During the last half-hour of trading today, the Covered Calls position in American Eagle Outfitters Inc. (ticker AEO) was continued by rolling out one week from today's January 7th strike to the January 14th, 2022 $25.00 strike price via a Call spread transaction at a net credit of $.43 per share. The original American Eagle Covered Calls position was established on November 24th, 2021 when 500 shares were purchased at $27.43 per share. The stock declined to $23.05 at the original December 17th, 2021 options expiration date, so the Covered Calls Advisor began a Covered Calls repair strategy to attempt to repair this losing position back toward profitability. Thereafter, rollout spread transactions were established with expiration dates of December 31st and then once again to today's January 7th, 2022 expiration date. The American Eagle stock was at $23.99 today when a roll-up-and-out Call spread transaction was executed: Bought-to-Close the 1/07/2022 $26.00 Calls for $.01 and simultaneously Sold-to-Open the 1/14/2022 $25.00 Calls at $.44. My current plan is to try to continue rolling out AEO Calls each week so that another decision about continuing or closing this American Eagle Covered Calls position can be made each week at each Friday's expiration. My current objective in doing so is to repair the current losing position back to profitability (hopefully sooner rather than later).
As detailed below, two potential return-on-investment results are: (a) -6.6%
absolute return (equivalent to -46.3% annualized return over the 52 days this position is held) if the stock price is unchanged at $23.99 on the January 14th, 2022 options expiration date; and (b) -2.6%
absolute return (equivalent to -18.3% annualized return over the 52 days this position is held) if AEO stock is in-the-money and therefore assigned on the January 14th, 2022 options expiration date.
American Eagle Outfitters Inc. (AEO) -- Continuation of Covered Calls Position
The transaction today was as follows:
11/24/2021 Bought 500 American Eagle Outfitters Inc. shares @ $27.43
11/24/2021 Sold 5 AEO 12/17/2021 $26.00 Call options @ $2.11
12/09/2021 Quarterly ex-dividend of $.18 per share
12/17/2021 5 Call options expired out-of-the-money and 500 shares of AEO retained in the Covered Calls Advisor Portfolio.
12/23/2021 Sold 5 AEO 12/31/2021 $24.00 Call options @ $.22 per share when the stock price was $23.23 per share.
12/30/2021 Rolled-Up-and-Out: Bought-to-Close the 12/31/2021 $24.00 Calls for $1.92 and simultaneously Sold-to-Open the 1/7/2022 $26.00 Calls at $.77. The AEO stock price was $25.90 when this debit spread transaction was executed.
1/07/2021 Rolled-Down-and-Out: Bought-to-Close the 1/07/2022 $26.00 Calls for $.01 and simultaneously Sold-to-Open the 1/14/2022 $25.00 Calls at $.44. The AEO stock price was $23.99 when this credit spread transaction was executed.
Two possible overall performance results (including commissions) for this American Eagle Outfitters Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $12,663.35
= ($27.43 - $2.11) * 500 shares + $3.35 commissions
Net Profit Components:
(a) Options Income: +$794.95
= ($2.11 + $.22 - $1.92 +$.77 - $.01 +$.44) * 500 shares - $10.05 commissions
(b) Dividend Income: +$90.00
= $.18 per share x 500 shares
(c) Capital Appreciation (If American Eagle share price unchanged at $23.99 at Jan. 14th, 2022 expiration): -$1,720.00
= +($23.99 - $27.43) * 500 shares ;or
(c) Capital Appreciation (If AEO shares assigned at $25.00 strike price at 1/14/2022 options expiration): -$1,215.00
= +($25.00 - $27.43) * 500 shares
1. Total Net Profit (If American Eagle share price unchanged at $23.99 at Jan. 14th, 2022 expiration): -$835.05
= (+$794.95 options income +$90.00 dividend income - $1,720.00 capital appreciation); or
2. Total Net Profit (If AEO shares assigned at $25.00 strike price at Jan. 14th, 2022 expiration): -$330.05
= (+$794.95 + $90.00 - $1,215.00)
1. Absolute Return-on-Investment (If American Eagle share price unchanged at $23.99 at Jan. 14th, 2022 expiration): -6.6%
= -$835.05/$12,663.35
Annualized Return-on-Investment: -46.3%
= (-$835.05/$12,663.35) * (365/52 days); or
2. Absolute Return-on-Investment (If AEO shares assigned at $25.00 strike price at the January 14th, 2022 options expiration date): -2.6%
= -$330.05/$12,663.35
Annualized Return-on-Investment (If AEO stock assigned at $25.00 at Jan. 14th, 2022 expiration): -18.3%
= (-$330.05/$12,663.35) *(365/52 days)
