A new Covered Call position was established seven minutes after market open today in Meta Platforms Inc. (formerly Facebook--ticker FB) by purchasing 100 shares at $237.11 per share and selling one Call option at the $225.00 strike price with a February 18th, 2022 options expiration date at $18.74 per share. The time value was $6.63 per share [$18.74 Call option premium - ($237.11 stock purchase price - $225.00 strike price)]. The Call option premium received was attractive since the Implied Volatility (IV) of the Call was approximately 61 when this position was established. Also, given the Covered Calls Advisor's cautious overall market outlook as well as the elevated Implied Volatility of the options, a moderately conservative in-the-money Covered Call position was established at a Delta of about 72 which implies a probability of assignment of 72% at the options expiration date.
Meta's stock had plunged by 26.6% since yesterday's closing price when this Covered Call position was established soon after the market opened this morning on the heels of its very disappointing Q4 2021 earnings report after the market close yesterday. Before the market opened today, several companies that cover Meta had already analyzed their earnings report and had made substantial reductions in their target prices. For example, Morgan Stanley and Goldman Sachs both reduced their targets to the $350s area. As an investor, it is very difficult to make an investment when a stock price is declining rapidly, but sometimes these situations (like what is hopefully a temporary decline in combination with a significantly higher Implied Volatility from selling the options) can provide a good Covered Calls investing opportunity. I feel this situation provides such an opportunity now with Meta.
Given Meta's Q4 2021 earnings report yesterday, the full year earnings per share was $13.77, for a now historically low P/E ratio of only 17.2 (and an even lower 16.3 when the current $48 billion cash and equivalents are deducted from the current market cap). Although Meta faces many operating challenges ahead, especially in the short-term, they also continue to have some good future growth opportunities.
As detailed below, a potential return-on-investment result for this Meta Platforms position is:
+3.0% absolute
return in 16 days (equivalent to a +69.2% annualized
return-on-investment) if the stock closes above the $225.00 strike price at the February 18th, 2022 options expiration date.
Meta Platforms Inc. (FB) -- New Covered Call Position
2/3/2022 Bought 100 Meta Platforms shares @ $237.11
2/3/2022 Sold 1 Meta 2/18/2022 $225.00 Call option @ $18.74.
A possible overall performance result (including commissions) for this Meta Platforms Covered Call position is as follows:
Covered Call Cost Basis: $21,837.67
= ($237.11 - $18.74) * 100 shares + $.67 commission
Net Profit Components:
(a) Option Income: +$1,873.33
= ($18.74 * 100 shares) - $.67 commission
(b) Dividend Income: +$0.00
+($225.00 - $237.11) * 100 shares
