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)