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
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.
