Established Covered Calls Position in Ally Financial Inc.

This afternoon, a Covered Calls position was established in Ally Financial Inc. (ticker symbol ALLY) with the purchase of 400 shares at $47.01 per share and four February 18th, 2022 Call options were sold for $2.85 per share at the $45.00 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 68.8 when this buy/write transaction was executed which approximates the probability of assignment on the February 18th, 2022 options expiration date.  The Implied Volatility of the Calls was 35.7 which, as desired, is above the current S&P 500 Volatility Index (VIX) of 32.3.  

Ally Financial met all ten criteria in my Financial Sector Stock Screener.  For Financial Sector companies, I pay particular attention to the Price-to-Tangible Book Value (P/TBV) factor.  Like the other two current Financial Sector companies (Citigroup and MetLife) in the Covered Calls Advisor Portfolio, Ally has a very attractive P/TBV valuation below 1.0--it is currently 0.98 for Ally.  Also, its current FY2021 P/E ratio is only at 5.5 and the estimated FY2022 P/E ratio of 6.4 is also a very attractive valuation.   

Like many mid- to large-cap companies in the Financial Sector, Ally Financial provides only modest future compounded growth prospects, but they often pay 2.0%+ annual dividend yields.  Ally has increased their quarterly dividend from $.25 to $.30 per share (a 2.6% annual dividend yield) with a January 31st, 2022 (next Monday) ex-dividend date, so this dividend is included in the potential return-on-investment results detailed below.  Their Q4 2021 earnings per share were reported six days ago and exceeded analysts' expectations.  Of the 19 analysts covering ALLY, 18 have either a Buy or Outperform rating, 1 has a Hold, and none rate it as either a Underperform or Sell.  Their average target price is $66.00 (+40.4% above today's purchase price).

A potential return-on-investment results for this Ally Financial Covered Calls position is +2.6% absolute return (equivalent to +40.7% annualized return for the next 23 days) if the stock is assigned on the February 18th options expiration date. 

Ally Financial Inc. (ALLY) -- New Covered Calls Position
The transactions were:
1/27/2022 Bought 400 Ally Financial shares @ $47.01
1/27/2022 Sold 4 ALLY 2/18/2022 $45.00 Call options @ $2.85
1/31/2022 Upcoming quarterly ex-dividend of $.30 per share

A possible overall performance result (including commissions) for this Covered Calls position is as follows:
Stock Purchase Cost: $17,666.68
= ($47.01 - $2.85) * 400 shares + $2.68 commission

Net Profit:
(a) Options Income: +$1,137.32
= ($2.85 * 400 shares) - $2.68 commission
(b) Dividend Income: +$120.00 = $.30 per share x 400 shares

(c) Capital Appreciation (If 400 ALLY shares assigned at $45.00 strike price at expiration): -$804.00
+($45.00 -$47.01) * 400 shares

Total Net Profit (If 400 Ally Financial shares assigned at $45.00 strike price at expiration): +$453.32 = (+$1,137.32 options income +$120.00 dividend income -$804.00 capital appreciation)

 

Absolute Return-on-Investment: +2.6%

= +$453.32/$17,666.68

Annualized Return-on-Investment: +40.7%

= (+$453.32/$17,666.68) * (365/23 days)