Roll-Up-and-Out Devon Energy Corp. Covered Calls

Devon Energy Corp. (ticker symbol DVN) goes ex-dividend tomorrow at $.84 per share (an $.11 regular dividend + a $.73 special dividend).  With the stock trading today at $45.35, the existing Covered Calls position at the December 17th, 2021 $39.00 strike price had $0.00 remaining time value.  Rather than have these Calls exercised later today and the stock assigned (i.e. sold) at the $39.00 strike price, I decided to roll-up-and-out to the December 23rd, 2021 $43.00 strike price at a net debit of $.30 per share -- Bought-to-Close the 12/17 $39.00 Calls for $6.29 and simultaneously Sold-to-Open the 12/23 $43.00 Calls at $2.59. 

This remains a conservative in-the-money Covered Calls position since the Delta for these new Calls when this rollout transaction was executed was 77.9 which closely approximates the probability of assignment at options expiration (i.e. 77.9% probability).  Also as preferred by the Covered Calls Advisor, there is no quarterly earnings report for Devon prior to the new December 23rd, 2021 options expiration date.

As detailed below, a potential return-on-investment result for this Devon Energy position is +4.8% absolute return in 36 days (equivalent to a +48.9% annualized return-on-investment) if the stock closes above the $43.00 strike price at the December 23rd, 2021 options expiration.  This potential +48.9% exceeds the +32.4% annualized return that would have been achieved if the original Devon Energy Covered Calls position had instead been assigned early later today.

Devon Energy Corp. (DVN) -- Covered Calls Position Rolled Up-and-Out
The net debit limit order buy/write transaction was as follows:
11/18/2021 Bought 300 Devon Energy shares @ $42.08
11/18/2021 Sold 3 Devon 12/17/2021 $39.00 Call options @ $3.80   Note: the Implied Volatility of these Call options was 45.6 when this position was established and their Bid/Ask spread was $3.75/$3.90.
12/08/2021 Rolled-Up-and-Out: Bought-to-Close the 12/17 $39.00 Calls for $6.29 and simultaneously Sold-to-Open the 12/23 $43.00 Calls at $2.59.
12/09/2021 Upcoming quarterly ex-dividends of $.84 per share

An overall performance result (including commissions) for this Devon Energy Covered Calls position if assigned at the Dec. 23rd options expiration date is as follows:
Covered Calls Cost Basis: $11,486.01
= ($42.08 - $3.80) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$25.98
= ($3.80 - $6.29 + $2.59) * 300 shares - $4.02 commissions
(b) Dividend Income (If Devon shares assigned at Dec.23rd, 2021 options expiration): +$252.00
= ($.84 dividend per share x 300 shares)
(c) Capital Appreciation (If Devon shares assigned at $43.00 strike price at 12/23/2021 options expiration): +$276.00
+($43.00 - $42.08) * 300 shares

Total Net Profit: $553.98

= ($25.98 options income + $252.00 dividend income + $276.00 capital appreciation)

 

Absolute Return-on-Investment (If Devon shares assigned at $43.00 strike price on Dec. 23rd, 2021 expiration): +4.8%

= +$553.98/$11,486.01

Annualized Return-on-Investment (If Devon stock assigned at $43.00 strike at Dec. 23rd, 2021 expiration): +48.9%

= (+$553.98/$11,486.01) *(365/36 days)