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
