Established Cash-Secured Puts Position in Micron Technology Inc.

This morning, a 100% Cash-Secured Put options position was established in Micron Technology Inc. (ticker MU) at the April 14th, 2022 options expiration date and the $72.50 strike price.  Five Puts were sold at $.92 per share when the stock price was $77.60 (7.0% above the strike price).  The Implied Volatility of these Puts was 44.8 when this position was established and the probability of assignment at options expiration on April 14th was 78.7%.  

Cash-Secured Puts were established rather than Covered Calls since the Puts provided a slightly higher potential annualized-return-on-investment if assigned at expiration.  I expect the primary reason for the Puts being more advantageous in this instance is that Micron's stock has declined by 17.8% so far this year.  Often, for investors who have been long a stock that is declining, they become nervous about a further decline and decide to buy protective Put options below the current stock price to establish a limit on further losses.  Substantial buying of these downside Puts can cause these Put options premiums to increase their Implied Volatility (at least temporarily) to slightly above that for their comparable Call options--so the time value premium of the Puts is slightly higher than that of the Calls.  Since we are selling options (i.e. selling Calls for Covered Calls or selling Puts for Cash-Secured Puts), selling the slightly higher time value premiums in the Micron Puts in this case was preferable since it provides a slightly higher potential annualized return-on-investment.    

As shown in the right sidebar, this is now the second position of Micron in the Covered Calls Advisor Portfolio with an April 14th, 2022 expiration date.  The first position was posted here: Link

Micron reported their Q2 2022 earnings after market close two days ago (on Tuesday).  Note: Micron's stock price closed at $82.05 on Tuesday, just prior to their earnings report.  Their report was stellar.  They exceeded analysts' estimates for both revenues and earnings and they guided next quarter higher for both metrics as well.  I was very surprised that Micron's stock price has declined from $82.05 just prior to its earnings report two days ago to $77.60 this morning, so I decided to establish this Cash-Secured Puts position.   

Micron's valuation is very attractive at its current price.  For FY2022, Micron's earnings per share is expected to increase to about $9.54 which would be 57.4% above last year's result.  This corresponds to a P/E ratio of only 8.1 which is very attractive when compared against the FY2022 average of the P/E estimates for the seven semiconductor companies with larger market caps than Micron (i.e. NVDA, TSM, AVGO, INTC, AMD, TXN, and QCOM)--their P/E ratio average being 23.3.  In addition, a further increase in Micron's eps to above $12.00 per share is expected for FY2023.  Finally, the 35 investment company analysts that cover Micron have a very bullish average target price of $113.25.     

As detailed below for this Micron Technology 100% Cash-Secured Puts position, there is potential for a +1.3% absolute return in 15 days (equivalent to a +30.7% annualized return-on-investment). 

Micron Technology Inc. (MU) -- New 100% Cash-Secured Puts Position

The transaction today was as follows:
03/31/2022  Sold 5 Micron April 14th, 2022 $72.50 100% Cash-Secured Put options @ $.92 per share.

Note: The Covered Calls Advisor does not use margin, so the detailed information on this position and the potential result detailed below reflect that this position was established using 100% cash securitization for the five Micron Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $36,246.65
= ($72.50 - $.92) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$456.65
= ($.92 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Micron stock is above the $72.50 strike price at the April 14th options expiration): +$0.00
= ($72.50 - $72.50) * 500 shares

Total Net Profit (If Micron stock price is out-of-the-money (above $72.50 strike price) at options expiration): +$456.65
= (+$456.65 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Micron stock is above $72.50 strike price at the April 14th, 2022 options expiration) : +1.3%
= +$456.65/$36,246.65
Annualized Return: +30.7%
= (+$456.65/$36,246.65)*(365/15 days)

The downside 'breakeven price' at expiration is at $71.58 ($72.50 - $.92), which is 7.8% below the current market price of $77.60.

Early Assignment of State Street Corporation Covered Calls

Early this morning, the Covered Calls Advisor was notified by Schwab that the two State Street April 14th, 2022 $82.50 Call options were exercised yesterday (the last business day prior to today's 3/31/2022 ex-dividend date).   The State Street stock price has increased from its purchase price of $86.70 to $91.54 at the market close yesterday.  

This early exercise (on the day prior to STT's ex-dividend date) of the State Street Corporation Call options was expected by the Covered Calls Advisor since these Call options had no remaining time value at yesterday's close--so the owners of the Call options elected to purchase the 200 shares at the $82.50 strike price and thus also capture today's $.5699 per share ex-dividend.  Despite not capturing today's dividend, this is a desirable outcome for the Covered Calls Advisor since the resulting +60.5% annualized return-on-investment (aroi) achieved exceeds the +37.3% maximum potential aroi that might have been achieved on the April 14th options expiration date (if the stock remained above the $82.50 strike price on that expiration date). 

The transactions and detailed results for this position are as follows:

State Street Corporation (STT) -- Covered Calls Position Closed by Early Assignment
The transactions were:
3/18/2022 Bought 200 State Street shares @ $86.70 per share.
3/18/2022 Sold 2 STT 4/14/2022 $82.50 Call options @ $5.94
Note: the Implied Volatility of these Call options was 33.0 when this position was established.
03/30/2022 Two State Street 4/14/2022 $82.50 Calls were exercised early (on the day prior to the 3/31/2022 ex-dividend date), so the Calls expired and the 200 State Street shares were sold at the $82.50 strike price.  

The overall performance results (including commissions) for this
State Street Covered Calls position were as follows:
Covered Calls Cost Basis: $16,153.34
= ($86.70 - $5.94) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,188.00
= ($5.94 * 200 shares)
(b) Dividend Income (STT Call options exercised early on the business day prior to the ex-div date): +$0.00
(c) Capital Appreciation (State Street shares assigned early): -$840.00
+($82.50 strike price -$86.70 stock purchase cost) * 200 shares;

Total Net Profit [State Street Call options exercised on March 30th, 2022 (last business day prior to the March 31st ex-dividend date)]: +$348.00

= (+$1,188.00 options income + $0.00 dividend income - $840.00 capital appreciation)

 

Absolute Return-on-Investment (State Street Call options exercised early on the business day prior to the expiration date): +2.2%

= +$348.00/$16,153.34

Annualized Return-on-Investment (Call options exercised early): +60.5%

= (+$348.00/$16,153.34) * (365/13 days)

Covered Calls Established in EOG Resources Inc.

This afternoon at 3:12pm, a new Covered Calls position was established in EOG Resources Inc. (ticker EOG) when 200 shares were purchased at $120.36 and two April 22nd, 2022 Call options were sold at $9.28 per share at the $113.00 strike price.  The position was executed at my net debit limit order of $111.08 per share--a time value of $1.92 per share [$9.28 Call options premium - ($120.36 stock purchase price - $113.00 strike price)].  As required by the Covered Calls Advisor, the 38.6 Implied Volatility in the EOG Calls exceeds that of the S&P 500 Volatility Index (VIX) which was 19.8.  Also, the 4/22/2022 options expiration date is prior to EOG's next quarterly earnings report which is scheduled for May 5th, 2022.

There is an upcoming ex-dividend of $.75 per share on April 13th, 2022 (prior to the April 22nd options expiration date).  So, two potential return-on-investment results for this position are detailed below:
(1) Early exercise on the day prior to the April 13th, 2022 ex-dividend date; OR
(2) Assignment on the April 22nd options expiration date.  So, this position is evaluated in the table at the bottom of this post to determine how many of the 9 criteria in the Covered Calls Advisor's Dividend Capture Strategy would be met by this Covered Calls position if it were to be established.  

Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, an in-the-money Covered Calls position was established -- the Delta was 72.7 when this position was established, which approximates a probability of 72.7% that the Call options will be in-the-money on the options expiration date. According to Reuters Research, EOG is covered by 33 brokerage firm analysts and their average target price is $132.13 which is +9.8% above today's purchase price.  The trailing twelve months earnings per share was $8.61--a P/E ratio of 14.0 based on today's stock purchase price and slightly below the prior 5-year average P/E ratio of 14.8.  Estimates for this year's eps are for a 54.0% increase to $13.26 per share.  Given the great uncertainty with future oil prices, this 2022 eps estimate is unreliable, but even if WTI declines into the $90s, continued growth in both earnings and the stock prices of exploration and production companies (like EOG) should continue to increase.  Also, EOG appeared in the Covered Calls Advisor's 'Energy Sector' stock screener.     

As detailed below, a potential return-on-investment result is +1.7% absolute return (equivalent to +39.3% annualized return for the next 16 days) if the stock is assigned early (business day prior to the April 13th ex-date); OR +2.4% absolute return (equivalent to +33.7% annualized return-on-investment over the next 26 days) if the stock is assigned on the April 22nd, 2022 options expiration date.  I want to diversify my current holdings among sectors and did not have exposure in the Energy sector.  I also prefer to establish Energy sector positions using my Dividend Capture Strategy, and EOG meets this preference. 

EOG Resources Inc. (DVN) -- New Covered Calls Position
The buy/write transaction today was as follows:
3/28/2022 Bought 200 EOG Resources Inc. shares @ $120.36
3/28/2022 Sold 2 EOG 4/22/2022 $113.00 Call options @ $9.28 per share.
4/13/2022 Upcoming regular ex-dividend of $.75 per share.

Two possible overall performance results (including commissions) for this EOG Resources Covered Calls position are as follows:
Covered Calls Cost Basis: $22,217.34
= ($120.36 - $9.28) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$1,854.66
= ($9.28 * 200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on the business day prior to the April 13th ex-div date): +$0.00; or
(b) Dividend Income (If EOG shares assigned at the April 22nd, 2022 options expiration): +$150.00
= ($.75 dividend per share x 200 shares)
(c) Capital Appreciation (If EOG shares assigned early on April 13th, 2022): -$1,472.00
+($113.00 - $120.36) * 200 shares ;or
(c) Capital Appreciation (If EOG shares assigned at $113.00 strike price at options expiration): -$1,472.00
= +($113.00 - $120.36) * 200 shares

1. Total Net Profit [If options exercised on April 12th (last business day prior to the April 13th ex-dividend date)]: +$382.66

= (+$1,854.66 +$0.00 - $1,472.00); or

2. Total Net Profit (If EOG shares assigned at $113.00 strike price at the April 22nd, 2022 expiration): +$532.66

= (+$1,854.66 + $150.00 - $1,472.00)

1. Absolute Return-on-Investment [If EOG Call options exercised on business day prior to ex-dividend date]: +1.7%

= +$382.66/$22,217.34

Annualized Return-on-Investment (If options exercised early): +39.3%

= (+$382.66/$22,217.34) * (365/16 days); or

2. Absolute Return-on-Investment (If EOG shares assigned at $113.00 strike price on April 22nd, 2022 options expiration date): +2.4%

= +$532.66/$22,217.34

Annualized Return-on-Investment (If EOG stock assigned at $113.00 strike at the April 22nd, 2022 options expiration date): +33.7%

= (+$532.66/$22,217.34) * (365/26 days)

These returns will be achieved as long as the stock is above the $113.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $110.33 ($120.36 -$9.28 -$.75) provides 8.3% downside protection below today's purchase price.

You will notice that the Covered Calls Advisor always calculates potential return-on-investment results (using "annualized-return-on-investment") BEFORE establishing any Covered Call position.  This approach enables us to obtain a good perspective on whether or not the potential annualized-return-on-investment results (including their associated probability of assignment) provides a risk/reward profile that qualifies as a potential investment if it meets or exceeds the minimum thresholds specified in criteria 8 and 9 in the Dividend Capture Strategy table at the end of this post. 

The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a Dividend Capture Strategy.  The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved.  As shown in the table below, all nine criteria are met for this EOG Resources Inc. Covered Calls position.

Established Covered Calls Position in JPMorgan Chase & Co.

Today a Covered Calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) when the Covered Calls Advisor's buy/write limit order at $133.96 executed.  At 11:47am, 200 shares were purchased at $138.60 and two April 8th, 2022 $135.00 Call options were sold at $4.64 per share.  This is a moderately in-the-money position since the stock purchase price is 2.7% above the $135.00 strike price.  This corresponds to a Delta of 71.9 which provides a good approximation of 71.9% for the probability of assignment on the options expiration date.  

Most companies in the Financial Sector provide only modest growth prospects, but they often provide good annual dividend yields.  Consequently, the Covered Calls Advisor targets opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions.  This new April 8th, 2022 JPMorgan Chase Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of five very large U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, and Morgan Stanley) for each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup and/or Morgan Stanley for Feb, May, Aug, and Nov options expirations; and
Bank of America and/or Goldman Sachs for Mar, Jun, Sep, and Dec options expirations).

The goal of these monthly Covered Calls in these banks is to both provide an opportunity to either: (1) potentially capture the quarterly dividend payment and if the stock price remains above the strike price at options expiration, the maximum possible return-on-investment result on the options expiration date for the position would be achieved; or (2) have the stock assigned early on the day prior to the ex-dividend date in which case the Covered Calls Advisor is usually very pleased since the Dividend Capture Strategy criteria are designed such that the annualized return-on-investment for early assignment would also exceed the Covered Calls Advisor's minimum threshold.  So far, applying this approach has provided attractive annualized return results -- better than would be achieved if Covered Calls positions for these bank stocks were held in the Covered Calls Advisor Portfolio during the other two non-dividend paying months each quarter.  

JPMorgan's upcoming dividend is $1.00 per share (a 2.9% annualized dividend yield based on today's stock purchase price) and it goes ex-dividend on April 5th, 2022.  Two potential return-on-investment results for this position are:  (1) early assignment on the day prior to a January 5th ex-dividend date; and (2) assignment (if the stock price is in-the-money) on the April 8th, 2022 options expiration date.  The April 8th expiration was selected since JPMorgan's next quarterly earnings report is before market open on April 14th and because of the increased uncertainty associated with stock price movements on earnings reporting dates, I prefer to avoid holding positions on days when any company is reporting their quarterly earnings.  So, this JPMorgan Covered Calls position was established to include the upcoming ex-dividend date but to avoid the upcoming earnings reporting date.
  
As detailed below, two potential return-on-investment results are: 

•  +0.8% absolute return (equivalent to +35.2% annualized return for the next 8 days) if the stock is assigned early (business day prior to a April 5th, 2022 ex-dividend date); OR 

• +1.5% absolute return (equivalent to +46.2% annualized return over the next 12 days) if the stock is assigned on the April 8th, 2022 options expiration date.

JPMorgan Chase & Co. (JPM) -- New Covered Calls Position

If the stock price increases to the point where the current time value (i.e. extrinsic value) of $1.04 = [$4.64 options premium - ($138.60 stock price - $135.00 strike price)] remaining in the short Call options decays substantially (down to about $.25 or less) by April 4th, 2022 (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 JPM shares away to capture the dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would still be a desirable outcome since its +35.2% annualized return-on-investment (aroi) exceeds the Covered Calls Advisor's +30.0% minimum aroi threshold for an early assignment.

The simultaneous buy/write transaction was:
3/28/2022 Bought 200 JPM shares @ $138.60
3/28/2021 Sold 2 JPM April 8th, 2022 $135.00 Call options @ $4.64 per share
4/05/2022 Upcoming quarterly ex-dividend at $1.00 per share

Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost: $26,793.34
= ($138.60 - $4.64) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$926.66
= ($4.64 *200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on April 4th, the business day prior to the April 5th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at the April 8th, 2022 expiration): +$200.00
= ($1.00 dividend per share x 200 shares)

(c) Capital Appreciation (If JPM assigned early): -$720.00
+($135.00 -$138.60) * 200 shares; or
(c) Capital Appreciation (If JPM assigned at $135.00 strike price at expiration): -$720.00
+($135.00-$138.60) * 200 shares

1. Total Net Profit [If option exercised on the last business day prior to the April 5th ex-dividend date)]: +$206.66

= (+$926.66 options income +$0.00 dividend income -$720.00 capital appreciation); or

2. Total Net Profit (If JPM assigned at $135.00 at April 8th, 2022 expiration): +$406.66

= (+$926.66 options income +$200.00 dividend income -$720.00 capital appreciation)

1. Absolute Return (If option exercised on business day prior to ex-dividend date): +0.8%

= +$206.66/$26,793.34

Annualized Return (If option exercised early): +35.2%

= (+$206.66/$26,793.34) * (365/8 days); or

2. Absolute Return (If JPM assigned at $135.00 at April 5th expiration date): +1.5%

= +$406.66/$26,793.34

Annualized Return (If JPM assigned at $135.00 at April 8th, 2022 options expiration): +46.2%

= (+$406.66/$26,793.34)*(365/12 days)

Either outcome provides a good annualized-return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $135.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $132.96 ($138.60 -$4.64 -$1.00) provides 4.1% 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.  Eight of the nine criteria are achieved in this JPMorgan position.

Overall Market Meter Remains as Slightly Bearish

Today, the Covered Calls Advisor evaluated the current values for each of the seven factors used to determine the "Overall Market Meter" rating.  The seven factors used are categorized as macroeconomic, momentum, value, and growth metrics as as follows:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next two indicators), and
- growth (the last indicator).

The current Market Meter average of 2.57 (see blue line at the bottom of the chart above) is in the Slightly Bearish range (Note: the Slightly Bearish range is from 1.5 to 2.75).  

So what is our current Covered Calls investing strategy?  Based on the Covered Calls Advisor's "Slightly Bearish" Overall Market Meter (see right sidebar), the corresponding strategy is to "on-average sell between 2% and 5% in-the-money Covered Calls for options expiration dates during the next month".   

I agree with the 'Slightly Bearish' Overall Market Meter reading.  Consequently, I plan to continue my existing cautious strategy of establishing in-the-money Covered Calls positions.  It is generally agreed that The Federal Reserve's policy of Quantitative Easing (i.e. QE) during the most recent years provided a consistent tailwind to the stock market.  Since the Fed has now begun reversing policies to: (1) regular increases in the Federal Funds rate to try to obtain control of inflation, but which will most likely be accompanied by a deceleration beginning this year in corporate earnings growth rates compared with their growth rates the past two years; and (2) Quantitative Tightening which will likely have the effect of being a headwind (the opposite effect that the QE tailwind was) for the stock market.  In addition, the stock market's current historically high valuation by several metrics (such as Total Market Cap-to-GDP, P/E ratio, and Price-to-Sales ratio) provides an added headwind to the overall market.  

I agree with Ben Graham and with the content of this article: link -- that it is impossible to successfully time the market on a consistent basis.  But I cannot seem to totally ignore my need to have an opinion on its most likely upcoming direction.  As Covered Calls investors, we need to select a strike price for every position we establish.  Some Covered Calls investors avoid this important strike price selection decision entirely by always picking the same strike price every time (for example, the closest to at-the-money strike price, or one strike out-of-the-money).  But I've never been able to do that.  I prefer a more active decision-making approach; so I select strike prices based on my Overall Market Meter sentiment indicator -- at-the-money strike prices if the Overall Market Meter is Neutral, out-of-the-money if Bullish, and in-the-money if Bearish.  Sometimes my Market Meter is right and sometimes its wrong, but over the years it has helped me in three primary ways: (1) it has helped me read more and thus learn more about the myriad factors that influence the overall stock market and the individual companies that comprise it; (2) it has given me a slight return-on-investment edge compared with always using the same strike price [and we all need to seek and find our investing edges: (See Link)]; and (3) it has contributed to my commitment to maintaining a disciplined investing process -- and with a "disciplined investing process", we are following Warren Buffett's advice to "take the emotion out of investing and simply stick with good businesses" (read this prior article from my blog: (link).       

Regards and Godspeed to All,
Jeff Partlow (Covered Calls Advisor)
partlow@cox.net

March 25th, 2022 Options Expiration Results

The Covered Calls Advisor Portfolio had a weekly Covered Calls position with a March 25th, 2022 options expiration date.  Originally, the Covered Calls position purchased 300 shares in the Kraft Heinz Company (ticker KHC) on February 28th, 2022 at $38.86 per share and simultaneously sold 3 March 25th, 2022 $38.00 Call options @ $1.48 per share.  There was an intervening ex-dividend of $.40 share on March 10th which is included in the results shown below.  The Calls expired in-the-money (with stock price closing today at $39.29), so the 300 Kraft Heinz shares were assigned (i.e. sold) today at their $38.00 strike price.  

The return-on-investment (ROI) result was  +2.7% absolute return (equivalent to +38.0% annualized return-on-investment for the 26 days holding period).

As always, I encourage any email questions you might have related to Covered Calls. 

Best Wishes and Godspeed,

Jeff Partlow--The Covered Calls Advisor
partlow@cox.net

Established Covered Calls in Micron Technology Inc.

A Covered Calls position was established in Micron Technology Inc. (ticker MU) with an April 14th, 2022 options expiration date.   A buy/write transaction entered at a net debit of $68.24 was executed when 300 shares of Micron were purchased at $76.39 and three April 14th, 2022 Call options at the $70.00 strike price were sold at $8.15 per share. 

The Implied Volatility of these Calls was 59.8 today when this transaction was executed. The primary reason the Implied Volatility of these Calls is so high is that Micron's Q2 2022 earnings report is after market close next Tuesday.  Normally, I prefer to avoid earnings reports, but the range of earnings per share estimates are from a low of $1.94 to a high of $2.03 with the expected value of $1.97.  This relatively narrow range indicates confidence that the likely earnings results will be reasonably close to expectations.  If so, we will benefit from selling the currently elevated Implied Volatility.  

Micron's price has declined dramatically (by about 20%) so far this year.  It is difficult to determine when a stock decline will end, but I am relatively confident in Micron's current valuation and they are also very highly rated by analysts.  Reuters Research indicates that currently 31 analysts have a Buy or Outperform rating on the stock, 4 have a Hold, and none have an Underperform or Strong Sell; and their current average target price is $112.43 which is +47.2% above today's $76.39 purchase price.  Also, if analysts are correct, Micron's earnings will grow by 50% this year to over $9.00 per share (a very attractive P/E valuation of only 8.5 based on today's stock purchase price). 

Despite my confidence in Micron at its current price, the (1) uncertainties associated with the upcoming earnings report; (2) recent market volatility; and (3) my current cautious overall market outlook--these reasons are what caused me to select an in-the-money strike price with good downside protection.  The Delta was 74.5 when this position was established which equates to a probability of 74.5% that the position will end up in-the-money at the April 14th, 2022 options expiration date.

As detailed below, a potential return-on-investment result is +2.6% absolute return (equivalent to +44.7% annualized return for the next 21 days) if the stock price is in-the-money (i.e. above the $70.00 strike price) and therefore assigned on the April 14th options expiration date.  It is possible that a small ex-dividend of about $.10 per share might occur prior to the ex-date, but since Micron has not yet declared a quarterly dividend, this possibility is not included in the results detailed below.

Micron Technology Inc. (MU) -- New Covered Calls Position

The Buy/Write transaction was as follows:
03/25/2022 Bought 300 shares of Micron Technology Inc. stock @ $76.39 per share 
03/25/2022 Sold 3 Micron February 14th, 2022 $70.00 Call options @ $8.15 per share

A possible overall performance result (including commissions) for this Micron Technology Inc. Covered Calls position is as follows:
Stock Purchase Cost: $20,474.01
= ($76.39 - $8.15) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$2,442.99
= ($8.15 *300 shares) - $2.01 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 300 Micron shares assigned at $70.00 strike price at expiration): -$1,917.00
+($70.00 -$76.39) * 300 shares

Total Net Profit (If 300 Micron shares assigned at $70.00 strike price at expiration): +$525.99 = (+$2,442.99 options income +$0.00 dividend income -$1,917.00) capital appreciation

 

Absolute Return-on-Investment: +2.6%

= +$525.99/$20,474.01

Annualized Return-on-Investment: +44.7%

= (+$525.99/$20,474.01) * (365/21 days)

Covered Calls Position Established in Comcast Corporation

Just prior to market close today, a Covered Calls position was established in Comcast Corporation (ticker CMCSA) by buying 400 shares at $46.60 and simultaneously selling 4 April 14th, 2022 Call options at the $45.00 strike price.  A moderately in-the-money strike price was selected with a Delta of 72.1 when this buy/write transaction was executed.  The time value per share was $.44 = [$45.00 strike price - ($46.60 stock price - $2.04 Call options premium)].  The Covered Calls Advisor's Dividend Capture Strategy was used since there is an intervening quarterly dividend of $.27 per share on April 5th, 2022 which is prior to the April 14th options expiration date.

Comcast met all four criteria preferred by the Covered Calls Advisor in the current market environment for stocks to evaluate further as potential Covered Calls investments, namely:

1. Attractive Valuation -- Free Cash Flow Yield is 8.7%
2. Meets All Criteria in One of the Covered Calls Advisor's Stock Screeners -- Appeared in the Large-Cap Value+Profitability+Growth Screener
3. Future Earnings Growth -- FY22 earnings estimated to exceed FY21 by +6.8% and estimated future long-term annual growth rate is 13.3%
4. Target Price Above Current Stock Price -- The average target price of 32 brokerage firm analysts covering Comcast is $60.90 (30.7% above today's stock purchase price)    
   

Two potential return-on-investment results are: (1) +1.0% absolute return in 13 days (equivalent to a +27.3% annualized return-on-investment) if the position is assigned early on April 4th (the last business day prior to the April 5th ex-dividend date); or (2) +1.6% absolute return in 23 days (equivalent to a +25.0% annualized return-on-investment) if the position is assigned on the April 14th, 2022 options expiration date. 

Comcast Corporation (CMCSA) -- New Covered Calls Position

The buy/write transaction was as follows:
03/23/2022 Bought 400 shares of Comcast Corporation @ $46.60 per share 
03/23/2022 Sold 4 Comcast April 14th, 2022 $45.00 Call options @ $2.04 per share.  The Implied Volatility of these Call options was 23.2 when this transaction was executed.
04/05/2022 Upcoming ex-dividend of $.27 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $17,826.68
= ($46.60 - $2.04) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$813.32
= ($2.04 * 400 shares) - $2.68 commission
(b) Dividend Income (If Comcast shares assigned on day prior to ex-distribution date): +$0.00; or
(b) Dividend Income (If Comcast shares assigned on April 14th options expiration date): +$108.00
=  $.27 per share x 400 shares
(c) Capital Appreciation (If Comcast shares are above $45.00 strike price and early assignment occurs on April 4th, 2021): -$640.00
= ($45.00 - $46.60) * 400 shares; or
(c) Capital Appreciation (If Comcast is above $45.00 strike price at the April 14th, 2021 expiration): -$640.00
= ($45.00 - $46.60) * 400 shares

1. Total Net Profit (If Comcast shares assigned on last business day prior to April 5th ex-dividend date): +$173.32
= (+$813.32 options income +$0.00 dividend income -$640.00 capital appreciation); or
2. Total Net Profit (If Comcast shares assigned on April 14th options expiration date): +$281.32
= (+$813.32 options income +$108.00 dividend income -$640.00 capital appreciation)

1. Absolute Return (If Comcast shares assigned on last business day prior to ex-distribution date): +1.0%
= +$173.32/$17,826.68
Equivalent Annualized Return: +27.3%
= (+$173.32/$17,826.68)*(365/13 days); or
2. Absolute Return (If Comcast shares assigned on April 14th options expiration date): +1.6%
= +$281.32/$17,826.68
Equivalent Annualized Return: +25.0%
= (+$281.32/$17,826.68)*(365/23 days)

Established Covered Calls Position in Fifth Third Bancorp

This afternoon, a Covered Calls position was established in Fifth Third Bancorp (ticker symbol FITB) with the purchase of 300 shares at $45.69 per share and three April 14th, 2022 Call options were sold for $2.36 per share at the $44.00 strike price.  The Extrinsic Value (aka Time Value) in the Call options when this position was established was $.67 per share = [$2.36 options premium - ($45.69 stock price - $44.00 strike price)] per share.  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 69.1 when this buy/write transaction was executed which approximates the probability of assignment on the April 14th, 2022 options expiration date.  The next earnings report on April 19th is after the April 14th options expiration date, which is an important consideration for the Covered Calls Advisor. 

Fifth Third Bancorp is a large $32.5 billion market-cap regional bank operating primarily in the Midwest but also in the Southeast U.S.  Like many large-cap companies in the Financial Sector, Fifth Third provides only modest future compounded growth prospects, but they currently pay a $.30 quarterly dividend (2.6% annual dividend yield) with a March 30th, 2022 ex-dividend date.  I seek to establish positions in these low growth and dividend paying companies using my "Dividend Capture Strategy" (in situations where the ex-dividend date is in between the initiation date of the Covered Calls position and the options expiration date).  The goal of these "Dividend Capture Strategy" 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.  As is true with this position (see chart with 9 criteria at the bottom of this post), 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.

The average target price of the 22 brokerage company analysts covering Fifth Third is $52.08 (+14.0% above today's purchase price).  Like many analysts, I believe regional banks like Truist will benefit this year from increasing consumer loan demand as well as from greater net interest margins from increasing interest rates.

Two potential return-on-investment results for this Fifth Third Bancorp Covered Calls position are: (a) +1.5% absolute return (equivalent to +80.6% annualized return for the next 7 days) if the stock is assigned early [on the last trading day prior to the ex-dividend date]; OR (b) +2.2% absolute return (equivalent to +35.5% annualized return over the next 23 days) if the stock is assigned on the April 14th, 2022 monthly options expiration date. 

Fifth Third Bancorp (FITB) -- New Covered Calls Position
The transactions were:
3/23/2022 Bought 300 Fifth Third Bancorp shares @ $45.69
3/23/2022 Sold 3 FITB 4/14/2022 $44.00 Call options @ $2.36 per share.
Note: the Implied Volatility of these Call options was 31.2 when this position was established.
3/30/2022 Upcoming quarterly ex-dividend of $.30 per share

Two possible overall performance results (including commissions) for this
Fifth Third Bancorp Covered Calls position are as follows:
Covered Calls Cost Basis: $13,001.01
= ($45.69 - $2.36) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$708.00
= ($2.36 * 300 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 FITB shares assigned at April 14th, 2022 expiration): +$90.00
= ($.30 dividend per share x 300 shares)
(c) Capital Appreciation (If Fifth Third shares assigned early): -$507.00
+($44.00 strike price - $45.69 stock purchase cost) * 300 shares; or
(c) Capital Appreciation (If FITB shares assigned at $44.00 strike price at options expiration): -$507.00
+($44.00- $45.69) * 300 shares

1. Total Net Profit [If option exercised on March 29th, 2022 (last business day prior to the March 30th ex-dividend date)]: +$201.00

= (+$708.00 options income +$0.00 dividend income -$507.00 capital appreciation); or

2. Total Net Profit (If Fifth Third Bancorp shares assigned at $44.00 at April 14th, 2022 options expiration): +$291.00

= (+$708.00 +$90.00 -$507.00)

1. Absolute Return (If Fifth Third Bancorp options exercised early on the business day prior to the expiration date): +1.5%

= +$201.00/$13,001.01

Annualized Return (If option exercised early): +80.6%

= (+$201.00/$13,001.01) * (365/7 days); or

2. Absolute Return (If Fifth Third Bancorp shares assigned at $44.00 strike price at April 14th, 2022 expiration): +2.2%

= +$291.00/$13,001.01

Annualized Return (If FITB stock assigned at $44.00 at Apr. 14th expiration): +35.5%

= (+$291.00/$13,001.01)*(365/23 days)

Either outcome would provide an attractive return-on-investment result.  These returns will be achieved as long as the stock is above the $44.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $43.03 ($45.69 -$2.36 -$.30) provides 5.8% 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, all nine criteria are achieved for this Fifth Third Bancorp Covered Calls position.

Continuation of Covered Calls Repair Strategy for Three Positions

The Covered Calls Advisor Portfolio's positions in American Eagle Outfitters Inc., iShares China Large-Cap ETF, and Lennar Corporation have declined since they were originally established and are currently held at a net loss. I remain bullish on all three of these equities, so today I continued these positions by selling out-of-the-money Calls against the shares held. The detailed transactions and some potential results to-date are as follows:

1. American Eagle Outfitters Inc. (AEO) -- Continuation of Covered Calls Position

The original transaction 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.
1/14/2022 5 AEO Calls expired out-of-the-money so the 500 shares remain in the Covered Calls Advisor Portfolio.
1/24/2022 Continued the American Eagle Covered Calls position by rolling it out to the February 18th, 2022 $23.00 strike by selling 5 AEO Calls at $.70 per share.
2/18/2022 5 AEO Calls expired out-of-the-money so the 500 shares remained in the Covered Calls Advisor Portfolio.
2/22/2022 Continued this American Eagle Covered Calls position by selling 5 March 18th, 2022 $23.00 Call options @ $.82 per share.
3/18/2022 5 AEO Calls expired out-of-the-money so the 500 shares remained in the Covered Calls Advisor Portfolio.
3/22/2022 Continued this American Eagle Covered Calls position by selling 5 April 14th, 2022 $20.00 Call options @ $.38 per share.  The American Eagle shares were $18.66 when these Calls were sold.

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: +$1,734.90
= ($2.11 + $.22 - $1.92 +$.77 - $.01 +$.44 + $.70 +$.82 + $.38) * 500 shares - $16.75 commissions
(b) Dividend Income: +$90.00
= $.18 per share x 500 shares
(c) Capital Appreciation (If American Eagle share price unchanged at $18.66 at the April 14th, 2022 expiration): -$4,385.00
= +($18.66 - $27.43) * 500 shares ;or
(c) Capital Appreciation (If AEO shares assigned at $20.00 strike price at the 4/14/2022 options expiration): -$3,715.00
= +($20.00 - $27.43) * 500 shares

1. Total Net Profit (If American Eagle share price unchanged at $18.66 at the April 14th, 2022 expiration): -$2,560.10

= (+$1,734.90 options income +$90.00 dividend income - $4,385.00 capital appreciation); or

2. Total Net Profit (If AEO shares assigned at $20.00 strike price at the April 14th, 2022 expiration): -$1,971.10

= (+$1,734.90 + $90.00 - $3,715.00)

1. Absolute Return-on-Investment (If American Eagle share price unchanged at $18.66 at the March 18th, 2022 expiration): -20.2%

= -$2,560.10/$12,663.35

Annualized Return-on-Investment: -52.3%

= (-$2,560.10/$12,663.35) * (365/141 days); or

2. Absolute Return-on-Investment (If AEO shares assigned at $20.00 strike price at the April 14th, 2022 options expiration date): -15.6%

= -$1,971.10/$12,663.35

Annualized Return-on-Investment (If AEO stock assigned at $20.00 at the April 14th, 2022 expiration): -40.3%

= (-$1,971.10/$12,663.35) *(365/141 days)

2. iShares China Large-Cap ETF (FXI) -- Continuation of Covered Calls Position

The original Buy/Write transaction was as follows:
2/18/2022 Bought 600 shares of iShares China Large-Cap ETF shares @ $36.69 per share 
2/18/2022 Sold 6 FXI March 4th, 2022 $35.00 Call options @ $2.02 per share.
3/04/2022 6 FXI Calls expired out-of-the-money so the 500 shares remained in the Covered Calls Advisor Portfolio.
3/22/2022 Continued this iShares China Large-Cap ETF Covered Calls position by selling 6 FXI April 1st, 2022 $35.00 Call options @ $.42 per share.  The FXI share price was $33.415 when these Calls were sold.

Two possible overall performance results (including commissions) for this iShares China Large-Cap ETF Covered Calls position are as follows:
Stock Purchase Cost: $20,806.02
= ($36.69 - $2.02) * 600 shares + $4.02 commission

Net Profit:
(a) Options Income: +$1,455.96
= ($2.02 + $.42) * 600 shares - $8.04 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 600 iShares China Large-Cap ETF shares price unchanged at $33.415 at the 4/01/2022 options expiration): -$1,965.00
+($33.415 - $36.69) * 600 shares; OR
(c) Capital Appreciation (If 600 iShares China Large-Cap ETF shares assigned at $35.00 strike price at expiration): -$1,014.00
+($35.00 - $36.69) * 600 shares

1. Total Net Profit (If 600 iShares China Large-Cap ETF shares price unchanged at $33.415 at the April 1st, 2022 options expiration): -$509.04
= (+$1,455.96 options income +$0.00 dividend income -$1,965.00 capital appreciation); OR
2. Total Net Profit (If 600 iShares China Large-Cap ETF shares assigned at $35.00 strike price at expiration): +$441.96
= (+$1,455.96 options income +$0.00 dividend income -$1,014.00 capital appreciation)

1. Absolute Return-on-Investment (If 600 iShares China Large-Cap ETF shares price unchanged at $33.415 at the April 1st, 2022 options expiration): -2.4%
= -$509.04/$20,806.02
Annualized Return-on-Investment: -20.8%
= (-$509.04/$20,806.02) * (365/43 days); OR
2. Absolute Return-on-Investment: (If 600 iShares China Large-Cap ETF shares assigned at $35.00 strike price at expiration) +2.1%
= +$441.96/$20,806.02
Annualized Return-on-Investment: +18.0%
= (+$441.96/$20,806.02) * (365/43 days)

 

3. Lennar Corp. (LEN) -- Continuation of Covered Calls Position
The original simultaneous buy/write transaction was:
1/13/2022 Bought 200 Lennar Corp. shares @ $107.76
1/13/2022 Sold 2 LEN 2/04/2022 $103.00 Call options @ $6.18
Note: the Implied Volatility of the Call options was 29.3 when this position was transacted and the Delta (approximately the probability of assignment at expiration) was 72.2.
1/26/2022 Upcoming quarterly ex-dividend of $.375 per share
2/4/2022 Two Call options expired out-of-the-money and 200 shares of Lennar stock retained in the Covered Calls Advisor Portfolio.
2/07/2022 Rolled-Down-and-Out by selling two 2/11/2022 $93.50 Calls at $1.90.
2/11/2022 Two LEN $93.50 closed out-of-the-money at $91.54, so the options expired and two hundred Lennar shares remain in the Covered Calls Advisor Portfolio.
02/14/2022 Continued this Lennar Covered Calls position by selling 2 3/18/3033 Calls @ $3.71 per share at the $95.00 strike price when the stock was selling at $91.96.
3/18/2022 Two LEN Calls expired out-of-the-money so the 200 shares remained in the Covered Calls Advisor Portfolio.
3/22/2022 Continued this Lennar Corporation Covered Calls position by selling 2 April 14th, 2022 $92.00 Call options @ $2.20 per share.  The Lennar shares were $89.30 when these Call options were sold.

Two possible overall performance results (including commissions) for this Lennar Corp. Covered Calls position are as follows:
Covered Calls Cost Basis: $20,317.34
= ($107.76 - $6.18) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$2,793.98
= ($6.18 + $1.90 + $3.71 + $2.20) * 200 shares - $4.02 commissions
(b) Dividend Income: +$75.00
= $.375 per share x 200 shares
(c) Capital Appreciation (If Lennar share price unchanged at $89.30 at the April 14th, 2022 expiration): -$3,692.00
= +($89.30 - $107.76) * 200 shares ;or
(c) Capital Appreciation (If LEN shares assigned at $92.00 strike price at the 4/14/2022 options expiration): -$3,146.00
= +($92.00 - $107.73) * 200 shares

1. Total Net Profit (If Lennar Corp. share price unchanged at $89.30 at the April 14th, 2022 expiration): -$823.02

= (+$2,793.98 options income +$75.00 dividend income - $3,692.00 capital appreciation); or

2. Total Net Profit (If Lennar shares assigned at $92.00 strike price at the April 14th, 2022 expiration): -$277.02

= (+$2,793.98 + $75.00 - $3,146.00)

1. Absolute Return-on-Investment (If Lennar share price unchanged at $89.30 at the April 14th, 2022 expiration): -4.1%

= -$823.02/$20,317.34

Annualized Return-on-Investment: -16.2%

= (-$823.02/$20,317.34) * (365/91 days); or

2. Absolute Return-on-Investment (If Lennar shares assigned at $92.00 strike price at the April 14th, 2022 options expiration date): -1.4%

= -$277.02/$20,317.34

Annualized Return-on-Investment (If LEN stock assigned at $92.00 at 4/14/2022 expiration): -5.5%

= (-$277.02/$20,317.34) *(365/91 days)

Closed Out the Covered Calls Position in KeyCorp Inc.

At last Friday's options expiration date, four March 18th, 2022 Covered Calls in KeyCorp Inc. (KEY) expired with the stock price below the $24.00 strike price.  This morning, KeyCorp's shares increased and I decided to close out the position by selling the 400 KEY shares at $24.12. 

As detailed below, the return-on-investment results for this KeyCorp Inc. position is: +2.3% absolute return in 26 days (equivalent to a +32.8% annualized return-on-investment).

KeyCorp Inc. (KEY) -- Covered Calls Position Closed
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 Quarterly ex-dividend of $.195 per share
03/18/2022 4 KEY $24.00 Call options closed at expiration out-of-the-money (stock price closed at $23.93 below the $24.00 strike price) and 400 KeyCorp shares remain in the Covered Calls Advisor Portfolio.
03/21/2022 Sold 400 KeyCorp shares at $24.12 to close out this Covered Calls position.

The overall performance results (including commissions) for this KeyCorp Covered Calls position was 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: +$78.00
= ($.195 dividend per share x 400 shares)
(c) Capital Appreciation (KEY shares sold at $24.12 per share): -$484.00
+($24.12 - $25.33) * 400 shares

Total Net Profit: +$222.00

= (+$628.00 options income +$78.00 dividend income -$484.00 capital appreciation)
 

Absolute Return-on-Investment: +2.3%

= +$222.00/$9,506.68

Annualized Return-on-Investment: +32.8%

= (+$222.00/$9,506.68)*(365/26 days)

Monthly Options Expiration Results through March 18th, 2022

Each month on the day after the monthly options expiration date, this summary report provides the results on all positions that have been closed out during the past month (i.e. since the prior month's options expiration date). So this post covers the period from the day after last month's February 18th, 2022 options expiration through Friday's March 18th, 2022 monthly options expiration date. During this past month, the Covered Calls Advisor Portfolio held a total of twenty-one positions.   Seventeen positions were closed out at a profit, one was closed at a loss, and three are continuing positions that expired out-of-the-money.  A summary of results for all nineteen positions is provided below:

• Nine Covered Calls positions expired in-the-money (stock price above the strike price) on their March 18th, 2022 monthly options expiration dates with the following results: 

1. Bank of America Corporation (BAC) -- +1.5% absolute return in 19 days (equivalent to +29.5% annualized return-on-investment).  
2. FedEx Corporation (FDX) -- +2.1% absolute return in 23 days (equivalent to +33.1% annualized return-on-investment). 
3. General Motors Company (GM) -- -3.6% absolute return in 32 days (equivalent to -40.9% annualized return-on-investment).  
4. Goldman Sachs Group Inc. (GS) -- +2.0% absolute return in 29 days (equivalent to +25.4% annualized return-on-investment).
5. Meta Platforms Inc. (FB) -- +1.2% absolute return in 44 days (equivalent to +9.6% annualized return-on-investment).  
6. Nucor Corporation (NUE) -- +0.6% absolute return in 72 days (equivalent to +2.8% annualized return-on-investment). 
7. Pioneer Natural Resources Company (PXD) -- +3.0% absolute return in 25 days (equivalent to +43.7% annualized return-on-investment).  
8. Salesforce.Com Inc. (CRM) -- +1.9% absolute return in 15 days (equivalent to +47.2% annualized return-on-investment).
9. Uber Technologies Inc. (UBER) -- +2.8% absolute return in 33 days (equivalent to +31.4% annualized return-on-investment). 
   

 

• Four 100% Cash-Secured Puts positions expired out-of-the-money (i.e. stock price above the strike price) on their March 18th, 2022 monthly options expiration dates with the following results:

1. Boeing Company (BA) -- +3.0% absolute return in 23 days (equivalent to +47.1% annualized return-on-investment).
2. Crocs Inc. (CROX) -- +3.4% absolute return in 17 days (equivalent to +73.8% annualized return-on-investment).
3. Mercado Libre Inc. (MELI) -- +4.8% absolute return in 23 days (equivalent to +75.5% annualized return-on-investment).
4. Owens Corning (OC) -- +2.2% absolute return in 17 days (equivalent to +46.3% annualized return-on-investment).

• Three deep-in-the-money Covered Calls positions were closed by Early Assignment on the day prior to their ex-dividend dates with the following results:

1. Devon Energy Corporation (DVN) -- +1.1% absolute return in 4 days (equivalent to +104.8% annualized return-on-investment).
2. Energy Select Sector SPDR Fund (XLE) --  +0.9% absolute return in 5 days (equivalent to +67.3% annualized return-on-investment).
3. Financial Select Sector SPDR Fund (XLF) -- +0.5% absolute return in 4 days (equivalent to +42.1% annualized return-on-investment).

 

• Two Covered Calls positions expired in-the-money on their Weekly options expiration dates (Schlumberger Ltd. on February 25th, 2022 and Qualcomm Inc. on March 11th, 2022) with the following results:

1. Qualcomm Inc. (QCOM) -- +1.4% absolute return in 11 days (equivalent to +48.1% annualized return-on-investment).
2. Schlumberger Ltd. (SLB) --  +1.3% absolute return in 12 days (equivalent to +40.3% annualized return-on-investment).

• Three Covered Calls positions expired out-of-the-money on the March 18th, 2022 options expiration date: (1) 500 shares of American Eagle Outfitters Inc.; (2) 400 shares of KeyCorp Inc.; and (3) 200 shares of Lennar Corporation now remain in the Covered Calls Advisor Portfolio.  These positions are shown in the right sidebar of this blog.  In the upcoming week, decisions will be made soon to either sell these shares or to continue with their Covered Calls positions by selling future Call options against the shares currently held.

 

During the past year (last 12 months) 123 of 131 positions (93.9%) in the Covered Calls Advisor Portfolio (CCAP) were closed out at a profit, which exceeded by a wide margin the Covered Calls Advisor's objective that at least two-thirds (66.7%) of positions be closed profitably.  The Covered Calls Advisor Portfolio weighted average annualized-return-on-investment (aroi) was +31.4% during the past year and the average holding period for these 131 closed positions was 20.7 days.  In comparison, the benchmark S&P 500 index returned +14.1% during the same prior one-year period.  This 17.3 percentage points outperformance (31.4% actual annualized-return-on-investment return minus 14.1% aroi of the S&P 500 benchmark) during the past year by the Covered Calls Advisor Portfolio exceeds that which can normally be expected using the Covered Calls investing strategy.  As indicated in this post made earlier this year on this blog site (Link) -- "by exploiting our Covered Calls investing "edges", we can expect to achieve (over a period of several years) an average annualized-return-on-investment above the S&P 500 benchmark index of approximately 3 to 5 percentage points annually".

My preference is to identify opportunities to utilize my Dividend Capture Strategy (with ex-dividend dates prior to the options expiration dates) for relatively low-growth dividend-paying companies within these lower-growth Sectors -- Consumer Staples, Energy, Financials, Industrials, Materials, Real Estate, and Utilities.  Higher growth companies in Sectors with fewer dividend-paying companies includes the Communication Services, Consumer Discretionary, Healthcare, and Information Technology Sectors.  There is a greater likelihood that Covered Calls or Cash-Secured Puts positions in these higher-growth Sectors will be established without utilizing the Dividend Capture Strategy (i.e. without ex-dividend dates prior to their options expiration dates).  

As shown in the right sidebar, there are currently six open positions in the Covered Calls Advisor Portfolio.  Future transactions and return-on-investment results for these positions plus the details of all future newly established positions will be posted on this blog site on the same day the transactions occur.  New positions will be focused on companies that, at a minimum, have the following characteristics: (1) good valuation metrics (such as high free cash flow yield); (2) appear in at least one of the many stock screeners that have been developed over the years by the Covered Calls Advisor; (3) estimated next year earnings-per-share above that of their actual prior year; and (4) analysts' average target price is above the current stock price. 

This Covered Calls Advisor blog is a free service available to anyone interested in learning about Covered Calls.  As always, I welcome your emails whenever you have any comments or questions related to this post or anything related to Covered Calls investing.

Best Wishes and Godspeed,
Jeff Partlow
Covered Calls Advisor
partlow@cox.net

Established Covered Calls Position in State Street Corporation

This morning, a Covered Calls position was established in State Street Corporation (ticker symbol STT) with the purchase of 200 shares at $86.70 per share and two April 14th, 2022 Call options were sold for $5.94 per share at the $82.50 strike price.  This is the first April 2022 position established in the Covered Calls Advisor Portfolio.  The Extrinsic Value (aka Time Value) in the Call options when this position was established was $1.74 per share = [$5.94 options premium - ($86.70 stock price - $82.50 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 67.5 when this buy/write net debit limit order was executed which approximates a 67.5% probability of assignment on the April 14th, 2022 options expiration date.  

State Street is a $31 Billion market cap company and a leader in the investment services and investment management businesses.  As preferred, the next quarterly earnings report for State Street is after the April 14th options expiration date.  Analysts' covering the company expect its earnings per share to grow by about 14.6% this year to $8.39 a good forward P/E valuation of 10.3 which compares favorably to its prior 5-year average P/E of 12.9. 

Like many large-cap companies in the Financial Sector, State Street provides only modest future compounded growth prospects, but they currently pay a $.5699 quarterly dividend (2.6% annual dividend yield) with an upcoming March 31st, 2022 ex-dividend date.  I seek to establish positions in these low growth and dividend paying companies using my "Dividend Capture Strategy" (in situations where the ex-dividend date is in between the initiation date of the Covered Calls position and the options expiration date).  The goal of these "Dividend Capture Strategy" positions is to either capture the quarterly dividend payment and for the stock price 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.  As is true with this position (see chart with 9 criteria at the bottom of this post), 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 State Street Covered Calls position are: (a) +2.2% absolute return (equivalent to +60.5% 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) +2.9% absolute return (equivalent to +37.3% annualized return over the next 28 days) if the stock is assigned on the April 14th, 2022 options expiration date. 

State Street Corporation(STT) -- New Covered Calls Position
The transactions were:
3/18/2022 Bought 200 State Street shares @ $86.70 per share.
3/18/2022 Sold 2 STT 4/14/2022 $82.50 Call options @ $5.94
Note: the Implied Volatility of these Call options was 33.0 when this position was established.
3/31/2022 Upcoming quarterly ex-dividend of $.5699 per share

Two possible overall performance results (including commissions) for this
State Street Covered Calls position are as follows:
Covered Calls Cost Basis: $16,153.34
= ($86.70 - $5.94) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,188.00
= ($5.94 * 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 State Street shares assigned at April 14th, 2022 expiration): +$113.98
= ($.5699 dividend per share x 200 shares)
(c) Capital Appreciation (If State Street shares assigned early): -$840.00
+($82.50 strike price -$86.70 stock purchase cost) * 200 shares; or
(c) Capital Appreciation (If State Street shares assigned at $82.50 strike price at options expiration): -$840.00
+($82.50- $86.70) * 200 shares

1. Total Net Profit [If option exercised on March 30th, 2022 (last business day prior to the March 31st ex-dividend date)]: +$348.00

= (+$1,188.00 options income +$0.00 dividend income -$840.00 capital appreciation); or

2. Total Net Profit (If State Street shares assigned at $82.50 at the April 14th, 2022 options expiration): +$461.98

= (+$1,188.00 options income +$113.98 dividend income -$840.00 capital appreciation)

1. Absolute Return (If State Street options exercised early on the business day prior to the expiration date): +2.2%

= +$348.00/$16,153.34

Annualized Return (If options exercised early): +60.5%

= (+$348.00/$16,153.34) * (365/13 days); or

2. Absolute Return (If State Street shares assigned at $82.50 strike price at April 14th, 2022 expiration): +2.9%

= +$461.98/$16,153.34

Annualized Return (If State Street stock assigned at $82.50 at April 14th, 2022 options expiration date): +37.3%

= (+$461.98/$16,153.34)*(365/28 days)

Either outcome would provide an attractive return-on-investment result.  These returns will be achieved as long as the stock is above the $82.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $80.1901 ($86.70 -$5.94 -$.5699) provides 7.5% 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 State Street Covered Calls position.

Covered Calls Position Established in the Financial Select Sector SPDR Fund

Today a Covered Calls position was established in the Financial Select Sector SPDR Fund (ticker XLF) by buying 400 shares at $38.29 and simultaneously selling 4 March 25th, 2022 Call options at the $37.00 strike price.  This is a similar position to the Energy Select Sector (XLE) short-term Covered Calls position established earlier this week.  As with XLE, the Covered Calls Advisor's Dividend Capture Strategy was used since there is an intervening quarterly distribution next Monday (March 21st, 2022).  The amount of the XLF ex-distribution is not announced prior to the ex-distribution date, but a conservative estimate based on history of $.16 per share is assumed in the calculations provided below.

As is the case with all Dividend Capture Strategy positions established by the Covered Calls Advisor, an in-the-money strike price was selected, the Delta being 80.0 when this buy/write net debit limit order was transacted this morning.  The time value per share was $.17 = [$37.00 strike price - ($38.29 stock price - $1.46 Call options premium)]. 

Two potential return-on-investment results are: (1) +0.5% absolute return in 4 days (equivalent to a +42.1% annualized return-on-investment) if the position is assigned early on March 18th (i.e. tomorrow) which is the last business day prior to next Monday's ex-distribution date; or (2) +0.9% absolute return in 9 days (equivalent to a +36.3% annualized return-on-investment) if the position is assigned on the March 25th, 2022 options expiration date. 

Financial Select Sector SPDR Fund (XLF) -- New Covered Calls Position

The buy/write transaction was as follows:
03/17/2022 Bought 400 shares of the Financial Select Sector SPDR Fund @ $38.29 per share 
03/17/2022 Sold 4 XLF March 25th, 2022 $37.00 Call options @ $1.46 per share when the Implied Volatility of the Call options was 24.1
03/21/2022 Estimated ex-distribution of $.16 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $14,734.68
= ($38.29 - $1.46) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$584.00
= ($1.46 * 400 shares)
(b) Distribution Income (If XLF shares assigned on day prior to ex-distribution date): +$0.00; or
(b) Distribution Income (If XLF shares assigned on the March 25th options expiration date): +$64.00
=  $.16 per share x 400 shares
(c) Capital Appreciation (If XLF is above $37.00 strike price and early assignment on March 18th, 2021): -$516.00
= ($37.00 - $38.29) * 400 shares; or
(c) Capital Appreciation (If XLF is above $37.00 strike price at the March 25th, 2022 expiration): -$516.00
= ($37.00 - $38.29) * 400 shares

1. Total Net Profit (If XLF shares assigned on last business day prior to March 21st, 2022 ex-distribution date): +$68.00
= (+$584.00 options income +$0.00 dividend income -$516.00 capital appreciation); or
2. Total Net Profit (If XLF shares assigned on March 25th options expiration date): +$132.00
= (+$584.00 options income +$64.00 dividend income -$516.00 capital appreciation)

1. Absolute Return (If XLF shares assigned on last business day prior to ex-distribution date): +0.5%
= +$68.00/$14,734.68
Equivalent Annualized Return: +42.1%
= (+$68.00/$14,734.68)*(365/4 days); or
2. Absolute Return (If XLF shares assigned on March 25th, 2022 options expiration date): +0.9%
= +$132.00/$14,734.68
Equivalent Annualized Return: +36.3%
= (+$132.00/$14,734.68)*(365/9 days)

Covered Calls Established in Energy Select Sector SPDR Fund ETF

A Covered Calls position was established in the Energy Select Sector SPDR Fund ETF (ticker XLE), with a March 25th, 2022 options expiration date. Three hundred shares of the Energy Select Sector SPDR Fund were purchased at $72.02 and three Call options were sold at $3.66 per share at the $69.00 strike price.  

The time value was $.64 per share [$69.00 strike price - ($72.02 share price - $3.66 options premium)] when this buy/write limit order transaction was executed.  XLE also goes ex-distribution on March 21st, 2022.  The amount of this regular quarterly dividend has not been announced but in the calculations below, an estimate of $.62 per share which is assumed and is included in the return-on-investment result detailed below which is: +1.8% absolute return (equivalent to +60.7% annualized return-on-investment over the next 11 days) if the stock is assigned on the March 25th, 2022 options expiration date.  

The Delta was 74.6 when this position was established, which is the approximate probability that it will close in-the-money on the options expiration date.

Energy Select Sector SPDR Fund ETF (XLE) -- New Covered Calls Position
The buy/write transaction was as follows:
3/15/2022 Bought 300 shares of the Energy Select Sector SPDR Fund @ $72.02 per share 
3/15/2022 Sold 3 XLE March 25th, 2022 $69.00 Call options @ $3.66 per share
Note: the Implied Volatility of these Call options was 35.8 when this position was established.
3/21/2022 Ex-distribution estimated to be approximately $.62 per share
 

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $20,510.01 = ($72.02 - $3.66) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$1,095.01
= ($3.66 * 300 shares) - $2.01 commissions
(b) Dividend Income (If XLE shares assigned at March 25th, 2022 options expiration): +$186.00
= ($.62 dividend per share x 300 shares)
(c) Capital Appreciation (If XLE shares assigned at $69.00 strike price at options expiration): -$906.00
= +($69.00 - $72.02) * 300 shares

Total Net Profit (If XLE shares assigned at $69.00 strike price at the March 25th, 2022 expiration): +$375.01

= (+$1,095.01 + $186.00 - $906.00)
 

Absolute Return-on-Investment (If XLE shares assigned at $69.00 strike price on March 25th, 2022 options expiration date): +1.8%

= +$375.01/$20,510.01

Annualized Return-on-Investment (If XLE shares assigned at $69.00 strike at March 25th, 2022 options expiration): +60.7%

= (+$375.01/$20,510.01) *(365/11 days)

These returns will be achieved as long as the stock is above the $69.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $67.74 ($72.02 -$3.66 -$.62) provides 5.9% downside protection below today's purchase price.

March 11th, 2022 Options Expiration Results

The Covered Calls Advisor Portfolio had one weekly Covered Calls position with a March 11th, 2022 options expiration date.  The Covered Calls position in Qualcomm Inc. (ticker QCOM) expired in-the-money, so the 200 Qualcomm shares were assigned (i.e. sold) today at the $150.00 strike price.  As detailed below, the return-on-investment (ROI) result was  +1.4% absolute return (equivalent to +48.1% annualized return-on-investment for the 11 days holding period).

Qualcomm Inc. (QCOM) -- Covered Calls Position Closed Out by Assignment on the March 11th, 2022 Options Expiration Date
The simultaneous buy/write transactions was as follows:
03/01/2022 Bought 200 shares of Qualcomm stock @ $162.71 per share 
03/01/2022 Sold 2 Qualcomm March 11th, 2022 $150.00 Call options @ $14.19 per share
03/02/2022 Ex-dividend at $.68 per share
03/11/2022 The stock price of $152.34 was in-the-money (i.e. above the $150.00 strike price) on the 3/11/2022 options expiration date, so the options expired and the 200 shares were sold at the $150 strike price to close out this Covered Calls position.

The overall performance results (including commissions) was as follows:
Covered Calls Cost Basis: $29,705.34
= ($162.71 - $14.19) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$2,836.66
= ($14.19 * 200 shares) - $1.34 commission
(b) Dividend Income (Qualcomm stock assigned on March 11th options expiration date): $136.00
= $.68 dividend per share x 200 shares
(c) Capital Appreciation: -$2,542.00
= ($150.00 strike price - $162.71 original stock purchase price) * 200 shares

Total Net Profit (Qualcomm stock assigned on the March 11th options expiration date): +$430.66
= (+$2,836.66 options income +$136.00 dividend income -$2,542.00 capital appreciation)

Absolute Return-on-Investment: +1.4%
= +$430.66/$29,705.34
Equivalent Annualized Return-on-Investment: +48.1%
= (+$430.66/$29,705.34)*(365/11 days)

Early Assignment of Devon Energy Corp. Covered Calls

Early this morning, the Covered Calls Advisor was notified by Schwab that the two Devon Energy Corp. March 18th, 2022 $54.00 Call options were exercised yesterday (the last business day prior to today's 3/11/2022 ex-dividend date).   The Devon Energy stock price has increased from its purchase price of $58.90 to $60.57 at the market close yesterday.  

This early exercise by the Devon Energy Calls owners was expected by the Covered Calls Advisor since the remaining time value was very close to $0.00, so they elected to purchase the 200 shares at the $54.00 strike price and thus also capture today's $1.00 ex-dividend.  Despite not capturing today's dividend, this is a desirable outcome for the Covered Calls Advisor since the resulting +104.8% annualized return-on-investment (aroi) achieved exceeds the +91.9% maximum potential aroi that might have been achieved next Friday (on the March 18th options expiration date) if the stock remained above the $54.00 strike price.  The cash received from this position will most likely be invested in another Dividend Capture Strategy position--perhaps in the Energy Select Sector SPDR Fund (ticker XLE) which will go ex-distribution on March 21st.  

The transactions and detailed results for this position are as follows:

Devon Energy Corp. (DVN) -- Early Assignment of Devon Covered Calls Position
The simultaneous buy/write transactions was as follows:
03/07/2022 Bought 200 shares of Devon Energy stock @ $58.90 per share 
03/07/2022 Sold 2 DVN March 18th, 2022 $54.00 Call options @ $5.52 per share
03/11/2022 Two Devon 3/18/2022 $54.00 Calls were exercised early (on the day prior to the 3/11/2022 ex-dividend date), so the Calls expired and the 200 Devon shares were sold at the $54.00 strike price.  Note: the Devon stock price was deep-in-the-money at $60.57 when this transaction occurred. 

The overall performance results (including commissions) was as follows:
Covered Calls Cost Basis: $10,677.34
= ($58.90 - $5.52) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,102.66
= ($5.52 * 200 shares) - $1.34 commission
(b) Dividend Income: $0.00
(c) Capital Appreciation (Devon stock assigned early at the $54.00 strike price): -$980.00
= ($54.00 - $58.90) * 200 shares

Total Net Profit: +$122.66
= (+$1,102.66 options income +$0.00 dividend income - $980.00 capital appreciation)

Absolute Return-on-Investment: +1.1%
= +$122.66/$10,677.34
Equivalent Annualized Return-on-Investment: +104.8%
= (+$122.66/$10,677.34)*(365/4 days)