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:
- 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).
- Appears in a Covered Calls Advisor Stock Screener -- MET met the ten criteria in my Financial Sector screener.
- 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
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.
