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
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.
