Covered Calls positions were established in KeyCorp Inc.(ticker symbol KEY) and Pioneer Natural Resources Company(PXD) when the Covered Calls Advisor's buy/write limit orders were executed. For KeyCorp, 400 shares were purchased at $25.33 and 4 March 18th, 2022 Call options were sold at $1.57 at the $24.00 strike price. For Pioneer Natural Resources, 100 shares were purchased at $224.8831 and 1 March 18th, 2022 Call option was sold at $17.32 at the $210.00 strike price.
Given the Covered Calls Advisor's current cautious outlook, moderately in-the-money Covered Calls positions were established for both companies. The Delta was 75.2 for the KeyCorp position and 78.5 for the Pioneer Natural Resources position and Delta approximates the probability that the Call options will be
in-the-money on the options expiration date. In addition, there are upcoming ex-dividends of $.195 per share for KeyCorp next Monday on February 28th and a regular dividend of $.78 plus a special dividend of $3.00 per share for Pioneer Natural, both this Friday (February 25th.
Early assignment is very unlikely since the ex-dividends occur very soon (within the next 5 days for both positions) and the stocks would have to rise dramatically before then to cause the time value remaining in the Calls to decrease to a level that would incentivize the Call owners to exercise early on the day prior to the ex-dividend dates. Finally, and fortunately, there is no quarterly earnings report for either company prior to their March 18th, 2022 options expiration dates.
The transactions and potential return-on-investment results if the stocks are in-the-money at the March 18th options expiration for both positions are as follows:
- For KeyCorp Inc.: +1.8% absolute return (equivalent to +27.8% annualized return-on-investment for the next 24 days) if the stock is assigned on the March 18th options expiration date.
- For Pioneer Natural Resources Company: +3.0% absolute return (equivalent to +43.7% annualized
return-on-investment for the next 25 days) if the stock is assigned on the March 18th options expiration date.
1. KeyCorp Inc. (KEY) -- New Covered Calls Position
The buy/write transaction was:
2/23/2022 Bought 400 KeyCorp shares @ $25.33
2/23/2022 Sold 4 KEY 03/18/2022 $24.00 Call options @ $1.57
Note: the Time Value (aka Extrinsic Value) in the Call options was $.24 per share = [$1.57 Call options premium - ($25.33 stock price - $24.00 strike price)]
2/28/2022 Upcoming quarterly ex-dividend of $.195 per share
A possible overall performance result (including commissions) for this KeyCorp Covered Calls position is as follows:
Covered Calls Cost Basis: $9,506.68
= ($25.33 - $1.57) * 400 shares + $2.68 commission
Net Profit Components:
(a) Options Income: +$628.00
= ($1.57 * 400 shares)
(b) Dividend Income (If KeyCorp stock assigned at March 18th, 2022 expiration): +$78.00
= ($.195 dividend per share x 400 shares)
(c) Capital Appreciation (If KEY shares assigned at $24.00 strike price at options expiration): -$532.00
+($24.00 - $25.33) * 400 shares
Total Net Profit (If KeyCorp shares assigned at $24.00 strike price at March 18th, 2022 expiration): +$174.00
= (+$628.00 +$78.00 -$532.00)
Absolute Return-on-Investment (If KeyCorp shares assigned at $24.00 at March 18th, 2022 options expiration): +1.8%
= +$174.00/$9,506.68
Annualized Return-on-Investment (If shares assigned at $24.00 at 3/18/22 expiration): +27.8%
= (+$174.00/$9,506.68)*(365/24 days)
2. Pioneer Natural Resources Company (PXD) -- New Covered Calls Position
The buy/write transaction was:
2/22/2022 Bought 100 PXD shares @ $224.8831
2/22/2022 Sold 1 PXD 3/18/2022 $210.00 Call options @ $17.32
2/25/2022 Upcoming quarterly ex-dividends of $.78 per share plus a special ex-dividend of $3.00 per share.
A possible overall performance result (including commissions) for this PXD Covered Calls position is as follows:
Stock Purchase Cost: $20,755.64
= ($224.8831 - $17.32) * 100 shares + $.67 commission
Net Profit:
(a) Options Income: +$1,732.00
= ($17.32 * 100 shares)
(b) Dividend Income (If PXD assigned at March 18th, 2022 expiration): +$378.00
= ($.78 + $3.00 dividends per share) x 100 shares
(c) Capital Appreciation (If PXD assigned at $210.00 strike price at expiration): -$1,488.31
+($210.00-$224.8831) * 100 shares
Total Net Profit (If PXD shares assigned at $210.00 at March 18th, 2022 expiration): +$621.69
= (+$1,732.00 options income +$378.00 dividend income - $1,488.31 capital appreciation)
Absolute Return (If PXD assigned at $210.00 at the 3/18/2022 expiration): +3.0%
= +$621.69/$20,755.64
Annualized Return (If JPM assigned at $120.00 at the Jan. 15th, 2021 expiration): +43.7%
= (+$621.69/$20,755.64) * (365/25 days)
