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)