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
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
+($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)
