2021 earnings will be reported on February 24th, 2022, well after the Dec.17th, 2021 options expiration date for this Covered Calls position.  

As detailed below for this Cleveland-Cliffs Inc. Covered Calls position, the maximum potential return-on-investment result is +2.4% absolute return in 17 days (equivalent to a +51.7% annualized return-on-investment) if the stock price is above the $18.00 strike price on the December 17th, 2021 options expiration date.   

Cleveland-Cliffs Inc. (CLF) -- New Covered Calls Position Established
The Buy/Write limit order was executed as follows:
12/01/2021 Bought 500 shares of Cleveland-Cliffs Inc. stock @ $19.96 per share 
12/01/2021 Sold 5 CLF December 17th, 2021 $18.00 Call options @ $2.39 per share

A possible overall performance result (including commissions) for this Cleveland-Cliffs Covered Calls position is as follows:
Stock Purchase Cost: $8,788.35
= ($19.96 - $2.39) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$1,191.65
= ($2.39 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 500 CLF shares assigned at $18.00 strike price at options expiration): -$980.00
+($18.00 -$19.96) * 500 shares

Total Net Profit (If 500 Cleveland-Cliffs shares assigned at $18.00 strike price at expiration): +$211.65

= (+$1,191.65 options income +$0.00 dividend income -$980.00) capital appreciation

 

Absolute Return-on-Investment: +2.4%

= +$211.65/$8,788.35

Annualized Return-on-Investment: +51.7%

= (+$211.65/$8,788.35) * (365/17 days)