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
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.
