Established Covered Calls Position in Wells Fargo & Company

This afternoon shortly after 3:00pm, a Covered Calls position was established in Wells Fargo (ticker symbol WFC) when the Covered Calls Advisor's buy/write limit order was executed -- 300 shares were purchased at $43.86 and 3 May 13th, 2022 Call options were sold at $4.12 at the $40.00 strike price.  The corresponding extrinsic value (i.e. time value) was $.26 per share [$4.12 Call options premium - ($43.86 stock purchase price - $40.00 strike price)], all of which will be profit if the stock is assigned (either by early assignment on the day prior to the ex-dividend date of at the May 13th options expiration date).

At today's purchase price, the upcoming ex-dividend of $.25 on May 5th has a 2.3% annualized dividend yield.  So, this short-term (only 15 days until options expiration) position is established to take advantage of the potential to achieve a high annualized return-on-investment in a position that meets all nine criteria of the Covered Calls Advisor's Dividend Capture Strategy (see table at end of this post).  In addition, Wells Fargo fundamentally is historically undervalued since it now trades at a price-to-tangible-book-value ratio of 1.10, a level below its prior 5-year average of 1.31.  Also, the investment firm analysts covering Wells Fargo have a current average price target of $60.30 (+37.5% above today's purchase price). 

The Implied Volatility of the Call options was 43.5 which, as desired by the Covered Calls Advisor, is well above the current 33.0 of the S&P 500 Volatility Index (i.e. VIX).  Two potential return-on-investment results for this position are highlighted below (including the possibility of early assignment since the ex-dividend is prior to the May 13th options expiration date).  Given the Covered Calls Advisor's current cautious overall market sentiment, a deep in-the-money Covered Calls position was established--the Delta was 86.4 which approximates the probability that the stock will be in-the-money, and therefore assigned (i.e. sold), on the May 13th options expiration date.  

As detailed below, two potential return-on-investment results are: 

•  +0.6% absolute return (equivalent to +38.8% annualized return for the next 6 days) if the stock is assigned early (business day prior to the May 5th ex-dividend date); OR 

• +1.3% absolute return (equivalent to +30.8% annualized return over the next 15 days) if the stock is assigned on the May 13th options expiration date.

Wells Fargo & Company (WFC) -- New Covered Calls Position
The buy/write transaction was:

04/29/2022 Bought 300 Wells Fargo shares @ $43.86
Note: this stock price was down 2.9% from yesterday's closing price (and the Dow was down more than 700 points) this afternoon when this transaction executed.
04/29/2022 Sold 3 Wells Fargo 5/13/2022 $40.00 Call options @ $4.12
05/05/2022 Upcoming quarterly ex-dividend of $.25 per share

Two possible overall performance results (including commissions) for this Wells Fargo Covered Calls position are as follows:
Covered Calls Cost Basis: $11,924.01
= ($43.86 - $4.12) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$1,233.99
= ($4.12 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on May 4th, the business day prior to the May 5th ex-div date): +$0.00; or
(b) Dividend Income (If Wells Fargo stock assigned at May 13th, 2022 options expiration; so the $.25 dividend is captured): +$75.00
= ($.25 dividend per share x 300 shares)

(c) Capital Appreciation (If Wells Fargo Call options assigned early on May 4th): -$1,158.00
+($40.00 - $43.86) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $40.00 strike price at options expiration): -$1,158.00
+($40.00 - $43.86) * 300 shares

1. Total Net Profit [If option exercised on May 4th (business day prior to the May 5th ex-dividend date)]: +$75.99

= (+$1,233.99 options income +$0.00 dividend income -$1,158.00 capital appreciation); or

2. Total Net Profit (If Wells Fargo shares assigned at $40.00 at May 13th, 2022 expiration): +$150.99

= (+$1,233.99 +$75.00 -$1,158.00)

1. Absolute Return [If option exercised on May 4th (business day prior to ex-dividend date)]: +0.6%

= +$75.99/$11,924.01

Annualized Return (If option exercised early): +38.8%

= (+$75.99/$11,924.01)*(365/6 days); or

2. Absolute Return (If Wells Fargo shares assigned at $40.00 at May 13th, 2022 options expiration): +1.3%

= +$150.99/$11,924.01

Annualized Return (If Wells Fargo shares assigned at $40.00 at May 13th, 2022 expiration): +30.8%

= (+$150.99/$11,924.01)*(365/15 days)

Either outcome provides an attractive return-on-investment result for this Wells Fargo investment.  These returns will be achieved as long as the stock is above the $40.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $39.49 ($43.86 -$4.12 -$.25) provides a substantial 10.0% downside protection below today's stock purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position.  As shown below with this Wells Fargo position, all nine criteria are met.

Closed 100% Cash-Secured Put Position in Boeing Company

Early this morning, I closed out the 100% Cash-Secured Put position in Boeing Company (ticker symbol BA) at a large percentage loss.  The position was established on April 22nd, 2022 (last Friday) by selling one Boeing Put option at the May 6th, 2022 $170.00 strike price at $4.20 per share when the stock price was at $176.71.  When the stock was about $155.76 early in this morning's trading, I bought-to-close-out the Put option at $14.50 per share.  

The stock declined precipitously when Boeing reported earnings yesterday morning.  Their earnings per share loss was much larger than expected and they delayed the initial delivery date of their new 777X by a full year.  Part of my investing methodology is to avoid holding positions during earnings releases and I was negligent for not realizing Boeing's impending earnings report prior to entering this position.  I will be more diligent before entering future positions to ensure there is no intervening earnings report prior to the upcoming options expiration date.         

Some key numbers for this Boeing Cash-Secured Put position were:
Cash-Secured Put Cost Basis: $16,580.67
Net Absolute Loss on Position: $1,031.34
Days Position Held: 6
Absolute Return-on-Investment: -6.22%
Annualized Return-on-Investment: -378.4%

Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net

Covered Calls Position Established in Citigroup Inc.

It has been a difficult start to 2022 in the stock market.  For example, the S&P 500 has now reached correction territory since it has declined by more than 10% already this year.  I will continue my investing strategy that is consistent with my Slightly Bearish outlook--sell short-term (i.e. one month or less) moderately in-the-money Covered Calls.  Covered Calls investing can be an especially attractive strategy in neutral and bearish markets like we are experiencing now since it provides significant downside protection while maintaining an opportunity to achieve profitable results.  I am now establishing positions with stocks that: (1) have good current valuations using traditional valuation metrics; (2) appear on a least one of the several stock screeners I've developed over the past several years; and (3) have average analysts' target prices greater than 10% above their current price.  In addition, I will continue to be alert to opportunities to use my Dividend Capture Strategy (as is the case with today's Citigroup position).  I will also be watching the flood of earnings reports this week and next as well as the stock market's reaction to them to analyze those industries and companies that represent good opportunities for investment in the weeks ahead.     

Today, a Covered Calls position was established in Citigroup Inc. (ticker symbol C) with the purchase of 400 shares at $50.12 per share and four May 6th, 2022 Call options were sold for $2.58 per share at the $48.00 strike price.  So, the time value in the Call options was $.46 per share [$2.58 Call options premium - ($50.12 stock price - $48.00 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 75.1 when this buy/write transaction was executed which approximates the probability of assignment on the May 6th, 2022 options expiration date.  

Citigroup reported their 2022 Q1 earnings only 11 days ago which exceeded analysts' estimates by 30%.  Citigoup is the only one of the six U.S. mega-cap banks (Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, Goldman Sachs, and Morgan Stanley) to appear in the Covered Calls Advisor's screener of Financial Sector companies.  For Financial Sector companies, I pay particular attention to the Price-to-Tangible Book Value (P/TBV) as a valuation factor.  Citigroup has a very attractive current P/TBV valuation of 0.58 which is below its prior 5-year average of 0.77. Also, its current fiscal year (FY2022) estimated P/E ratio is 7.4 which also compares favorably to its prior 5-year average of 7.7.   Finally, according to Reuters Research, the average target price of the 28 analysts' following Citigroup is $67.06 (+33.8% above today's $50.12 purchase price).    

Most mid- to large-cap companies in the Financial Sector provide only modest growth prospects, but they often pay 2.0%+ annual dividend yields.  Consequently, the Covered Calls Advisor is targeting opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions.  Citi goes ex-dividend this Friday (April 29th) at $.51 per share, which provides a 4.1% annual dividend yield based on today's stock purchase price, and this dividend is included in the potential return-on-investment calculations below.  This new Citigroup Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of the six U.S. mega-cap banks during each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup, Wells Fargo, 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 Covered Calls is to either 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.  Early assignment is unlikely in this case, so the potential return-on-investment results shown below are provided only if the position is assigned on the options expiration date.   

As detailed below, a potential return-on-investment result is +2.0% absolute return (equivalent to +61.6% annualized return for the next 12 days) if the stock is assigned on the May 6th, 2022 options expiration date. 

Citigroup Inc. (C) -- New Covered Calls Position
The transactions were:
4/25/2022 Bought 400 Citigroup shares @ $50.12
4/25/2022 Sold 4 Citigroup 5/06/2022 $48.00 Call options @ $2.58
Note: the Implied Volatility of these Call options was 35.9 when this position was established.
4/29/2022 Upcoming quarterly ex-dividend of $.51 per share

A possible overall performance result (including commissions) for this
Citigroup Covered Calls position is as follows:
Covered Calls Cost Basis: $19,018.68
= ($50.12 - $2.58) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,029.32
= ($2.58 * 400 shares) - $2.68 commission
(b) Dividend Income (If Citi shares assigned at May 6th, 2022 expiration): +$204.00
= ($.51 dividend per share x 400 shares)
(c) Capital Appreciation (If Citi shares assigned at $48.00 strike price at options expiration): -$848.00
+($48.00- $50.12) * 400 shares

Total Net Profit (If Citi shares assigned at $48.00 at May 6th, 2022 options expiration): +$385.32

= (+$1,029.32 options income +$204.00 dividend income -$848.00 capital appreciation)

Absolute Return-on-Investment: +2.0%

= +$385.32/$19,018.68

Annualized Return-on-Investment: +61.6%

= (+$385.32/$19,018.68)*(365/12 days)

Cash-Secured Put Position Established in Boeing Company

A new 100% Cash-Secured Put was sold in Boeing Company (ticker symbol BA) at the May 6th, 2022 $170.00 strike price at $4.20 per share.   The stock price was at $176.71 when this transaction occurred.   

The probability of the option expiring worthless on the May 6th expiration date was approximately 66.9% when this position was established and the Implied Volatility of this Put option was 49.8.

Some key numbers for this Boeing Cash-Secured Put position are:
Cash-Secured Put Cost Basis: $16,580.67
Profit if Stock Price Above $170 Strike Price on May 6th, 2022 Expiration Date: $419.33
Days Until Expiration: 15
Absolute Return-on-Investment: +2.53%
Annualized Return-on-Investment: +61.5%

Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net

Established Covered Calls Position in Ally Financial Inc.

This morning at 11:00am, the Covered Calls Advisor's net debit limit order at $39.26 in Ally Financial Inc. (ticker symbol ALLY) was executed. The stock price had dropped to $42.07 when 500 shares were purchased and five May 20th, 2022 Call options were sold for $2.81 per share at the $40.00 strike price. So, the time value in the Call options was $.74 per share [$2.81 Call options premium - ($42.07 stock price - $40.00 strike price)]. The Delta of the Calls was 69.7 when this buy/write transaction was executed which approximates the probability of assignment on the May 20th, 2022 options expiration date.  The Implied Volatility of the Calls was 34.2 which, as desired, is above the current S&P 500 Volatility Index (VIX) of 24.9. Like many mid- to large-cap companies in the Financial Sector, Ally Financial provides only modest future compounded growth prospects, but Financials often pay 2.0%+ annual dividend yields. Ally has an upcoming ex-dividend of $.30 per share (2.9% annual dividend yield) on April 29th, 2022 which is prior to the May 20th options expiration date and this dividend is included in the return-on-investment calculations below.

Ally Financial met all ten criteria in my Financial Sector Stock Screener.  For Financial Sector companies, I pay particular attention to the Price-to-Tangible Book Value (P/TBV) as a valuation factor.  Ally has a very attractive current P/TBV valuation of 0.84 which is below its prior 5-year average of 0.91. Also, its next fiscal year (FY2022) estimated P/E ratio is only 5.3 which also compares favorably to its prior 5-year average of 7.7 Of the 19 analysts covering ALLY, 18 have either a Buy or Outperform rating, 1 has a Hold, and none rate it as either a Underperform or Sell.  Their average target price is $59.26 (+40.9% above today's purchase price). Also, Oakmark Funds have a consistently strong fundamental valuation orientation in their portfolios and I like the fact that fund manager Bill Nygren has Ally as the largest positon in their flagship Oakmark Fund.  Given current stock market volatility, my new positions are in companies with attractive fundamental valuations and also do not have intervening earnings reports prior to their options expiration dates.

A potential return-on-investment result for this Ally Financial Covered Calls position is +2.6% absolute return (equivalent to +33.1% annualized return for the next 29 days) if the stock is in-the-money and therefore assigned on the May 20th options expiration date.  Early assignment is possible on the day prior to next Friday's ex-dividend date, however it is unlikely that the stock price will spike higher enough next week for that possibility to occur--so the return-on-investment results for early assignment are not included in the details below.

Ally Financial Inc. (ALLY) -- New Covered Calls Position
The transactions were:
4/22/2022 Bought 500 Ally Financial shares @ $42.07
4/22/2022 Sold 5 ALLY 5/20/2022 $40.00 Call options @ $2.81
4/29/2022 Upcoming quarterly ex-dividend of $.30 per share

A possible overall performance result (including commissions) for this Covered Calls position is as follows:
Stock Purchase Cost: $19,633.35
= ($42.07 - $2.81) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$1,401.65
= ($2.81 * 500 shares) - $3.35 commission
(b) Dividend Income: +$150.00 = $.30 per share x 500 shares

(c) Capital Appreciation (If 500 ALLY shares assigned at $40.00 strike price at the May 20th, 2022 options expiration date): -$1,035.00
+($40.00 -$42.07) * 500 shares

Total Net Profit (If 500 Ally Financial shares assigned at $40.00 strike price at expiration): +$516.65    = (+$1,401.65 options income +$150.00 dividend income -$1,035.00 capital appreciation)

 

Absolute Return-on-Investment: +2.6%

= +$516.65/$19,633.35

Annualized Return-on-Investment: +33.1%

= (+$516.65/$19,633.35) * (365/29 days)

Established Covered Calls in KB Home

Today a new Covered Calls position was established in KB Home (ticker KBH) with a May 20th, 2022 options expiration date.  A buy/write transaction was made with 500 shares purchased at $33.06 and five Calls sold at the $31.00 strike price for $2.90 per share. Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Calls position was established.  The Delta was 70.3 and this approximates a probability of 70.3% that the Call options will be in-the-money and therefore the stock assigned on the options expiration date. Two potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since their ex-dividend of $.15 (1.8% annual dividend yield) on May 4th, 2022 is prior to the May 20th, 2022 options expiration date.

KB Home is a home builder with high exposure to entry-level built-to-order homes, a good niche in the current market environment.  In this regard, there are three primary circumstances that provide the most conducive environment for homebuilders' success: demographics, low interest rates, and current Monthly Supply of Houses in the U.S.(Source: Federal Reserve Bank of St. Louis).  All three of these factors are currently positive for homebuilders.  In terms of demographics, ages 26-32 are the prime ages for first-time buyers and years 2020 to 2024 will see the largest number of young adults in this age category in U.S. history. In terms of interest rates, although rates will be increasing further this year, 10-year Treasury rates are currently below 3.0% and therefore provide attractive historically attractive and affordable financing for new buyers, and mortgage credit remains readily available. In addition, the most recent monthly reading of current supply of houses is 6.3 months.  Supply conditions remain attractive to builders until this inventory factor exceeds 7.0 months.  Also in this regard, the NAHB Housing Market Index surveys homebuilders monthly on their current (and their estimates about the next 6 months) sentiment (from 0 to 100).  This month's index is 77 which is an optimistic reading of homebuilders' sentiment.  This reading compares favorably to its all-time high (since 1985) of 90 (Note: the lowest rating of 8 was in January 2009).  So, this year we are definitely now in a strong "sellers' market".  

Despite a slow recovery from the pandemic, the most recent fiscal year's (2021) earnings of $6.01 per share substantially exceeded 2020.  More importantly, FY2022 revenues are estimated to increase another 29% above FY2021; and earnings by even more (69%), to approximately $10.21 per share (a forward P/E ratio of only 3.2 based on today's stock purchase price).  It is easy to see why Goldman Sachs recently highlighted KB Home as one of its most highly recommended "undervalued value companies".    

The 45.9 Implied Volatility for these KB Home Call options was attractive to the Covered Calls Advisor since it is substantially higher than the current S&P 500 Volatility Index (VIX) of 24.3.  Finally, according to Reuters Research, the average price target of 15 analysts covering the company is $52.08 (+57.5% above its current price).  

As detailed below, two potential return-on-investment results are: 

•  +2.8% absolute return (equivalent to +84.0% annualized return for the next 12 days) if the stock is assigned early (business day prior to the May 4th ex-dividend date); OR 

• +3.3% absolute return (equivalent to +41.0% annualized return over the next 29 days) if the stock is assigned on the May 20th options expiration date.

 

KB Home (KBH) -- New Covered Calls Position
The Buy/Write transaction today was as follows:
04/22/2022 Bought 500 KB Home shares @ $33.06
04/22/2022 Sold 5 KB Home 05/20/2022 $31.00 Call options @ $2.90
Note: the Open Interest in these Calls was 293 contracts and the Bid/Ask spread on these Call options was a desirably narrow $.15 (i.e. $2.85/$3.00) when this transaction was executed.
05/04/2022 Upcoming quarterly ex-dividend of $.15 per share

Two possible overall performance results (including commissions) for this KB Home Covered Calls position are as follows:
Covered Calls Cost Basis: $15,083.35
= ($33.06 - $2.90) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$1,446.65
= ($2.90 * 500 shares) - $3.35 commission
(b) Dividend Income (If option exercised early on May 3rd, the business day prior to the May 4th ex-div date): +$0.00; or
(b) Dividend Income (If KB Home stock assigned at May 20th, 2022 expiration): +$75.00
= ($.15 dividend per share x 500 shares)

(c) Capital Appreciation (If KB Home Call options assigned early on May 3rd): -$1,030.00
+($31.00 - $33.06) * 500 shares; or
(c) Capital Appreciation (If shares assigned at $31.00 strike price at options expiration): -$1,030.00
+($31.00 - $33.6) * 500 shares

1. Total Net Profit [If option exercised on May 3rd (business day prior to May 4th ex-dividend date)]: +$416.65

= (+$1,446.65 options income +$0.00 dividend income -$1,030.00 capital appreciation); or

2. Total Net Profit (If KB Home shares assigned at $31.00 strike price at May 20th, 2022 expiration): +$491.65

= (+$1,446.65 options income +$75.00 dividend income -$1,030.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised early on May 3rd): +2.8%

= +$416.65/$15,083.35

Annualized Return-on-Investment (If option exercised early): +84.0%

= (+$416.65/$15,083.35)*(365/12 days); or

2. Absolute Return (If KB Home shares assigned at $31.00 at May 20th, 2022 options expiration): +3.3%

= +$491.65/$15,083.35

Annualized Return (If KB Home shares assigned at $31.00 at May 20th, 2022 expiration): +41.0%

= (+$491.65/$15,083.35) * (365/29 days)

Early assignment is somewhat unlikely, but assignment on the expiration date would also provide a very good annualized return-on-investment result for this KB Home investment.  These returns will be achieved as long as the stock is above the $31.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $30.01 ($33.06 -$2.90 -$.15) provides 9.2% downside protection below today's stock purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position.  As shown below with this KB Home position, all nine criteria were achieved.

Established Covered Calls Position in Blackstone Inc.

This afternoon, a Covered Calls position was established in Blackstone Inc. (ticker symbol BX) with the purchase of 200 shares at $112.97 per share and two May 20th, 2022 Call options were sold for $9.65 per share at the $105.00 strike price.  The Extrinsic Value (aka Time Value) of the Call options when this position was established was $1.68 per share = [$9.65 options premium - ($112.97 stock price - $105.00 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 74.6 when this buy/write transaction was executed which approximates the probability of assignment on the May 20th, 2022 options expiration date.   

Blackstone is a very large $145 billion market-cap alternative assets management company. They currently have $915 billion assets under management primarily in private equity, real estate, hedge funds, and credit markets. Their quarterly earnings report was issued this morning and they beat analysts' estimates for both revenue and earnings, although both were below the results for the same quarter last year. They also declared a quarterly dividend of $1.32 (4.7% annual dividend yield) with an ex-dividend date of April 29th, 2022 and this dividend is included in the potential return-on-investment results presented below.

Two potential return-on-investment results for this Blackstone Inc. Covered Calls position are: (a) +1.6% absolute return (equivalent to +74.2% annualized return for the next 8 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 +35.3% annualized return over the next 30 days) if the stock is assigned on the May 20th, 2022 monthly options expiration date. 

Blackstone Inc. (BX) -- New Covered Calls Position
The transactions were:
4/21/2022 Bought 200 Blackstone Inc. shares @ $112.97
4/21/2022 Sold 2 BX 5/20/2022 $105.00 Call options @ $9.65 per share.
Note: the Implied Volatility of these Call options was 39.5 when this position was established.
4/29/2022 Upcoming quarterly ex-dividend of $1.32 per share

Two possible overall performance results (including commissions) for this
Blackstone Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $20,665.34
= ($112.97 - $9.65) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,930.00
= ($9.65 * 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 BX shares assigned on the May 20th, 2022 options expiration date): +$264.00
= ($1.32 dividend per share x 200 shares)
(c) Capital Appreciation (If Blackstone shares assigned early): -$1,594.00
+($105.00 strike price - $112.97 stock purchase cost) * 200 shares; or
(c) Capital Appreciation (If Blackstone shares assigned at $105.00 strike price at options expiration): -$1,594.00
+($105.00- $112.97) * 200 shares

1. Total Net Profit [If option exercised on April 28th, 2022 (last business day prior to the April 29th ex-dividend date)]: +$336.00

= (+$1,930.00 options income +$0.00 dividend income -$1,594.00 capital appreciation); or

2. Total Net Profit (If Blackstone shares assigned at $105.00 at May 20th, 2022 options expiration): +$600.00

= (+$1,930.00 options income +$264.00 dividend income -$1,594.00 capital appreciation)

1. Absolute Return-on-Investment (If Blackstone options exercised early on the business day prior to the expiration date): +1.6%

= +$336.00/$20,665.34

Annualized Return-on-Investment (If option exercised early): +74.2%

= (+$336.00/$20,665.34) * (365/8 days); or

2. Absolute Return-on-Investment (If Blackstone shares assigned at $105.00 strike price at the May 20th, 2022 expiration): +2.9%

= +$600.00/$20,665.34

Annualized Return (If Blackstone stock assigned at $105.00 at May 20th expiration): +35.3%

= (+$600.00/$20,665.34) * (365/30 days)

Early assignment is unlikely, but either outcome would provide an attractive return-on-investment result.  These returns will be achieved as long as the stock is above the $105.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $102.00 ($112.97 -$9.65 -$1.32) provides 9.7% 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 Blackstone Inc. Covered Calls position.

Continuation of Position in Micron Technology Inc.

Last Thursday, the five April 14th $72.50 Micron Technology Inc. 100% Cash-Secured Put options expired in-the-money (the stock closed at $70.13 which was below the $72.50 strike price).  This morning, Micron's stock opened higher and when its stock price was $71.68, the Covered Calls Advisor continued by establishing a Covered Calls position by selling five May 6th, 2022 $73.00 Call options at $2.28 per share against the 500 Micron shares owned.  As preferred by the Covered Calls Advisor, the next earnings report on June 30th, 2022 is after the May 6th, 2022 options expiration date.  

If you want to understand some of the rationale for my bullish outlook on Micron, you can read it in the post made on March 31st when the original Micron Cash-Secured Puts position was established (see here).

As detailed below, two potential return-on-investment results are: 

•  +3.3% absolute return (equivalent to +33.1% annualized return for 36 days) if the stock price is unchanged from today's price of $71.68 on the May 6th, 2022 options expiration date; OR 

• +5.1% absolute return (equivalent to +51.6% annualized return for 36 days) if the stock is in-the-money and therefore assigned at the $73.00 strike price on the May 6th, 2022 options expiration date.

 

Micron Technology Inc. (MU) -- Continuation of Micron Position as Covered Calls

The original transaction was as follows:
03/31/2022  Sold 5 Micron April 14th, 2022 $72.50 100% Cash-Secured Put options @ $.92 per share.
04/14/2022 5 Micron $72.50 Puts expired in-the-money (stock price below the strike price), so 500 shares were purchased at $72.50 in the Covered Calls Advisor Portfolio
04/18/2022 Continued Micron position by selling 5 May 6th, 2022 $73.00 Call options @ $2.28 per share against the 500 Micron shares owned to establish a Micron Covered Calls position.  The Implied Volatility of these Calls was 43.4 and the Delta was 44.5 when these Calls were sold.

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

Net Profit:
(a) Options Income: +$1,593.30
= ($.92 + $2.28) * 500 shares - $6.70 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Micron stock price is unchanged at $71.68 at the May 6th, 2022 options expiration date): -$410.00
= ($71.68 - $72.50 original Put strike price) * 500 shares; OR
(c) Capital Appreciation (If Micron stock is above the $73.00 strike price at the May 6th options expiration): +$250.00
= ($73.00 - $72.50) * 500 shares

1. Total Net Profit (If Micron stock price is unchanged at $71.68 at options expiration): +$1,183.30
= (+$1,593.30 options income +$0.00 dividend income -$410.00 capital appreciation); OR
2. Total Net Profit (If Micron stock price is above the $73.00 strike price at options expiration): +$1,843.30
= (+$1,593.30 options income +$0.00 dividend income +$250.00 capital appreciation)
 

1. Absolute Return-on-Investment (If Micron stock is unchanged at $71.68 at the options expiration date of May 6th, 2022) : +3.3%
= +$1,183.30/$36,246.65
Annualized Return-on-Investment: +33.1%
= (+$1,183.30/$36,246.65)*(365/36 days); OR
2. Absolute Return-on-Investment (If Micron stock is above $73.00 strike price at the May 6th, 2022 options expiration date) : +5.1%
= +$1,843.30/$36,246.65
Annualized Return-on-Investment: +51.6%
= (+$1,843.30/$36,246.65)*(365/36 days)

Closed Covered Calls Positions in American Eagle Outfitters Inc., Fifth Third Bancorp, and Lennar Corporation

The Covered Calls positions in American Eagle Outfitters Inc. (ticker AEO), Fifth Third Bancorp (FITB), and Lennar Corporation (LEN) closed out-of-the-money at last Thursday's April monthly options expiration date.  All three positions are currently at substantial losses and I decided to close out the positions early in this morning's trading session.  For American Eagle and Lennar, I have been attempting to repair declining stock positions to move back closer to a breakeven result, but these stocks have continued their price declines and at a rate of decline greater than that of the overall market.  For Fifth Third Bank, they report their quarterly earnings before market open tomorrow morning and I decided to follow my preferred approach of not holding positions in companies through their quarterly earnings reports.  In addition, many banks have reported their earnings during the past week with mixed earnings and revenue results followed by only tepid stock price reactions.

In general, my market outlook remains cautious (Slightly Bearish on my Overall Market Meter).  Only about 7% of companies have reported their earnings from the first quarter this year and a flood of companies will be issuing their quarterly results during the next five weeks.  My plan is to gradually add new positions as I await more information from these upcoming earnings reports (and the stock market reaction to them) before deciding which companies to establish new positions in.

The results for these three companies are detailed below.

1. American Eagle Outfitters Inc. (AEO) -- Covered Calls Position Closed
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.
04/14/2022 5 AEO Calls expired out-of-the-money so the 500 shares remain in the Covered Calls Advisor Portfolio.
04/18/2022 Closed out this American Eagle Covered Calls position by selling the 500 shares at $17.51 per share.

The overall performance results (including commissions) for this American Eagle Outfitters Inc. Covered Calls position were 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 (American Eagle shares sold at $17.51 per share): -$4,960.00
= +($17.51 - $27.43) * 500 shares

Total Net Profit (American Eagle shares sold at $17.51 per share): -$3,135.10

= (+$1,734.90 options income +$90.00 dividend income - $4,960.00 capital appreciation)

 

Absolute Return-on-Investment: -24.8%

= -$3,135.10/$12,663.35

Annualized Return-on-Investment: -62.3%

= (-$2,560.10/$12,663.35) * (365/145 days)

2. Fifth Third Bancorp (FITB) -- Covered Calls Position Closed
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
04/14/2022 3 FITB Calls expired out-of-the-money so the 300 shares remain in the Covered Calls Advisor Portfolio.
04/18/2022 Closed out this Fifth Third Bancorp Covered Calls position by selling the 300 shares at $17.51 per share.

The overall performance results (including commissions) for this
Fifth Third Bancorp Covered Calls position were 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: +$90.00
= ($.30 dividend per share x 300 shares)
(c) Capital Appreciation (FITB shares sold at $39.3637 per share): -$1,897.89
+($39.3637 stock selling price - $45.69 original stock purchase price) * 300 shares

Total Net Profit (Fifth Third Bancorp shares sold at $39.3637 per share): -$1,099.89

= (+$708.00 options income +$90.00 dividend income -$1,897.89 capital appreciation); or

Absolute Return-on-Investment: -8.5%

= -$1,099.89/$13,001.01

Annualized Return-on-Investment: -102.9%

= (-$1,099.89/$13,001.01) * (365/30 days)

3. Lennar Corporation (LEN) -- Covered Calls Position Closed
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.
04/14/2022 2 Lennar Calls expired out-of-the-money so the 200 shares remain in the Covered Calls Advisor Portfolio.
04/18/2022 Closed out this Lennar Corporation Covered Calls position by selling the 200 shares at $17.51 per share.

The overall performance results (including commissions) for this Lennar Corp. Covered Calls position were 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 (Lennar shares sold at $77.24 per share): -$6,098.00
= +($77.24 - $107.73) * 200 shares

 Total Net Profit (Lennar shares sold at $77.24 per share): -$3,229.02

= (+$2,793.98 + $75.00 - $6,098.00)

 Absolute Return-on-Investment: -15.9%

= -$3,229.02/$20,317.34

Annualized Return-on-Investment: -61.1%

= (-$823.02/$20,317.34) * (365/95 days)

Monthly Options Expiration Results through April 14th, 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 March 18th, 2022 options expiration through yesterday's April 14th, 2022 monthly options expiration date. During this past month, the Covered Calls Advisor Portfolio held a total of thirteen positions.   Eight positions were closed out at a profit and five are continuing positions that expired out-of-the-money.  A summary of results for all thirteen positions is provided below:

• Two positions expired in-the-money (stock price above the strike price) on their April 14th, 2022 monthly options expiration dates with the following results: 

1. Micron Technology Inc. (MU) Covered Calls -- +2.6% absolute return in 21 days (equivalent to +44.7% annualized return-on-investment).  
2. Owens Corning (OC) 100% Cash-Secured Puts -- +1.0% absolute return in 8 days (equivalent to +45.7% 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. State Street Corporation (STT) -- +2.2% absolute return in 13 days (equivalent to +60.5% annualized return-on-investment).
2. Comcast Corporation (CMCSA) --  +1.0% absolute return in 13 days (equivalent to +27.3% annualized return-on-investment).
3. EOG Resources Inc. (EOG) -- +1.7% absolute return in 16 days (equivalent to +39.3% annualized return-on-investment).

 

• Two Covered Calls positions were closed early based on a decision by the Covered Calls Advisor to close out the positions with the following results:

1. KeyCorp Inc. (KEY) -- +2.3% absolute return in 26 days (equivalent to +32.8% annualized return-on-investment).
2. JPMorgan Chase & Co. (JPM) --  +0.1% absolute return in 14 days (equivalent to +3.0% annualized return-on-investment).

 

• One Covered Calls position expired in-the-money on its Weekly options expiration date with the following results:

1. Kraft Heinz Company (KHC) -- +2.6% absolute return in 26 days (equivalent to +38.0% annualized return-on-investment).

• Five Covered Calls positions expired out-of-the-money on yesterday's April 14th, 2022 options expiration date.  In each case, the shares remain in the Covered Calls Advisor Portfolio and are currently held at an unrealized loss.  These positions are shown in the right sidebar of this blog as follows:  (1) 500 shares of American Eagle Outfitters Inc.;  (2) 300 shares of Fifth Third Bancorp ;  (3) 600 shares of iShares China Large-Cap ETF;   (4) 200 shares of Lennar Corporation; and (5) 500 shares of Micron Technology Inc.   In the upcoming week, decisions will be made to either sell these shares or to continue them as Covered Calls positions by selling future Call options against the shares currently held.

During the past year (last 12 months) 118 of 126 positions (93.7%) 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 +31.3% during the past year and the average holding period for these 126 closed positions was 20.6 days.  In comparison, the benchmark S&P 500 returned +6.5% during the same prior one-year period.  This 24.8 percentage points outperformance (31.3% actual annualized-return-on-investment return minus 6.5% 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 five 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 at least 10% 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

Early Assignment of Covered Calls Position in EOG Resources Inc.

Early Wednesday morning, the Covered Calls Advisor was notified by my broker (Schwab) that the two EOG Resources Inc. April 22nd, 2022 $113.00 Call options were exercised yesterday (the last business day prior to the 4/13/2022 ex-dividend date).  The EOG stock price had increased from its purchase price of $120.36 to $123.92 at the market close on 4/12/2022.  

This early exercise (on the day prior to EOG's ex-dividend date) of the two Call options was expected by the Covered Calls Advisor since these Call options were deep-in-the-money and had no remaining time value at Tuesday's market close.  The time value had declined from $1.92 when the Covered Calls position was established to $0.00 on at market close on the day prior to the ex-dividend date.  So, the owners of the Call options elected to purchase the 200 shares at the $113.00 strike price and thus also capture the $.75 per share ex-dividend.  Despite not capturing today's dividend, this is a desirable outcome for the Covered Calls Advisor since the resulting +39.3% annualized return-on-investment (aroi) achieved exceeds the +33.7% maximum potential aroi that might have been achieved on the April 22nd options expiration date (if the stock remains above the $113.00 strike price on that expiration date). 

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

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.
4/12/2022 Two EOG 4/22/2022 $113.00 Call options exercised early, so Calls expired and the 200 shares of EOG were sold by the Covered Calls Advisor at the $113.00 strike price to close out the Covered Calls position.

The overall performance results (including commissions) for this EOG Resources Covered Calls position were 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 (Call options exercised early on the business day prior to the April 13th ex-div date): +$0.00
(c) Capital Appreciation: -$1,472.00
+($113.00 - $120.36) * 200 shares ;

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

= (+$1,854.66 options income +$0.00 dividend income - $1,472.00 capital appreciation)

Absolute Return-on-Investment: +1.7%

= +$382.66/$22,217.34

Annualized Return-on-Investment: +39.3%

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

Closed Out the Covered Calls Position in JPMorgan Chase & Co. Inc.

At last Friday's options expiration date, two April 8th, 2022 Covered Calls in JPMorgan Chase & Co. Inc. (JPM) expired with the stock price below the $135.00 strike price.  At market open this morning, I decided to close out the position by selling the 200 JPM shares at $133.12.  The primary motivation for selling out of this position was that JPM's Q1 2022 earnings will be reported before market open this Wednesday and I prefer to avoid the volatility that accompanies quarterly earnings reports for companies I am invested in. 

As detailed below, the return-on-investment results for this JPMorgan Chase & Co. Inc. position is: +0.1% absolute return in 14 days (equivalent to a +3.0% annualized return-on-investment).  This return includes JPM's $1.00 ex-dividend of April 5th.

 

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

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 Quarterly ex-dividend at $1.00 per share
4/08/2022 Two JPM $135.00 Call options expired out-of-the-money since JPM stock closed below the strike price at $133.49. Therefore, 200 JPM shares remain in the Covered Calls Advisor Portfolio.
4/11/2022 JPM position closed out by selling 200 shares at the market open today at $133.12 per share.

The overall performance results (including commissions) for this JPM Covered Calls position was 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 (Ex-dividend captured on April 5th, 2022): +$200.00
= ($1.00 dividend per share x 200 shares)

(c) Capital Appreciation (JPM share sold on 4/11/2022 at $133.12 per share): -$1,096.00
+($133.12 - $138.60) * 200 shares

 

Total Net Profit (JPM Covered Calls position closed out): +$30.66

= (+$926.66 options income +$200.00 dividend income -$1,096.00 capital appreciation)
 

Absolute Return-on-Investment: +0.1%

= +$30.66/$26,793.34

Annualized Return-on-Investment: +3.0%

= (+$30.66/$26,793.34) * (365/14 days)

Established Cash-Secured Puts Position in Owens Corning

This morning, a one week 100% Cash-Secured Put options position was established in Owens Corning (ticker OC) at the April 14th, 2022 options expiration date and the $80.00 strike price.  Two Puts were sold at $.80 per share when the stock price was $83.27 (4.1% above the strike price).  

The Implied Volatility of these Puts was 40.6 when this position was established.  Establishing positions where the Implied Volatility is greater than that of the S&P 500 Index (i.e. VIX), which is currently at 23.0, is strongly preferred by the Covered Calls Advisor.  It is the fifth of the twelve investing "edges" (see here) I utilize that helps to achieve outperformance in comparison with that of the benchmark S&P 500 Index. 

The probability of assignment at options expiration on April 14th was 74.0%.  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 when this position was established.  As desired, the next earnings report on April 27th is after the April 14th options expiration date. 

Micron's valuation is very attractive at its current price.  For FY2022, Owens Corning's earnings per share is expected to increase to about $10.64 which would be 21.2% above last year's actual result.  This corresponds to a P/E ratio of only 7.8.  In addition, Owens Corning appeared on three of my primary stock screeners: (1) Mid-Cap Value+Profitability+Growth; (2) Shareholders Yield; and (3) Acquirers Multiple.  Finally, brokerage analysts' average target price for OC is $118.81 (+42.7% above today's price).     

As detailed below for this Owens Corning 100% Cash-Secured Puts position, there is potential for a +1.0% absolute return in 8 days (equivalent to a +45.7% annualized return-on-investment). 

Owens Corning (OC) -- New 100% Cash-Secured Puts Position

The transaction today was as follows:
04/7/2022  Sold 2 Owens Corning April 14th, 2022 $80.00 100% Cash-Secured Put options @ $.80 per share.

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 two Owens Corning Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $15,838.66
= ($80.00 - $.80) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$158.66
= ($.80 * 200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Owens Corning stock is above the $80.00 strike price at the April 14th options expiration): +$0.00
= ($80.00 - $80.00) * 200 shares

Total Net Profit (If Owens Corning stock price is out-of-the-money (above $80.00 strike price) at options expiration): +$158.66
= (+$158.66 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return-on-Investment: (If stock is above $80.00 strike price at the April 14th, 2022 options expiration) : +1.0%
= +$158.66/$15,838.66
Annualized Return-on-Investment: +45.7%
= (+$158.66/$15,838.66) * (365/8 days)

The downside 'breakeven price' at expiration is at $79.20 ($80.00 - $.80), which is 4.9% below the current market price of $83.27.


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

Early Assignment of Comcast Corporation Covered Calls

Early this morning, the Covered Calls Advisor was notified by my broker (Schwab) that the four Comcast Corporation April 14th, 2022 $45.00 Call options were exercised yesterday (the last business day prior to today's 4/5/2022 ex-dividend date).  The Comcast stock price has increased from its purchase price of $46.60 to $48.11 at the market close yesterday.  

This early exercise (on the day prior to Comcast's ex-dividend date) of the four 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 400 shares at the $45.00 strike price and thus also capture today's $.27 per share ex-dividend.  Despite not capturing today's dividend, this is a desirable outcome for the Covered Calls Advisor since the resulting +27.3% annualized return-on-investment (aroi) achieved slightly exceeds the +25.0% maximum potential aroi that might have been achieved on the April 14th options expiration date (if the stock remains above the $45.00 strike price on that expiration date). 

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

Comcast Corporation (CMCSA) -- Early Assignment of this 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.
04/5/2022 Four Comcast 4/14/2022 $45.00 Calls were exercised early (on the day prior to the 4/5/2022 ex-dividend date), so the Calls expired and the 400 Comcast shares were sold at the $45.00 strike price.

The overall performance results (including commissions) were 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 (Comcast shares assigned on day prior to ex-dividend date): +$0.00
(c) Capital Appreciation (Early Assignment): -$640.00
= ($45.00 sale price - $46.60 purchase price) * 400 shares

Total Net Profit (Comcast shares assigned early): +$173.32
= (+$813.32 options income +$0.00 dividend income -$640.00 capital appreciation)

Absolute Return-on-Investment: +1.0%
= +$173.32/$17,826.68
Equivalent Annualized Return-on-Investment: +27.3%
= (+$173.32/$17,826.68) * (365/13 days)

Continuation of Covered Calls Position in iShares China Large-Cap ETF

This past Friday, the February 1st, 2022 Covered Calls position in iShares China Large-Cap ETF (ticker FXI) closed out-of-the-money, so the Calls expired and 600 FXI shares remained in the Covered Calls Advisor Portfolio.  This morning, the Covered Calls position was continued by selling 6 April 14th, 2022 $35.00 Calls at $.38 per share when FXI's price was $34.06. 

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 600 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.
4/01/2022 6 FXI Calls expired out-of-the-money so the 600 shares remained in the Covered Calls Advisor Portfolio.
04/04/2022 Continued this iShares China Large-Cap ETF Covered Calls position by selling 6 FXI April 14th, 2022 $35.00 Call options @ $.38 per share.  The FXI share price was $34.06 when these Calls were sold and the Implied Volatility of these Calls was 30.7.

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: +$1,679.94
= ($2.02 + $.42 + $.38) * 600 shares - $12.06 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 600 iShares China Large-Cap ETF shares price unchanged at $34.06 at the 4/14/2022 options expiration): -$1,578.00
+($34.06 - $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 $34.06 at the April 14th, 2022 options expiration): +101.94
= (+$1,679.94 options income +$0.00 dividend income -$1,578.00 capital appreciation); OR
2. Total Net Profit (If 600 iShares China Large-Cap ETF shares assigned at $35.00 strike price at expiration): +$665.94
= (+$1,679.94 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 $34.06 at the April 14th, 2022 options expiration): +0.5%
= +$101.94/$20,806.02
Annualized Return-on-Investment: +3.1%
= (+$101.94/$20,806.02) * (365/57 days); OR
2. Absolute Return-on-Investment: (If 600 iShares China Large-Cap ETF shares assigned at $35.00 strike price at expiration) +3.2%
= +$665.94/$20,806.02
Annualized Return-on-Investment: +20.5%
= (+$665.94/$20,806.02) * (365/57 days)