Rolled Out Covered Calls Position in iShares China Large-Cap ETF

The Covered Calls Advisor Portfolio has a Covered Calls position in iShares China Large-Cap ETF (ticker FXI) that has an expiration date today at the $36.50 strike price. FXI's price was out-of-the-money at $36.11 early this afternoon and the remaining time value in the Calls had declined to only $.01.  I remain confident in the iShares China Large-Cap ETF.  Some valuation metrics such as P/E ratio and Price-to-Sales (P/S) ratio for FXI are approximately only one-half of those of SPY.  Also, China is a rare country in that it will likely be implementing quantitative easing this year while the U.S. will be pivoting to quantitative tightening this year.  So, I decided to roll out the existing Covered Calls two weeks to the February 11th, 2022 expiration at the same $36.50 strike price. This rollout (credit spread) transaction was executed at a net credit of $.69 per share ($.70 credit - $.01 debit).   

As detailed below, two potential return-on-investment results are: 

•  +1.9% absolute return (equivalent to +23.1% annualized return over a period of 30 days) if the iShares China Large-Cap ETF price is unchanged from today's price of $36.11 on the February 11th, 2022 options expiration date; OR 

• +3.0% absolute return (equivalent to +36.3% annualized return over 30 days) if FXI is in-the-money and therefore assigned at the $36.50 strike price on the Feb. 11th options expiration date.
  

iShares China Large-Cap ETF (FXI) -- Covered Calls Position Rolled Out
The net debit limit order buy/write transaction was as follows:
01/13/2022 Bought 500 shares of iShares China Large-Cap ETF shares @ $37.76 
01/13/2022 Sold 5 FXI January 28th, 2022 $36.50 Call options @ $1.66 per share.  The Implied Volatility of the Calls was 28.3 and the Delta was 74.1 when this Covered Calls position was established.
1/28/2022 Bought-to-Close 5 FXI Jan. 28th, 2022 $36.50 Call Options @ $.01 per share and simultaneously Sold-to-Open 5 FXI Feb. 11th, 2022 $36.50 Calls @ $.70 per share.

Two potential overall performance results (including commissions) for this iShares China Large-Cap ETF Covered Calls position are as follows:
Covered Calls Cost Basis: $18,053.35
= ($37.76 - $1.66) * 500 shares + $3.35 commissions

Net Profit Components:
(a) Options Income: +$1,168.30
= ($1.66 - $.01 + $.70) * 500 shares - $6.70 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If FXI share price unchanged at $36.11 at 2/11/2022 options expiration): -$825.00
= +($36.11 - $37.76) * 500 shares; OR
(c) Capital Appreciation (If FXI shares are in-the-money and therefore assigned at the $36.50 strike price at the 2/11/2022 options expiration): -$630.00
+($36.50 - $37.76) * 500 shares

(a) Total Net Profit (If iShares China Large-Cap ETF stock price is unchanged at $36.11 at the Feb. 11th, 2022 options expiration date): +$343.30
= (+$1,168.30 Call options income +$0.00 dividend income -$825.00 capital appreciation); OR
(b) Total Net Profit (If FXI price closes above the $36.50 strike price and is assigned at the Feb. 11th, 2022 options expiration date): +$538.30
= (+$1,168.30 Call options income +$0.00 dividend income -$630.00 capital appreciation)

1. Absolute Return-on-Investment (If FXI share price is unchanged at $36.11 at the 2/11/2022 options expiration date): +1.9%
= +$343.30/$18,053.35
Equivalent Annualized Return-on-Investment: +23.1%
= (+$343.30/$18,053.35)*(365/30 days); OR
2. Absolute Return-on-Investment (If FXI price closes above the $36.50 strike price and is assigned at the Feb. 11th, 2022 options expiration date): +3.0%
= +$538.30/$18,053.35
Equivalent Annualized Return-on-Investment: +36.3%
= (+$538.30/$18,053.35)*(365/30 days)

Established Cash-Secured Puts Position in Uber Technologies Inc.

This morning, a small 100% Cash-Secured Put options position was established in Uber Technologies Inc. (ticker UBER) at the February 4th, 2021 options expiration date and the $30.00 strike price by selling three Puts at $.44 per share when the stock price was $33.12 (10.4% above the strike price).  I usually have a few companies that I am interested in investing in at prices well below their current prices, so I established a Stock Price Alert using my broker's (Schwab's) Stock Alert service.  I had established a $33.15 Alert price for Uber a couple of weeks ago and received an email from Schwab as soon as Uber's stock declined to $33.15 this morning.  

This position had a probability of assignment of 81.5% when this position was established.  Given that the next earnings report on February 9th is after the options expiration date, the Implied Volatility of these Puts was extremely high at 80.9 when this position was established.  So, even though this Cash-Secured Puts position is deep-out-of-the-money (i.e. strike price well below the stock price), the potential annualized-return-on-investment is very high for this position.

Uber has developed a strong brand in both its ride-sharing and food delivery segments and the strengthening economy bodes well for its growth potential this year and beyond.  

As detailed below for this Uber 100% Cash-Secured Puts position, there is potential for a +1.5% absolute return in 8 days (equivalent to a +66.9% annualized return-on-investment). 

Uber Technologies Inc. (UBER) -- New 100% Cash-Secured Puts Position
The transaction today was as follows:
01/28/2022  Sold 3 Uber Technologies Inc. February 4th, 2022 $30.00 100% Cash-Secured Put options @ $.44 per share.

The Covered Calls Advisor does not use margin, so the detailed information on this position and the potential result detailed below reflect that this position was established using 100% cash securitization for the three Uber Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $8,870.01
= ($30.00 - $.44) * 300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$129.99
= ($.44 * 300 shares) - $2.01 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UBER stock is above $30.00 strike price at the Feb. 4th options expiration): +$0.00
= ($30.00 - $30.00) * 300 shares

Total Net Profit (If Uber stock price is out-of-the-money (above $30.00 strike price) at options expiration): +$129.99
= (+$129.99 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Uber is above $30.00 strike price at the Feb. 4th, 2022 options expiration) : +1.5%
= +$129.99/$8,870.01
Annualized Return: +66.9%
= (+$129.99/$8,870.01)*(365/8 days)

The downside 'breakeven price' at expiration is at $29.56 ($30.00 - $.44), which is 10.7% below the current market price of $33.12.

Established Covered Calls Position in Ally Financial Inc.

This afternoon, a Covered Calls position was established in Ally Financial Inc. (ticker symbol ALLY) with the purchase of 400 shares at $47.01 per share and four February 18th, 2022 Call options were sold for $2.85 per share at the $45.00 strike price.  Given the Covered Calls Advisor's currently cautious  Overall Market Meter sentiment, a moderately in-the-money Covered Calls positions was established.  The Delta of the Calls was 68.8 when this buy/write transaction was executed which approximates the probability of assignment on the February 18th, 2022 options expiration date.  The Implied Volatility of the Calls was 35.7 which, as desired, is above the current S&P 500 Volatility Index (VIX) of 32.3.  

Ally Financial met all ten criteria in my Financial Sector Stock Screener.  For Financial Sector companies, I pay particular attention to the Price-to-Tangible Book Value (P/TBV) factor.  Like the other two current Financial Sector companies (Citigroup and MetLife) in the Covered Calls Advisor Portfolio, Ally has a very attractive P/TBV valuation below 1.0--it is currently 0.98 for Ally.  Also, its current FY2021 P/E ratio is only at 5.5 and the estimated FY2022 P/E ratio of 6.4 is also a very attractive valuation.   

Like many mid- to large-cap companies in the Financial Sector, Ally Financial provides only modest future compounded growth prospects, but they often pay 2.0%+ annual dividend yields.  Ally has increased their quarterly dividend from $.25 to $.30 per share (a 2.6% annual dividend yield) with a January 31st, 2022 (next Monday) ex-dividend date, so this dividend is included in the potential return-on-investment results detailed below.  Their Q4 2021 earnings per share were reported six days ago and exceeded analysts' expectations.  Of the 19 analysts covering ALLY, 18 have either a Buy or Outperform rating, 1 has a Hold, and none rate it as either a Underperform or Sell.  Their average target price is $66.00 (+40.4% above today's purchase price).

A potential return-on-investment results for this Ally Financial Covered Calls position is +2.6% absolute return (equivalent to +40.7% annualized return for the next 23 days) if the stock is assigned on the February 18th options expiration date. 

Ally Financial Inc. (ALLY) -- New Covered Calls Position
The transactions were:
1/27/2022 Bought 400 Ally Financial shares @ $47.01
1/27/2022 Sold 4 ALLY 2/18/2022 $45.00 Call options @ $2.85
1/31/2022 Upcoming quarterly ex-dividend of $.30 per share

A possible overall performance result (including commissions) for this Covered Calls position is as follows:
Stock Purchase Cost: $17,666.68
= ($47.01 - $2.85) * 400 shares + $2.68 commission

Net Profit:
(a) Options Income: +$1,137.32
= ($2.85 * 400 shares) - $2.68 commission
(b) Dividend Income: +$120.00 = $.30 per share x 400 shares

(c) Capital Appreciation (If 400 ALLY shares assigned at $45.00 strike price at expiration): -$804.00
+($45.00 -$47.01) * 400 shares

Total Net Profit (If 400 Ally Financial shares assigned at $45.00 strike price at expiration): +$453.32 = (+$1,137.32 options income +$120.00 dividend income -$804.00 capital appreciation)

 

Absolute Return-on-Investment: +2.6%

= +$453.32/$17,666.68

Annualized Return-on-Investment: +40.7%

= (+$453.32/$17,666.68) * (365/23 days)

Established Covered Calls in the General Electric Company

A Covered Calls position was established in General Electric (ticker GE) with a February 18th, 2022 options expiration date.   A buy/write transaction entered at a net debit of $83.02 was executed when 200 shares of GE were purchased at $89.44 and two Feb 18th, 2022 Call options at the $85.00 strike price were sold at $6.42 per share. The Implied Volatility of these Calls was 41.2 today when this transaction was executed and the Delta was 69.7 which approximates a 69.7% probability of the Call options being in-the-money at the options expiration date.  

The Q4 2021 quarterly earnings were reported yesterday morning, so there will be no earnings report prior to the February 18th options expiration date.  Q4 revenue declined from last year's comparable quarter but was also below analysts' expectations.  Consequently, the stock has been punished from its $96.11 price prior to earnings to the $89.44 price early this morning when this Covered Calls position was established.  This Covered Calls Advisor believes this sell-off is an overreaction and that GE represents a good value at its current price.  

GE appears to be at an inflection point in the turnaround efforts under the expert leadership of Larry Culp since he became CEO 3 years ago.  He forecasts high single-digit revenue growth in 2022 based on the current growing order book and backlog as well as improving trends in its two largest businesses--aviation and precision healthcare equipment.  Mr. Culp has also established an improved leadership team and a corporate culture focused on margin improvements.  As a result, free cash flow is expected to improve by a mid-teens percentage this year.  The twenty Wall Street analysts that cover GE have an average target price of $118.71 (+32.7% above today's purchase price).   

 

As detailed below, a potential return-on-investment result is +2.4% absolute return (equivalent to +36.1% annualized return for the next 24 days) if the stock price is in-the-money (i.e. above the $85.00 strike price) and therefore assigned on the February 18th options expiration date.

General Electric Company (GE) -- New Covered Calls Position

The Buy/Write transaction was as follows:
01/26/2022 Bought 200 shares of GE stock @ $89.44 per share 
01/26/2022 Sold 2 GE February 18th, 2022 $85.00 Call options @ $6.42 per share

A possible overall performance result (including commissions) for this Covered Calls position is as follows:
Stock Purchase Cost: $16,605.34
= ($89.44 - $6.42) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,282.66
= ($6.42 * 200 shares) - $1.34 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 200 GE shares assigned at $85.00 strike price at expiration): -$888.00
+($85.00 -$89.44) * 200 shares

Total Net Profit (If 200 GE shares assigned at $85.00 strike price at expiration): +$394.66 = (+$1,282.66 options income +$0.00 dividend income -$888.00 capital appreciation)

 

Absolute Return-on-Investment: +2.4%

= +$394.66/$16,605.34

Annualized Return-on-Investment: +36.1%

= (+$394.66/$16,605.34) * (365/24 days)

Established Covered Calls Position in MetLife Inc.

Today, a Covered Calls position was established in MetLife Inc. (ticker symbol MET) with the purchase of 200 shares at $63.73 per share and two February 18th, 2022 Call options were sold for $4.70 per share at the $60.00 strike price.  Given the Covered Calls Advisor's currently cautious  Overall Market Meter sentiment, a moderately in-the-money Covered Calls positions was established.  The Delta of the Calls was 72.9 when this buy/write transaction was executed which approximates the probability of assignment on the February 18th, 2022 options expiration date.  

MetLife meets the three primary criteria currently being emphasized by the Covered Calls Advisor:

1. Valuation -- For financials, Price-to-Tangible Book Value is a key valuation metric.  Like for the other Financial Sector company now in the Covered Calls Advisor Portfolio (Citigroup), MetLife's P/TBV ratio is also currently very attractively valued below 1.0 (actual is 0.95). 
   
2. Appears in a Covered Calls Advisor Stock Screener -- MET met the ten criteria in my Financial Sector screener. 
3. Growth -- If MET achieves analysts' estimate of $1.47 per share when they announce their earnings on February 2nd, their FY2021 earnings would be $8.42 per share (versus $6.16 in the prior year), implying a P/E ratio of only 7.6.  Also, the average target price by the fourteen analysts' covering MetLife is $74.23 (+16.5% above today's stock purchase price).    

Like many mid- to large-cap companies in the Financial Sector, MetLife provides only modest future compounded growth prospects, but they often pay 2.0%+ annual dividend yields.  Consequently, the Covered Calls Advisor targets opportunities to use the nine criteria in my Dividend Capture Strategy (see chart at bottom of this post) when establishing Covered Calls positions with companies in the Financial Sector.  MetLife has announced a regular $.48 dividend (a 3.0% annual dividend yield) with a February 7th, 2022 ex-dividend date, so this dividend is included in the potential return-on-investment results detailed below.  Normally, I avoid positions with intervening earnings reports, but my expectation is that MET will exceed the $1.47 analysts' estimate when they report their Q4 2021 earnings on Feb. 7th.  

The goal of this "Dividend Capture Strategy" Covered Calls positions is to either to capture the quarterly dividend payment and for the stock prices to remain above the strike price at options expiration or to have the position assigned early on the day prior to the ex-dividend date at a higher annualized-return-on-investment than would be achieved if the position was instead assigned on its options expiration date.  This approach normally provides higher annualized-return-on-investment results than would be achieved with either: (1) Covered Calls in these same stocks during their non-ex-dividend months; or (2) A basic buy-and-hold stock purchase.    

Two potential return-on-investment results for this MetLife Covered Calls position are: (a) +1.6% absolute return (equivalent to +46.1% annualized return for the next 13 days) if the stock is assigned early [on the last trading day prior to the ex-dividend date]; OR (b) +2.5% absolute return (equivalent to +35.9% annualized return over the next 25 days) if the stock is assigned on the February 18th options expiration date. 

MetLife Inc. (MET) -- New Covered Calls Position
The transactions were:
1/25/2022 Bought 200 MetLife shares @ $63.73
1/25/2022 Sold 2 MET 2/18/2022 $60.00 Call options @ $4.70
Note: the Implied Volatility of these Call options was 35.9 when this position was established.
2/07/2022 Upcoming quarterly ex-dividend of $.48 per share

Two possible overall performance results (including commissions) for this
MetLife Covered Calls position are as follows:
Covered Calls Cost Basis: $11,807.34
= ($63.73 - $4.70) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$940.00
= ($4.70 * 200 shares)
(b) Dividend Income (If option exercised early on the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If MET shares assigned at Feb. 18th, 2022 expiration): +$96.00
= ($.48 dividend per share x 200 shares)
(c) Capital Appreciation (If MetLife shares assigned early): -$746.00
+($60.00 strike price -$63.73 stock purchase cost) * 200 shares; or
(c) Capital Appreciation (If MetLife shares assigned at $60.00 strike price at options expiration): -$746.00
+($60.00- $663.73) * 200 shares

1. Total Net Profit [If option exercised on February 4th, 2022 (last business day prior to the Feb. 7th ex-dividend date)]: +$194.00

= (+$940.00 options income +$0.00 dividend income -$746.00 capital appreciation); or

2. Total Net Profit (If MetLife shares assigned at $60.00 at Feb. 18th, 2022 options expiration): +$290.00

= (+$940.00 +$96.00 -$746.00)

1. Absolute Return (If MetLife options exercised early on the business day prior to the expiration date): +1.6%

= +$194.00/$11,807.34

Annualized Return (If option exercised early): +46.1%

= (+$194.00/$11,807.34)*(365/13 days); or

2. Absolute Return (If MetLife shares assigned at $60.00 strike price at Feb. 18th, 2022 expiration): +2.5%

= +$290.00/$11,807.34

Annualized Return (If MET stock assigned at $60.00 at Feb. 18th expiration): +35.9%

= (+$290.00/$11,807.34)*(365/25 days)

Either outcome would provide an attractive return-on-investment result.  These returns will be achieved as long as the stock is above the $60.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $58.55 ($63.73 -$4.70 -$.48) provides 8.1% downside protection below today's purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  As shown in the chart below, eight of the nine criteria are achieved for this MetLife Inc. Covered Calls position.

Established Covered Calls Position in Schlumberger N.V. Using the Dividend Capture Strategy

Today a Covered Calls position was established in Schlumberger (ticker symbol SLB) when the Covered Calls Advisor's buy/write limit order was executed -- 300 shares were purchased at $35.35 and 3 February 18th, 2022 Call options were sold at $3.58 at the $32.50 strike price.   Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Calls position was established -- the Delta was 74.5, which closely approximates the probability that the Call options will be in-the-money on the options expiration date. In addition, there is an upcoming ex-dividend of $.125 per share on February 8th.  Potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the February 18th options expiration date.

As detailed below, two potential return-on-investment results are: 

•  +2.3% absolute return (equivalent to +55.9% annualized return-on-investment for the next 15 days) if the stock is assigned early (business day prior to the February 8th ex-dividend date); OR 

• +2.7% absolute return (equivalent to +37.8% annualized return over the next 26 days) if the stock is assigned on the February 18th options expiration date.

Schlumberger N.V. (SLB) -- New Covered Calls Position
The buy/write transaction was:
01/24/2022 Bought 300 Schlumberger shares @ $35.35
01/24/2022 Sold 3 Schlumberger 2/18/2022 $32.50 Call options @ $3.58
Note: the Time Value (aka Extrinsic Value) in the Call options was $.73 per share = [$3.58 Call options premium - ($35.35 stock price - $32.50 strike price)]
02/08/2022 Upcoming quarterly ex-dividend of $.125 per share

Two possible overall performance results (including commissions) for this Schlumberger Covered Calls position are as follows:
Covered Calls Cost Basis: $9,533.01
= ($35.35 - $3.58) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$1,074.00
= ($3.58 * 300 shares)
(b) Dividend Income (If option exercised early on Feb 7th, the business day prior to the Feb. 8th ex-div date): +$0.00; or
(b) Dividend Income (If Schlumberger stock assigned at Feb. 18th, 2022 expiration): +$37.50
= ($.125 dividend per share x 300 shares)

(c) Capital Appreciation (If Schlumberger Call options assigned early on Feb. 7th): -$855.00
+($32.50 - $35.35) * 300 shares; or
(c) Capital Appreciation (If SLB shares assigned at $32.50 strike price at the Feb. 18th options expiration): -$855.00
+($32.50 - $35.35) * 300 shares

1. Total Net Profit [If option exercised on Feb. 7th (business day prior to the Feb. 8th ex-dividend date)]: +$219.00

= (+$1,074.00 options income +$0.00 dividend income -$855.00 capital appreciation); or

2. Total Net Profit (If Schlumberger shares assigned at $32.50 strike price at Feb 18th, 2022 expiration): +$256.50

= (+$1,074.00 options income +$37.50 dividend income -$855.00 capital appreciation)

1. Absolute Return (If three SLB Call options exercised early on Feb. 7th): +2.3%

= +$219.00/$9,533.01

Annualized Return (If options assigned early): +55.9%

= (+$219.00/$9,533.01)*(365/15 days); or

2. Absolute Return (If Schlumberger shares assigned at $32.50 at Feb 18th, 2022 options expiration): +2.7%

= +$256.50/$9,533.01

Annualized Return (If Schlumberger shares assigned at $32.50 at Feb 18th, 2022 expiration): +37.8%

= (+$256.50/$9,533.01)*(365/26 days)

Either outcome provides an attractive return-on-investment result for this Schlumberger investment.  These returns will be achieved as long as the stock is above the $32.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $31.645 ($35.35 -$3.58 -$.125) provides 10.5% downside protection below today's stock purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position.  As shown below with this Schlumberger position, eight of the nine criteria were met.

Rollout American Eagle Outfitters Inc. and Nucor Corporation

This morning, the Covered Calls positions in American Eagle Outfitters Inc. (ticker AEO) and Nucor Corporation (NUE) weres continued by rolling out to the February 18th, 2022 options expiration date. Both stocks have declined dramatically from their original purchase price, but the Covered Calls Advisor's evaluation of these companies is unchanged, so these positions will be continued in an effort to reduce the level of the current losses. The details of both of these Covered Calls positions are provided below.

1. 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 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.
12/30/2021 Rolled-Up-and-Out: Bought-to-Close the 12/31/2021 $24.00 Calls for $1.92 and simultaneously Sold-to-Open the 1/7/2022 $26.00 Calls at $.77.  The AEO stock price was $25.90 when this debit spread transaction was executed.
1/07/2021 Rolled-Down-and-Out: Bought-to-Close the 1/07/2022 $26.00 Calls for $.01 and simultaneously Sold-to-Open the 1/14/2022 $25.00 Calls at $.44.  The AEO stock price was $23.99 when this credit spread transaction was executed.
1/14/2022 5 AEO Calls expired out-of-the-money so the 500 shares remain in the Covered Calls Advisor Portfolio.
1/24/2022 Continued the American Eagle Covered Calls position by rolling it out to the February 18th, 2022 $23.00 strike by selling 5 AEO Calls at $.70 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: +$1,141.60
= ($2.11 + $.22 - $1.92 +$.77 - $.01 +$.44 + $.70) * 500 shares - $10.05 commissions
(b) Dividend Income: +$90.00
= $.18 per share x 500 shares
(c) Capital Appreciation (If American Eagle share price unchanged at $21.34 at the Feb. 18th, 2022 expiration): -$3,045.00
= +($21.34 - $27.43) * 500 shares ;or
(c) Capital Appreciation (If AEO shares assigned at $23.00 strike price at the 2/18/2022 options expiration): -$2,215.00
= +($23.00 - $27.43) * 500 shares

1. Total Net Profit (If American Eagle share price unchanged at $21.34 at the Feb. 18th, 2022 expiration): -$1,813.40

= (+$1,141.60 options income +$90.00 dividend income - $3,045.00 capital appreciation); or

2. Total Net Profit (If AEO shares assigned at $23.00 strike price at the Feb. 18th, 2022 expiration): -$983.40

= (+$1,141.60 + $90.00 - $2,215.00)

1. Absolute Return-on-Investment (If American Eagle share price unchanged at $21.34 at the Feb. 18th, 2022 expiration): -14.3%

= -$1,813.40/$12,663.35

Annualized Return-on-Investment: -60.8%

= (-$1,813.40/$12,663.35) * (365/86 days); or

2. Absolute Return-on-Investment (If AEO shares assigned at $23.00 strike price at the February 18th, 2022 options expiration date): -7.8%

= -$983.40/$12,663.35

Annualized Return-on-Investment (If AEO stock assigned at $23.00 at the Feb. 18th, 2022 expiration): -33.0%

= (-$983.40/$12,663.35) *(365/86 days)

2. Nucor Corporation (NUE) -- Continuation of Covered Calls Position
The simultaneous buy/write transaction today was as follows:
1/5/2022 Bought 300 Nucor shares @ $121.94
1/5/2022 Sold 3 Nucor 1/21/2022 $115.00 Call options @ $8.55
Note: the Implied Volatility of the Calls was 37.5 when this transaction was executed, well above the S&P 500 Volatility Index (VIX) of 16.7.
1/21/2022 Three Nucor Call options expired out-of-the-money and 300 shares of Nucor retained in the Covered Calls Advisor Portfolio.
1/24/2022 Continued the Nucor Covered Calls position by rolling it out to the February 18th, 2022 $97.50 strike by selling 3 NUE Calls at $3.05 per share.  

Two possible overall performance results (including commissions) for this Nucor Covered Calls position are as follows:
Covered Calls Cost Basis: $34,019.01
= ($121.94 - $8.55) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$3,475.98
= ($8.55 + $3.05) * 300 shares - $4.02 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Nucor share price unchanged at $89.67 at the Feb. 18th, 2022 expiration): -$9,681.00
= +($89.67 - $121.94) * 300 shares ;or
(c) Capital Appreciation (If Nucor shares assigned at $97.50 strike price at options expiration): -$7,332.00
+($97.50 - $121.94) * 300 shares

1. Total Net Profit (If Nucor share price unchanged at $89.67 at the Feb. 18th, 2022 expiration): -$6,205.02

= (+$3,475.98 + $0.00 - $9,681.00); or

2. Total Net Profit (If Nucor shares assigned at the $97.50 strike price at the Feb. 18th, 2022 expiration): -$3,856.02 = (+$3,475.98 + $0.00 - $7,332.00)
 

1. Absolute Return-on-Investment (If Nucor share price unchanged at $89.67 on the Feb. 18th, 2022 expiration): -18.2%

= -$6,205.02/$34,019.01

Annualized Return-on-Investment (If Nucor stock price unchanged at $89.67 at Feb. 18th, 2022 expiration): -151.3%

= (-$6,205.02/$34,019.01) *(365/44 days); or

 

2. Absolute Return-on-Investment (If Nucor shares assigned at $97.50 strike price on Feb. 18th, 2022 expiration): -11.3%

= -$3,856.02/$34,019.01

Annualized Return-on-Investment (If Nucor stock assigned at $97.50 at Feb. 18th, 2022 expiration): -94.0%

= (-$3,856.02/$34,019.01) *(365/44 days)

 

Monthly Options Expiration Results through January 21st, 2022

Each month on the day after the monthly options expiration date, this summary report provides the results on all positions that have been closed out during the past month (since the prior month's options expiration date). So this post covers the period from last month's December 17th, 2021 options expiration to yesterday's January 21st, 2022 monthly options expiration date. During this past month, the Covered Calls Advisor Portfolio had a total of eleven positions.   Nine positions were closed out at a profit and two are continuing positions that expired out-of-the-money.  A summary of results (for all eleven positions) are summarized below:

• Five Covered Calls positions expired in-the-money (stock price above the strike price) on their options expiration dates, so the options expired and the stocks were sold at their respective strike prices with the following results: 

1. Devon Energy Corp. (DVN) -- +6.2% absolute return in 44 days (equivalent to +51.1% annualized return-on-investment).  
2. Energy Select Sector SPDR Fund (XLE) -- +2.1% absolute return in 15 days (equivalent to +50.9% annualized return-on-investment). 
3. Meta Platforms Inc. (FB) position #1 -- +1.2% absolute return in 17 days (equivalent to +26.3% annualized return-on-investment).  
4. Meta Platforms Inc. (FB) position #2 -- +0.7% absolute return in 12 days (equivalent to +21.4% annualized return-on-investment).
5. Nucor Corp. (NUE) -- +1.7% absolute return in 16 days (equivalent to +39.6% annualized return-on-investment).

 

• Three positions were closed out profitably prior to their options expiration dates based on decisions made by the Covered Calls Advisor to unwind these positions prior to their options expiration dates with the following results:
  

1. Bank of America Corp. (BAC) Covered Calls -- +3.5% absolute return in 23 days (equivalent to +56.2% annualized return-on-investment).
2. Buckle Inc. (BKE) Covered Calls -- +2.3% absolute return in 16 days (equivalent to +52.8% annualized return-on-investment).
3. JPMorgan Chase & Co. (JPM) Covered Calls -- +1.3% absolute return in 8 days (equivalent to +60.9% annualized return-on-investment). 
   

 

• One Covered Calls position was closed by early assignment on the day prior to the ex-dividend date with the following results:

1. EOG Resources Inc. (EOG) -- +0.8% absolute return in 6 days (equivalent to +47.0% annualized return-on-investment).

 

• Two Covered Calls positions expired out-of-the-money on their options expiration dates.  Five hundred shares of American Eagle Outfitters Inc. and and three hundred shares of Nucor Corporation now remain in the Covered Calls Advisor Portfolio (shown in the right sidebar of this blog).  Decisions will be made soon to either sell these shares or to continue with their Covered Calls positions by selling future Call options against the shares currently held.

 

During the past year (last 12 months) 125 of 132 positions (94.7%) in the Covered Calls Advisor Portfolio (CCAP) were closed out at a profit, which exceeded by a wide margin the Covered Calls Advisor's objective that at least two-thirds (66.7%) of positions be closed profitably.  The CCAP weighted average annualized return-on-investment was +32.4% during the past year and the average holding period for these 132 closed positions was 22.5 days.  In comparison, the benchmark S&P 500 index (SPY) returned +18.1% during the same prior one-year period.  Note: This 14.3 percentage points (32.4% minus 18.1%) outperformance during the past year by the Covered Calls Advisor Portfolio exceeds that which can normally be expected using the Covered Calls investing strategy.  As indicated in this post made earlier this year on this blog site (Link) -- by exploiting our Covered Calls investing "edges", we can expect to achieve (over a period of several years) an average annualized-return-on-investment above the S&P 500 benchmark index of approximately 3 to 5 percentage points annually.

My preference is to identify opportunities to utilize my Dividend Capture Strategy (with ex-dividend dates prior to the options expiration dates) for relatively low-growth dividend-paying companies within these lower-growth Sectors -- Consumer Staples, Energy, Financials, Industrials, Materials, Real Estate, and Utilities.  Higher growth companies in Sectors with fewer dividend-paying companies includes the Communication Services, Consumer Discretionary, Healthcare, and Information Technology Sectors.  There is a greater likelihood that Covered Calls or Cash-Secured Puts positions in these higher-growth Sectors will be established without utilizing the Dividend Capture Strategy (i.e. without ex-dividend dates prior to their options expiration dates).  

My current sentiment regarding each of the 11 sectors is:         

•  Bullish -- Financials, Energy, and Information Technology (ex-negative earning Tech companies); 
•  Neutral -- Consumer Discretionary, Communication Services, Healthcare, and Materials; and 
•  Bearish -- Consumer Staples, Industrials, Real Estate, and Utilities    
  

As shown in the right sidebar, there are currently seven open positions in the Covered Calls Advisor Portfolio.  Given the 7.8% decline in the S&P 500 (SPY) so far in 2022, several of these positions are currently held at a net loss.  Future transactions and return-on-investment results for these positions plus the details of all future newly established positions will be posted on this blog site on the same day the transactions occur.  New positions will be focused on companies that have, at a minimum, the following characteristics: (1) good valuation metrics (for example, historically low price-to-free cash flow); (2) appear in one of the many Covered Calls Advisor's screeners; and (3) have estimated next year earnings-per-share above that of their actual prior year. 

This Covered Calls Advisor blog is a free service available to anyone interested in becoming a more effective Covered Calls investor.  As always, I welcome your emails whenever you have any comments or questions related to this post or anything related to Covered Calls investing.

Best Wishes and Godspeed,
Jeff Partlow
Covered Calls Advisor
partlow@cox.net

Established Covered Calls in Micron Technology Inc.

A Covered Calls position was established in Micron Technology Inc. (ticker MU) with a February 4th, 2022 options expiration date.   A buy/write transaction entered at a net debit of $78.21 was executed when 300 shares of Micron were purchased at $83.66 and three Feb 4th, 2022 Call options at the $80.00 strike price were sold at $5.45 per share. The Implied Volatility of these Calls was 49.9 today when this transaction was executed and the Delta was 68.8 which approximates a 68.8% probability of the Call options being in-the-money at the options expiration date.  The next quarterly earnings report on March 30th is after the February 4th options expiration date. 

Micron's finances are strong and they are also very highly rated by analysts.  Reuters Research indicates that currently 31 analysts have a Buy or Outperform rating on the stock, 4 have a Hold, and none have an Underperform or Strong Sell; and their current average target price is $109.60 which is +31.0% above today's $83.66 purchase price. 

As detailed below, a potential return-on-investment result is +2.3% absolute return (equivalent to +55.5% annualized return for the next 15 days) if the stock price is in-the-money (i.e. above the $80.00 strike price) and therefore assigned on the February 4th options expiration date.

Micron Technology Inc. (MU) -- New Covered Calls Position

The Buy/Write transaction was as follows:
01/21/2022 Bought 300 shares of Micron Technology Inc. stock @ $83.66 per share 
01/21/2022 Sold 3 Micron February 4th, 2022 $80.00 Call options @ $5.45 per share

A possible overall performance result (including commissions) for this Micron Technology Inc. Covered Calls position is as follows:
Stock Purchase Cost: $23,465.01
= ($83.66 - $5.45) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,632.99
= ($5.45 *300 shares) - $2.01 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 300 Micron shares assigned at $80.00 strike price at expiration): -$1,098.00
+($80.00 -$83.66) * 300 shares

Total Net Profit (If 300 Micron shares assigned at $80.00 strike price at expiration): +$534.99 = (+$1,632.99 options income +$0.00 dividend income -$1,098.00) capital appreciation

 

Absolute Return-on-Investment: +2.3%

= +$534.99/$23,465.01

Annualized Return-on-Investment: +55.5%

= (+$534.99/$23,465.01) * (365/15 days)

Covered Calls Position Established in Citigroup Inc.

Today, a Covered Calls position was established in Citigroup Inc. (ticker symbol C) with the purchase of 200 shares at $65.20 per share and two February 18th, 2022 Call options were sold for $3.50 per share at the $62.50 strike price.  Given the Covered Calls Advisor's currently cautious  Overall Market Meter sentiment, a moderately in-the-money Covered Calls positions was established.  The Delta of the Calls was 71.3 when this buy/write transaction was executed which approximates the probability of assignment on the February 18th, 2022 options expiration date.  

Citigroup reported their 2021 Q4 earnings last week which exceeded analysts' estimates and their current P/E Ratio is only 6.4.  Citigoup appeared in the Covered Calls Advisor's screener of Financial Sector companies and its current Price-to-Tangible Book Value of .76 is less than their prior 5-year average value.  Citigroup is also one of only 8 banks (and the only one of the six U.S.-based mega-cap banks) to appear in the Covered Calls Advisor's screener for Shareholder Yield.  Finally, according to Reuters Research, the average target price of the 28 analysts' following Citigroup is $80.47 (+23.4% above today's purchase price).    

Most mid- to large-cap companies in the Financial Sector provide only modest growth prospects, but they often pay 2.0%+ annual dividend yields.  Consequently, the Covered Calls Advisor is targeting opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions.  Citi has announced that their next ex-dividend date will be 2/04/2022 and at $.51 per share.  This new February 18th Citigroup Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of the six U.S. mega-cap banks (Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, and Morgan Stanley) during each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup, Wells Fargo, and Morgan Stanley for Feb, May, Aug, and Nov options expirations; and
Bank of America and Goldman Sachs for Mar, Jun, Sep, and Dec options expirations).

The goal of these Covered Calls is to either to capture the quarterly dividend payment and for the stock prices to remain above the strike price at options expiration or to have the position assigned early on the day prior to the ex-dividend date at a higher annualized-return-on-investment than would be achieved if the position was instead assigned on the 2/18/2022 options expiration date.  So far, this approach has provided higher annualized return results than would be achieved with either: (1) Covered Calls in these same stocks during their non-ex-dividend months; or (2) A simple buy-and-hold stock purchase of these bank stocks.    

Two potential return-on-investment results are: (a) +1.3% absolute return (equivalent to +27.8% annualized return for the next 17 days) if the stock is assigned early [on the last trading day prior to the ex-dividend date]; OR (b) +2.1% absolute return (equivalent to +24.2% annualized return over the next 32 days) if the stock is assigned on the February 18th options expiration date. 

Citigroup Inc. (C) -- New Covered Calls Position
The transactions were:
1/18/2022 Bought 200 Citigroup shares @ $65.20
1/18/2022 Sold 2 Citigroup 2/18/2022 $62.50 Call options @ $3.50
Note: the Implied Volatility of these Call options was 25.6 when this position was established.
2/04/2022 Upcoming quarterly ex-dividend of $.51 per share

Two possible overall performance results (including commissions) for this
Citigroup Covered Calls position are as follows:
Covered Calls Cost Basis: $12,341.34
= ($65.20 - $3.50) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$700.00
= ($3.50 * 200 shares)
(b) Dividend Income (If option exercised early on the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If Citi shares assigned at Feb. 18th, 2022 expiration): +$102.00
= ($.51 dividend per share x 200 shares)
(c) Capital Appreciation (If Citigroup shares assigned early): -$540.00
+($62.50 strike price -$65.20 stock purchase cost) * 200 shares; or
(c) Capital Appreciation (If Citi shares assigned at $62.50 strike price at options expiration): -$540.00
+($62.50- $65.20) * 200 shares

1. Total Net Profit [If option exercised on February 3rd, 2022 (business day prior to the Feb. 4th ex-dividend date)]: +$160.00

= (+$700.00 options income +$0.00 dividend income -$540.00 capital appreciation); or

2. Total Net Profit (If Citi shares assigned at $62.50 at Feb. 18th, 2022 options expiration): +$262.00

= (+$700.00 +$102.00 -$540.00)

1. Absolute Return (If Citigroup options exercised early on the business day prior to the expiration date): +1.3%

= +$160.00/$12,341.34

Annualized Return (If option exercised early): +27.8%

= (+$160.00/$12,341.34)*(365/17 days); or

2. Absolute Return (If Citigroup shares assigned at $62.50 at Feb. 18th, 2022 expiration): +2.1%

= +$262.00/$12,341.34

Annualized Return (If Citi stock assigned at $62.50 at Feb. 18th expiration): +24.2%

= (+$262.00/$12,341.34)*(365/32 days)

Either outcome would provide a good return-on-investment result.  These returns will be achieved as long as the stock is above the $62.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $61.19 ($65.20 -$3.50 -$.51) provides 6.2% downside protection below today's purchase price.

Established Covered Calls in Pfizer Inc. and iShares China Large-Cap ETF

Two new Covered Calls positions have been established in Pfizer Inc. (ticker PFE) and iShares China Large-Cap ETF (FXI).  Three Pfizer February 4th, 2022 Call options were sold at $2.64 at the $53.00 strike price when the stock price was $54.82.  Pfizer has an upcoming ex-dividend of $.40 per share (on January 27th) which is prior to the Feb. 4th options expiration.  This dividend is included in the potential results shown below.  Five hundred shares of iShares China Large-Cap ETF were purchased at $37.76 while five January 28th, 2022 Calls were sold at $1.66 at the $36.50 strike price.  It should also be noted that neither company has an earnings report prior to their options expiration dates.

As detailed below, the potential return-on-investment results are: 

• Pfizer Inc.: (1) +1.6% absolute return in 13 days (equivalent to a +43.8% annualized return-on-investment) if there is an early assignment on the day prior to the January 27th ex-dividend date; and (2) +2.3% absolute return in 22 days (equivalent to a +38.6% annualized return-on-investment) if the position is in-the-money and therefore assigned on the Feb. 4th options expiration date.
  

• iShares China Large-Cap ETF: +1.1% absolute return in 16 days (equivalent to a +24.8% annualized return-on-investment) if this Covered Calls position is assigned on its January 28th, 2022 options expiration date. 

 

1. Pfizer Inc. (PFE) -- New Covered Calls Position

The buy/write transaction was:
01/14/2022 Bought 300 Pfizer shares @ $54.82
01/14/2022 Sold 3 Pfizer 02/04/2022 $53.00 Call options @ $2.64  Note: the Implied Volatility of the Calls was 30.7 and the Delta was 67.7 when this transaction was executed.
01/27/2022 Upcoming quarterly ex-dividend of $.40 per share

Two possible overall performance results (including commissions) for this Pfizer Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $15,656.01
= ($54.82 - $2.64) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$789.99
= ($2.64 * 300 shares) - $2.01 commission
(b) Dividend Income (If options exercised early on Jan. 26th, 2022 -- the business day prior to the Jan. 27th ex-div date): +$0.00; or
(b) Dividend Income (If Pfizer stock assigned at Feb. 4th, 2022 expiration): +$120.00
= ($.40 dividend per share x 300 shares)

(c) Capital Appreciation (If Pfizer Call options assigned early on Jan. 27th): -$546.00
+($53.00 - $54.82) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $53.00 strike price at options expiration): -$546.00
+($53.00 - $54.82) * 300 shares

1. Total Net Profit (If options exercised on business day prior to Jan. 27th ex-dividend date): +$243.99

= (+$789.99 options income +$0.00 dividend income -$546.00 capital appreciation); or

2. Total Net Profit (If Pfizer shares assigned at $53.00 strike price on February 4th, 2022 options expiration date): +$363.99

= (+$789.99 +$120.00 -$546.00)

1. Absolute Return (If options exercised early on January 26th, 2022): +1.6%

= +$243.99/$15,656.01

Annualized Return (If options exercised early): +43.8%

= (+$243.99/$15,656.01)*(365/13 days); or

2. Absolute Return (If Pfizer shares assigned at $53.00 at Feb. 4th, 2022 options expiration): +2.3%

= +$363.99/$15,656.01

Annualized Return (If Pfizer shares assigned at $53.00 on Feb. 4th, 2022 expiration): +38.6%

= (+$363.99/$15,656.01)*(365/22 days)

Either outcome provides a satisfactory return-on-investment result for this Pfizer investment.  These returns will be achieved as long as the stock is above the $53.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $51.78 ($54.82 - $2.64 - $.40) provides 5.5% downside protection below today's stock purchase price.

 

2.  iShares China Large-Cap ETF (FXI) -- New Covered Calls Position 

The Buy/Write transaction was as follows:
01/13/2022 Bought 500 shares of iShares China Large-Cap ETF shares @ $37.76 
01/13/2022 Sold 5 FXI January 28th, 2022 $36.50 Call options @ $1.66 per share.  The Implied Volatility of the Calls was 28.3 and the Delta was 74.1 when this Covered Calls position was established.

A possible overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position is as follows:
Stock Purchase Cost: $18,053.35
= ($37.76 - $1.66) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$826.65
= ($1.66 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 500 iShares China Large-Cap ETF shares assigned at $36.50 strike price at expiration): -$630.00
= +($36.50 - $37.76) * 500 shares

Total Net Profit (If 500 iShares China Large-Cap ETF shares assigned at $36.50 strike price at expiration): +$196.65

= (+$826.65 options income +$0.00 dividend income -$630.00 capital appreciation)

 

Absolute Return-on-Investment: +1.1%

= +$196.65/$18,053.35

Annualized Return-on-Investment: +24.8%

= (+$196.65/$18,053.35) * (365/16 days)

Established Covered Calls Position in Lennar Corporation

A buy/write limit order in Lennar Corp. (ticker LEN) was executed at the Covered Calls Advisor's net debit price of $101.58 per share. Two hundred shares were purchased at $107.76 and two February 4th, 2022 Call options were sold for $6.18 at the $103.00 strike price, a time value of $1.42 = [$6.18 options premium - ($107.76 stock price - $103.00 strike price)] per share. Homebuilders spiked higher at the market open this morning in sympathy with the excellent earnings report after the market close yesterday by KBHomes. For example, Lennar's closing price yesterday was $107.94 and it spiked above $112 early in this morning's trade. At that time, I entered a net debit Covered Calls position in Lennar thinking that it was unlikely that its price would reverse downward enough today to be executed. But it did just that and the net debit order executed at 12:04pm.  

This position uses the Covered Calls Advisor's Dividend Capture Strategy.  Lennar has an upcoming quarterly ex-dividend of $.375 per share that goes ex-dividend on January 26th, 2022. This is a 50% increase from their prior $.25 regular quarterly dividend and this large increase shows management's confidence in their business prospects.  This is equivalent to an absolute annual dividend yield of 1.4% (at the current $107.76 stock price) and more importantly for this Covered Calls position, an equivalent annualized dividend yield of 5.5% = [($.375/$107.76) x (365/23 days-to-expiration)] for the 23 days duration of this position.  This dividend is included in the detailed potential return-on-investment calculations below.  Either an early assignment on the day prior to the ex-dividend date or on the February 4th, 2022 options expiration date would be desirable to the Covered Calls Advisor given the attractive annualized return-on-investment upon assignment for either outcome.

There are three primary circumstances that provide the most conducive environment for homebuilders' success: demographics, low interest rates, and current Monthly Supply of Houses in the U.S.(Source: Federal Reserve Bank of St. Louis). All three of these factors are currently positive for homebuilders. In terms of demographics, ages 26-32 are the prime ages for first-time buyers and years 2020 to 2024 will see the largest number of young adults in this age category in U.S. history. In terms of interest rates, 10-year Treasury rates below 2.0% provide attractive, affordable financing for new buyers. The current rate is 1.72% and mortgage credit is readily available. Finally, the most recent monthly reading of current supply of houses is 6.5 months.  Supply conditions remain attractive to builders until this inventory factor exceeds 7.0 months.  Also in this regard, the NAHB Housing Market Index surveys homebuilders monthly on their current (and their estimates about the next 6 months) sentiment (from 0 to 100).  The most recent month's (i.e. December 2021) index with a reading of 84 is  a good "sellers' market".   The Covered Calls Advisor will continue to track these factors and will likely remain invested in monthly Covered Calls in companies in this industry as long as all three of these metrics remain positive. Also important to the Covered Calls Advisor, there is no upcoming quarterly earnings report prior to the February 4th, 2022 options expiration date.  

The Covered Calls Advisor intends to give priority to companies with attractive valuations that are also expected to show an earnings per share increase greater than 6% in 2022 compared against their 2021 results.  According the the average of the 17 analysts currently following Lennar, they are expected to increase earnings by about 11% in 2022.  This would represent a forward P/E ratio of 6.8--a very attractive valuation relative to their prior 5-year average P/E of 10.4.  Finally, these analysts have an average target price of $131.00 (a +21.6% increase above today's purchase price of $107.76).

As detailed on the table at the bottom of this post, all nine criteria of the  Dividend Capture Strategy are met with this position.  The Covered Calls Advisor's current Overall Market Meter outlook remains cautious, so the appropriate Covered Calls strategy is to sell in-the-money strike prices.     

As detailed below, two potential return-on-investment results are: 

•  +1.4% absolute return (equivalent to +39.6% annualized return for the next 13 days) if the stock is assigned early (business day prior to the January 26th ex-dividend date); OR 

• +1.8% absolute return (equivalent to +28.2% annualized return over the next 23 days) if the stock is assigned on the February 4th options expiration date.

Lennar Corp. (LEN) -- New Covered Calls Position
The simultaneous buy/write transaction was:
1/13/2022 Bought 200 Lennar Corp. shares @ $107.76
1/13/2022 Sold 2 LEN 2/04/2022 $103.00 Call options @ $6.18
Note: the Implied Volatility of the Call options was 29.3 when this position was transacted and the Delta (approximately the probability of assignment at expiration) was 72.2.
1/26/2022 Upcoming quarterly ex-dividend of $.375 per share

Two possible overall performance results (including commissions) for this Lennar Corp. Covered Calls position are as follows:
Covered Calls Cost Basis: $20,317.34
= ($107.76 - $6.18) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,234.66
= ($6.18 * 200 shares) - $1.34 commission
(b) Dividend Income (If options exercised early on January 25th, the business day prior to the Jan. 26th, 2022 ex-div date): +$0.00; or
(b) Dividend Income (If Lennar stock assigned on the Feb. 4th, 2022 options expiration): +$75.00
= ($.375 dividend per share x 200 shares)

(c) Capital Appreciation (If LEN Call options assigned early on Jan. 25th): -$948.00
+($103.00 - $107.76) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $103.00 strike price at options expiration): -$948.00
+($103.00 - $107.76) * 200 shares

1. Total Net Profit (If options exercised early on Jan. 25th): +286.66

= (+$1,234.66 options income +$0.00 dividend income -$948.00 capital appreciation); or

2. Total Net Profit (If LEN shares assigned at $103.00 at Feb. 4th, 2022 expiration): +$361.66

= (+$1,234.66 +$75.00 -$948.00)

1. Absolute Return-on-Investment [If option exercised on business day prior to the Jan. 26th ex-dividend date]: +1.4%

= +$286.66/$20,317.34

Annualized Return-on-Investment (If option exercised early): +39.6%

= (+$286.66/$20,317.34)*(365/13 days); or

2. Absolute Return-on-Investment (If Lennar shares assigned on the Feb. 4th, 2022 options expiration date): +1.8%

= +$361.66/$20,317.34

Annualized Return-on-Investment (If LEN shares assigned at $103.00 at Feb. 4th, 2022 expiration): +28.2%

= (+$361.66/$20,317.34)*(365/23 days)

Either outcome provides an attractive return-on-investment result for this Lennar Covered Calls investment.  These returns will be achieved as long as the stock is above the $103.00 strike price at assignment.  However, if the stock declines below the strike price, the breakeven price of $101.205 = ($107.76 stock price - $6.18 Call options price - $.375 dividend) provides 6.1% downside protection below today's stock purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  As shown in the chart below, all nine criteria are achieved for this Lennar Corp. Covered Calls position.

Early Assignment of EOG Resources Inc. Covered Calls

Early this morning, the Covered Calls Advisor was notified by Schwab that the two EOG Resources Inc. January 21st, 2022 $193.00 Call options were exercised yesterday (the last business day prior to today's ex-dividend date).   The EOG Resources stock price has increased from its purchase price of $97.27 to $102.77 at the market close yesterday.  

This early exercise by the EOG Resources Call owners was expected by the Covered Calls Advisor since the remaining time value was very close to $0.00, so they elected to purchase the 200 shares at the $93.00 strike price and thus also capture today's $.75 ex-dividend.  Despite not capturing today's dividend, this is a good outcome for the Covered Calls Advisor since the resulting +47.0% annualized return-on-investment (aroi) achieved exceeds the +38.6% maximum possible aroi that might have been achieved later on the January 21st options expiration date if the stock remained above the $93.00 strike price.  

The transactions and detailed results for this position are as follows:

EOG Resources Inc. (EOG) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction today was as follows:
1/07/2022 Bought 200 EOG Resources Inc. shares @ $97.27
1/07/2022 Sold 2 EOG 1/21/2022 $93.00 Call options @ $4.99 per share.
1/13/2022 Early Assignment of EOG Call options, so the options expired and 200 shares of EOG were sold at the $93.00 strike price.  

The overall performance results (including commissions) for this EOG Resources Covered Calls position are as follows:
Covered Calls Cost Basis: $18,457.34
= ($97.27 - $4.99) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$996.66
= ($4.99 * 200 shares) - $1.34 commissions
(b) Dividend Income (EOG options exercised early on the business day prior to the January 13th ex-div date): +$0.00; or
(c) Capital Appreciation: -$854.00
+($93.00 - $97.27) * 200 shares

Total Net Profit [EOG Call options exercised on Jan. 12th (last business day prior to the Jan. 13th ex-dividend date)]: +$142.66

= (+$996.66 options income +$0.00 dividend income - $854.00 capital appreciation)

 

Absolute Return-on-Investment (EOG Call options exercised on business day prior to today's ex-dividend date): +0.8%

= +$142.66/$18,457.34

Annualized Return-on-Investment: +47.0%

= (+$142.66/$18,457.34) * (365/6 days)

Covered Call Position Established in Meta Platforms Inc.

A new Covered Call position was established early this morning in Meta Platforms Inc. (formerly Facebook--ticker FB) by purchasing 100 shares at $320.73 per share and selling one Call option at the $300.00 strike price with a January 21st, 2022 options expiration date at $22.83 per share.  The time value was $2.10 per share [$22.83 Call option premium - ($320.73 stock purchase price - $300.00 strike price)]. The Call option premium received was attractive since the Implied Volatility (IV) of the Call was 37.9 when this position was established.  Analysts continue to be bullish on Meta's stock (43 of 48 analysts rate it as either a Strong Buy or Outperform), and their average price target is $401.30.  Their Q4 2021 earnings will be announced on February 2nd, 2022 and their P/E ratio based on this year's estimated earnings is 23--so Meta continues to retain its position as the megacap tech stock with the most attractive valuation.  Given the Covered Calls Advisor's cautious market outlook and the swift market decline so far in the first few days of trading in 2022, a conservative in-the-money Covered Call position was established with a Delta of 83.2 (which approximates the probability of assignment at its January 21st options expiration date). 

As detailed below, a potential return-on-investment result for this Meta Platforms position is:
+0.7% absolute return in 12 days (equivalent to a +21.4% annualized return-on-investment) if the stock closes above the $300.00 strike price at the Jan. 21st, 2022 options expiration date.
  

Meta Platforms Inc. (FB) -- New Covered Call Position

The Covered Calls Advisor's buy/write limit order was transacted as follows:
1/10/2022 Bought 100 Facebook shares @ $320.73
1/10/2022 Sold 1 Facebook 1/21/2022 $300.00 Call option @ $22.83. 

A possible overall performance result (including commissions) for this Meta Platforms Covered Call position is as follows:
Covered Call Cost Basis: $29,790.67
= ($320.73 - $22.83) * 100 shares + $.67 commission

Net Profit Components:
(a) Option Income: +$2,282.33
= ($22.83 * 100 shares) - $.67 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If FB shares assigned at $300.00 strike price at options expiration): -$2,073.00
+($300.00 - $320.73) * 100 shares

Total Net Profit (If Meta Platforms shares assigned at $300.00 strike price at Jan. 21st, 2022 expiration): +$209.33

= (+$2,282.33 option income +$0.00 dividend income -$2,073.00 capital appreciation)

Absolute Return  (If Meta shares assigned at $300.00 on the Jan.21st, 2022 expiration date): +0.7%

= +$209.33/$29,790.67

Annualized Return-on-Investment: +21.4%

= (+$209.33/$29,790.67) * (365/12 days)

January 7th, 2022 Options Expiration Results

Yesterday, the January 7th, 2022 (weekly options expiration date) Covered Calls position in Nucor Corporation (ticker NUE) expired in-the-money, so the 300 Nucor shares were assigned (i.e. sold) at the $107.00 strike price.  As detailed below, the return-on-investment (ROI) result was  +1.7% absolute return (equivalent to +39.6% annualized return-on-investment for the 16 days holding period).

Nucor Corporation (NUE) -- Covered Calls Position Closed Out by Assignment on the Options Expiration Date
The simultaneous buy/write transaction today was as follows:
12/23/2021 Bought 300 Nucor shares @ $112.69
12/23/2021 Sold 3 Nucor 1/07/2022 $107.00 Call options @ $7.03
Note: the Implied Volatility of the Calls was 36.0 when this transaction was executed, well above the S&P 500 Volatility Index (VIX) of 18.3.
12/30/2021 Quarterly ex-dividend of $.50 per share.
1/07/2022 The Nucor Jan. 7th, 2022 $107.00 Covered Calls position closed at expiration in-the-money (the stock price was $114.44), so the 3 NUE options expired and 300 NUE shares were sold at the $107.00 strike price.

The overall performance results (including commissions) for this Nucor Covered Calls position were as follows:
Covered Calls Cost Basis: $31,700.01
= ($112.69 - $7.03) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$2,106.99
= ($7.03 * 300 shares) - $2.01 commissions
(b) Dividend Income (Nucor shares assigned at the Jan. 7th, 2022 options expiration): +$150.00
= ($.50 dividend per share x 300 shares)
(c) Capital Appreciation (Nucor shares assigned at $107.00 strike price at options expiration): -$1,707.00
+($107.00 - $112.69) * 300 shares

Total Net Profit: +$549.99

= (+$2,106.99 options income + $150.00 dividend income - $1,707.00 capital appreciation)

 

Absolute Return-on-Investment: +1.7%

= +$549.99/$31,700.01

Annualized Return-on-Investment: +39.6%

= (+$549.99/$31,700.01) *(365/16 days)

Rolled-Down-and-Out Covered Calls Position in American Eagle Outfitters Inc.

During the last half-hour of trading today, the Covered Calls position in American Eagle Outfitters Inc. (ticker AEO) was continued by rolling out one week from today's January 7th strike to the January 14th, 2022 $25.00 strike price via a Call spread transaction at a net credit of $.43 per share.  The original American Eagle Covered Calls position was established on November 24th, 2021 when 500 shares were purchased at $27.43 per share.  The stock declined to $23.05 at the original December 17th, 2021 options expiration date, so the Covered Calls Advisor began a Covered Calls repair strategy to attempt to repair this losing position back toward profitability.  Thereafter, rollout spread transactions were established with expiration dates of December 31st and then once again to today's January 7th, 2022 expiration date.  The American Eagle stock was at $23.99 today when a roll-up-and-out Call spread transaction was executed: Bought-to-Close the 1/07/2022 $26.00 Calls for $.01 and simultaneously Sold-to-Open the 1/14/2022 $25.00 Calls at $.44.  My current plan is to try to continue rolling out AEO Calls each week so that another decision about continuing or closing this American Eagle Covered Calls position can be made each week at each Friday's expiration.  My current objective in doing so is to repair the current losing position back to profitability (hopefully sooner rather than later). 

As detailed below, two potential return-on-investment results are:  (a) -6.6% absolute return (equivalent to -46.3% annualized return over the 52 days this position is held) if the stock price is unchanged at $23.99 on the January 14th, 2022 options expiration date; and (b) -2.6% absolute return (equivalent to -18.3% annualized return over the 52 days this position is held) if AEO stock is in-the-money and therefore assigned on the January 14th, 2022 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 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.
12/30/2021 Rolled-Up-and-Out: Bought-to-Close the 12/31/2021 $24.00 Calls for $1.92 and simultaneously Sold-to-Open the 1/7/2022 $26.00 Calls at $.77.  The AEO stock price was $25.90 when this debit spread transaction was executed.
1/07/2021 Rolled-Down-and-Out: Bought-to-Close the 1/07/2022 $26.00 Calls for $.01 and simultaneously Sold-to-Open the 1/14/2022 $25.00 Calls at $.44.  The AEO stock price was $23.99 when this credit spread transaction was executed.

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: +$794.95
= ($2.11 + $.22 - $1.92 +$.77 - $.01 +$.44) * 500 shares - $10.05 commissions
(b) Dividend Income: +$90.00
= $.18 per share x 500 shares
(c) Capital Appreciation (If American Eagle share price unchanged at $23.99 at Jan. 14th, 2022 expiration): -$1,720.00
= +($23.99 - $27.43) * 500 shares ;or
(c) Capital Appreciation (If AEO shares assigned at $25.00 strike price at 1/14/2022 options expiration): -$1,215.00
= +($25.00 - $27.43) * 500 shares

1. Total Net Profit (If American Eagle share price unchanged at $23.99 at Jan. 14th, 2022 expiration): -$835.05

= (+$794.95 options income +$90.00 dividend income - $1,720.00 capital appreciation); or

2. Total Net Profit (If AEO shares assigned at $25.00 strike price at Jan. 14th, 2022 expiration): -$330.05

= (+$794.95 + $90.00 - $1,215.00)

1. Absolute Return-on-Investment (If American Eagle share price unchanged at $23.99 at Jan. 14th, 2022 expiration): -6.6%

= -$835.05/$12,663.35

Annualized Return-on-Investment: -46.3%

= (-$835.05/$12,663.35) * (365/52 days); or

2. Absolute Return-on-Investment (If AEO shares assigned at $25.00 strike price at the January 14th, 2022 options expiration date): -2.6%

= -$330.05/$12,663.35

Annualized Return-on-Investment (If AEO stock assigned at $25.00 at Jan. 14th, 2022 expiration): -18.3%

= (-$330.05/$12,663.35) *(365/52 days)

Covered Calls Established in EOG Resources Inc.

This afternoon, a new Covered Calls position was established in EOG Resources Inc. (ticker EOG) when 200 shares were purchased at $97.27 and two January 21st, 2022 Call options were sold at $4.99 per share at the $93.00 strike price.  The time value was $.72 per share [$4.99 Call options premium - ($97.27 stock purchase price - $93.00 strike price)].  As required by the Covered Calls Advisor, the 29.9 Implied Volatility in the Calls is greater than the S&P 500 Volatility Index (VIX) which was 19.3.  

There is an upcoming ex-dividend of $.75 per share prior to the January 21st, 2022 options expiration date.  So, two potential return-on-investment results for this position are detailed below:
(1) Early exercise on the day prior to the January 13th, 2022 ex-dividend date; OR
(2) Assignment on the January 21st options expiration date.  So, this position is evaluated in the table below to determine how many of the 9 criteria in the Covered Calls Advisor's Dividend Capture Strategy would be met by this Covered Calls position if it were to be established. 

Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, an in-the-money Covered Calls position was established -- the Delta was 75.9 when this position was established, which approximates a probability of 75.9% that the Call options will be in-the-money on the options expiration date. According to Reuters Research, EOG is covered by 33 analysts and their average target price is $113.03 which is +16.2% above today's purchase price.  

As detailed below, a potential return-on-investment result is +0.8% absolute return (equivalent to +47.0% annualized return for the next 6 days) if the stock is assigned early (business day prior to the January 13th ex-date); OR +1.6% absolute return (equivalent to +38.6% annualized return-on-investment over the next 15 days) if the stock is assigned on the January 21st, 2022 options expiration date.

EOG Resources Inc. (DVN) -- New Covered Calls Position
The buy/write transaction today was as follows:
1/07/2022 Bought 200 EOG Resources Inc. shares @ $97.27
1/07/2022 Sold 2 EOG 1/21/2022 $93.00 Call options @ $4.99 per share.
1/13/2022 Early Assignment of EOG Call options so the options expired and 200 shares of EOG were sold at the $93.00 strike price.  

Two possible overall performance results (including commissions) for this EOG Resources Covered Calls position are as follows:
Covered Calls Cost Basis: $18,457.34
= ($97.27 - $4.99) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$996.66
= ($4.99 * 200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on the business day prior to the January 13th ex-div date): +$0.00; or
(b) Dividend Income (If EOG shares assigned at the Jan. 21st, 2022 options expiration): +$150.00
= ($.75 dividend per share x 200 shares)
(c) Capital Appreciation (If EOG shares assigned early on Jan. 12th): -$854.00
+($93.00 - $97.27) * 200 shares ;or
(c) Capital Appreciation (If EOG shares assigned at $93.00 strike price at options expiration): -$854.00
= +($93.00 - $97.27) * 200 shares

1. Total Net Profit [If options exercised on Jan. 12th (last business day prior to the Jan. 13th ex-dividend date)]: +$142.66

= (+$996.66 +$0.00 - $854.00); or

2. Total Net Profit (If EOG shares assigned at $93.00 strike price at Jan. 21st, 2022 expiration): +$292.66

= (+$996.66 + $150.00 - $854.00)

1. Absolute Return-on-Investment [If EOG Call options exercised on business day prior to ex-dividend date]: +0.8%

= +$142.66/$18,457.34

Annualized Return-on-Investment (If options exercised early): +47.0%

= (+$142.66/$18,457.34) * (365/6 days); or

2. Absolute Return-on-Investment (If EOG shares assigned at $93.00 strike price on Jan. 21st, 2022 options expiration date): +1.6%

= +$292.66/$18,457.34

Annualized Return-on-Investment (If EOG stock assigned at $93.00 strike at Jan. 21st, 2022 options expiration): +38.6%

= (+$292.66/$18,457.34) *(365/15 days)

You will notice that one of the Covered Calls Advisor always calculate potential return-on-investment results (based on the annualized-return-on-investment) BEFORE establishing any Covered Call position. This approach
These returns will be achieved as long as the stock is above the $93.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $91.53 ($97.27 -$4.99 -$.75) provides 5.9% downside protection below today's purchase price.

You will notice that the Covered Calls Advisor always calculates potential return-on-investment results (using "annualized-return-on-investment") BEFORE establishing any Covered Call position.  This approach enables us to obtain a good perspective on whether potential annualized-return-on-investment results (including their associated probability of assignment) provides a risk/reward profile that qualifies as a potential investment if it meets or exceeds our minimum acceptable thresholds. 

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, all nine criteria are met for this EOG Resources Inc. Covered Calls position.