Covered Call Position Established in Cigna Corporation

Today a Covered Call position was established in Cigna Corp. (ticker symbol CI) when one hundred Cigna shares were purchased at $271.73 and one June 17th, 2022 Call option was sold for $14.19 per share at the $260.00 strike price.  The  buy/write net debit limit order at $257.54 was executed, so the time value was $2.46 per share [$14.19 Call option premium - ($271.73 stock purchase price - $260.00 strike price)].  There is an upcoming quarterly ex-dividend of $1.12 (annual dividend yield of 1.6%) on June 7th, so potential return-on-investment results for this position, as detailed below, include the possibility of early assignment since the ex-dividend is prior to the June 7th, 2022 options expiration date.  

As preferred by the Covered Calls Advisor, Cigna's next quarterly earnings report on August 4th, 2022 will be after the June 17th options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Call position was established with a Delta of 75.8 and the Implied Volatility of the Call option was approximately 28.5 when the buy/write limit order was executed. 

Cigna stock has an attractive valuation since its current fiscal year P/E Ratio is estimated to be 12.0 which would be a year-over-year earnings growth of 10.8%.  The most recent quarterly earnings report was 17% above analysts' average eps estimate.  In addition, Cigna is one of only 5 companies in the Healthcare Sector to appear in my Large-Cap Value+Profitability+Growth stock screener. 

As detailed below, a potential return-on-investment result is +1.0% absolute return (equivalent to +49.7% annualized return for the next 7 days) if the stock is assigned early on June 6th (the last business day prior to the June 7th ex-date); OR +1.4% absolute return (equivalent to +28.1% annualized return over the next 18 days) if the stock is assigned on the June 17th, 2022 options expiration date.

Cigna Corporation (CI) -- New Covered Calls Position
The buy/write transaction today was as follows:
5/31/2022 Bought 100 Cigna Corp. shares @ $271.73
5/31/2022 Sold 1 Cigna 6/17/2022 $260.00 Call option @ $14.19
6/07/2022 Upcoming quarterly ex-dividend of $1.12 per share

Two possible overall performance results (including commissions) for this Cigna Covered Call position are as follows:
Covered Call Cost Basis: $25,754.67
= ($271.73 - $14.19) * 100 shares + $.67 commissions

Net Profit Components:
(a) Options Income: +$1,418.33
= ($14.19 * 100 shares) - $.67 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Dec. 6th ex-div date): +$0.00; or
(b) Dividend Income (If Cigna shares assigned at Dec. 17th, 2022 options expiration): +$112.00
= ($1.12 dividend per share x 100 shares)
(c) Capital Appreciation (If CI shares assigned early on June 6th): -$1,173.00
+($260.00 - $271.73) * 100 shares ;or
(c) Capital Appreciation (If Cigna shares assigned at $260.00 strike price at options expiration): -$1,173.00
+($260.00 - $271.73) * 100 shares

1. Total Net Profit [If options exercised on Dec. 3rd (business day prior to the Dec. 6th ex-dividend date)]: +$245.33

= (+$1,418.33 options income +$0.00 dividend income - $1,173.00 capital appreciation); or

2. Total Net Profit (If Cigna shares assigned at $260.00 strike price at June 17th, 2022 expiration): +$357.33

= (+$1,418.33 + $112.00 - $1,173.00)

1. Absolute Return [If Cigna Call options exercised on final business day prior to ex-dividend date]: +1.0%

= +$245.33/$25,754.67

Annualized Return (If options exercised early): +49.7%

= (+$245.33/$25,754.67) * (365/7 days); or

2. Absolute Return (If Cigna shares assigned at $260.00 strike price on June 17th, 2022 expiration): +1.4%

= +$357.33/$25,754.67

Annualized Return (If Cigna stock assigned at $260.00 at June 17th, 2022 expiration): +28.1%

= (+$357.33/$25,754.67) *(365/18 days)

These returns will be achieved as long as the stock is above the $260.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $256.42 ($271.73 -$14.19 -$1.12) provides 5.6% downside protection below today's purchase price.

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 Cigna Corporation Covered Call position.

Closed the Covered Calls Position in Ally Financial Inc.

At last Friday's options expiration, five May 20, 2022 Covered Calls in Ally Financial Inc. (ALLY) expired with the stock price below the $40.00 strike price.  Soon after this Monday's market open, this Covered Calls position was continued by selling five June 17th, 2022 Calls at the same $40.00 strike price against the 500 ALLY shares in the Covered Calls Advisor Portfolio.  Since Monday, Ally's shares have recovered in price to $41.43 this morning when I decided to close out what only a week ago was a losing position into a result that provided an attractive annualized-return-on-investment.    

As detailed below, the return-on-investment results for this Ally Financial Inc. position is: +3.8% absolute return in 34 days (equivalent to a +40.6% annualized return-on-investment).  This return includes Ally's $.30 per share ex-dividend of April 29th, 2022.

Ally Financial Inc. (ALLY) -- Closed Out this 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 Quarterly ex-dividend of $.30 per share
5/20/2022 Call options expired out-of-the-money.  The stock price was $38.67 at options expiration last Friday. 
05/23/2022 Sold 5 ALLY 6/17/2022 $40.00 Call options @ $1.70 when the stock price was $39.57.
05/26/2022 Closed out this Ally Financial Covered Calls position with a simultaneous unwind transaction by selling-to-close the 500 ALLY shares @ $41.43 and buying-to-close 5 ALLY 6/17/2022 $40.00 Calls @ $2.67 per share. 

The overall performance results (including commissions) for this Ally Financial Covered Calls position was as follows:
Stock Purchase Cost Basis: $19,633.35
= ($42.07 - $2.81) * 500 shares + $3.35 commission

 Net Profit:
(a) Options Income: +$913.30
= ($2.81 + $1.70 - $2.67) * 500 shares - $6.70 commissions
(b) Dividend Income (Ex-dividend captured on April 29th, 2022): +$150.00
= ($.30 dividend per share x 500 shares)
(c) Capital Appreciation (Ally Covered Calls position closed out): -$320.00
+($41.43 - $42.07) * 500 shares

Total Net Profit (Ally Covered Calls position closed out): +$743.30

= (+$913.30 options income +$150.00 dividend income -$320.00 capital appreciation)
 

Absolute Return-on-Investment: +3.8%

= +$743.30/$19,633.35

Annualized Return-on-Investment: +40.6%

= (+$743.30/$19,633.35) * (365/34 days)

Established Covered Calls in Cleveland-Cliffs Inc.

A June 3rd, 2022 Covered Calls buy/write net debit limit order was executed today in Cleveland-Cliffs Inc. (ticker CLF). Five hundred shares were purchased at $22.31 and five June 3rd, 2022 $23.00 strike price Call options were sold at $.75 per share.  Normally in this bear market, I establish in-the-money strike prices with good downside protection, but I chose an out-of-the-money strike price in this instance since the Cleveland-Cliffs stock is oversold at current levels and its current valuation is very attractive.

With acquisitions completed of ArcelorMittal USA, AK Steel, and Ferrous Processing and Trading Co., Cleveland-Cliffs is now the largest flat-rolled steel producer in North America and is also now vertically integrated from mining through production.  They supply flat-rolled steel to most major auto manufacturers with plants in North America and the majority of their product is sold under fixed price contracts at good margins to Cleveland-Cliffs, so they have substantially less exposure to the dramatic fluctuations in spot steel prices that is more commonplace among their competitors in the steel industry.  

Revenues are expected to grow this fiscal year 16.4% and earnings per share by 15.8% to $6.21 which implies a very attractive valuation with a P/E Ratio of only 3.6.  Furthermore, the average analysts' target price is $33.88 (+51.9% above today's purchase price).  Also, as preferred, their Q2 2022 earnings will be reported on July 21st, well after the June 3rd options expiration date.

As detailed below for this Cleveland-Cliffs Inc. Covered Calls position, two potential return-on-investment results are: (1) +3.4% absolute return in 12 days (equivalent to a +104.8% annualized return-on-investment) if the stock price is unchanged at its $22.31 purchase price on the June 3rd, 2022 options expiration date; and (2) +6.6% absolute return in 12 days (equivalent to a +202.1% annualized return-on-investment) if the stock price is above the $23.00 strike price on the June 3rd, 2022 options expiration date

Cleveland-Cliffs Inc. (CLF) -- New Covered Calls Position Established
The Buy/Write limit order was executed as follows:
5/23/2022 Bought 500 shares of Cleveland-Cliffs Inc. stock @ $22.31 per share 
5/23/2022 Sold 5 CLF June 3rd, 2022 $23.00 Call options @ $.75 per share

Two possible overall performance results (including commissions) for this Cleveland-Cliffs Covered Calls position are as follows:
Stock Purchase Cost Basis: $10,783.35
= ($22.31 - $.75) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$371.65
= ($.75 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If 500 CLF shares unchanged at $22.31 at the 6/3/2022 options expiration): +0.00 
= (+$22.31 price at options expiration - $22.31 purchase price) * 500 shares; OR

(c) Capital Appreciation (If 500 CLF shares assigned at $23.00 strike price at options expiration): +$345.00
= (+$23.00 -$22.31) * 500 shares

1. Total Net Profit (If 500 CLF shares unchanged at $22.31 at the 6/3/2022 options expiration): +$371.65

= (+$371.65 options income +$0.00 dividend income +$0.00) capital appreciation

2. Total Net Profit (If 500 Cleveland-Cliffs shares assigned at $23.00 strike price at expiration): +$716.65

= (+$371.65 options income +$0.00 dividend income +$345.00) capital appreciation

 

1. Absolute Return-on-Investment (If 500 CLF shares unchanged at $22.31 at the 6/3/2022 options expiration): +3.4%

= +$371.65/$10,783.35

Annualized Return-on-Investment: +104.8%

= (+$371.65/$10,783.35) * (365/12 days)

2. Absolute Return-on-Investment (If 500 Cleveland-Cliffs shares assigned at $23.00 strike price at June 3rd options expiration date): +6.6%

= +$716.65/$10,783.35

Annualized Return-on-Investment: +202.1%

= (+$716.65/$10,783.35) * (365/12 days)

Closed Covered Calls Position in Moderna Inc.

On last Friday's options expiration date, two May 20th, 2022 Covered Calls in Moderna Inc. (ticker MRNA) expired out-of-the-money with the stock price at $136.25 which was below the $140.00 strike price.  This morning, Moderna's shares increased and I decided to close out the position by selling the 200 Moderna shares at $139.60. 

As detailed below, the return-on-investment results for this Moderna position was: +4.8% absolute return in 19 days (equivalent to a +92.5% annualized return-on-investment).

Moderna Inc. (MRNA) -- Covered Calls Position Closed 

05/04/2022 Bought 200 Moderna shares @ $145.50
05/04/2022 Sold 2 MRNA May 20th, 2022 $140.00 Call options @ $12.32 per share.
05/20/2022 Two MRNA Call options expired out-of-the-money, so the 200 MRNA share remained in the Covered Calls Advisor Portfolio.  The stock price was $136.25 at the options expiration last Friday.
05/23/2022 Closed out this Covered Calls position by selling 200 Moderna shares at $139.60

The overall performance results (including commissions) for this Moderna Covered Calls position was as follows:
Stock Purchase Cost: $26,637.34
= ($145.50 - $12.32) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$2,462.66
= ($12.32 *200 shares) - $1.34 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (MRNA shares sold on 5/23/2022 at $139.60 per share): -$1,180.00

+($139.60 - $145.50) * 200 shares

 

Total Net Profit (Moderna Covered Calls position closed out): +$1,282.66

= (+$2,462.66 options income +$0.00 dividend income -$1,180.00 capital appreciation)
 

Absolute Return-on-Investment: +4.8%

= +$1,282.66/$26,637.34

Annualized Return-on-Investment: +92.5%

= (+$1,282.66/$26,637.34) * (365/19 days)

Continuation of Covered Calls Positions in Ally Financial Inc. and Micron Technology Inc.

At last Friday's options expiration, the Covered Calls positions in Ally Financial Inc. (ticker ALLY) and Micron Technology Inc. (MU) closed out-of-the-money, so their Call options expired and the shares remained in the Covered Calls Advisor Portfolio.  Soon after the market open this morning, Call options were sold against the shares owned in both companies to continue these Covered Call positions.  

For Ally Financial, five June 17th, 2022 $40.00 Call options were sold at $1.70 per share when the stock price was $39.57.  For Micron, five June 3rd, 2022 $70.00 Call options were sold at $2.48 per share when the stock price was $69.54.  As preferred by the Covered Calls Advisor, the next quarterly earnings report for both companies will be after their options expiration dates. 

Ally Financial Inc. (ALLY) -- Continuation of  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 Quarterly ex-dividend of $.30 per share
5/20/2022 Call options expired out-of-the-money.  The stock price was $38.67 at options expiration last Friday. 
05/23/2022 Sold 5 ALLY 6/17/2022 $40.00 Call options @ $1.70 when the stock price was $39.57.

Two possible overall performance results (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: +$2,248.30
= ($2.81 + $1.70) * 500 shares - $6.70 commission
(b) Dividend Income: +$150.00 = $.30 per share x 500 shares

(c) Capital Appreciation (If ALLY share price unchanged at $39.57 at the June 17th, 2022 options expiration date): -$1,250.00
+($39.57 -$42.07) * 500 shares

(c) Capital Appreciation (If 500 ALLY shares assigned at $40.00 strike price at the June 17th, 2022 options expiration date): -$1,035.00
+($40.00 -$42.07) * 500 shares

1. Total Net Profit (If ALLY share price unchanged at $39.57 at options expiration): +$1,148.30 = (+$2,248.30 options income +$150.00 dividend income -$1,250.00 capital appreciation)

2. Total Net Profit (If 500 Ally Financial shares assigned at $40.00 strike price at expiration): +$1,363.30 = (+$2,248.30 options income +$150.00 dividend income -$1,035.00 capital appreciation)

 

1. Absolute Return-on-Investment (If ALLY share price unchanged at $39.57 at the 6/17/2022 options expiration): +5.8%

= +$1,148.30/$19,633.35

Annualized Return-on-Investment: +37.5%

= (+$1,148.30/$19,633.35) * (365/57 days); OR

 

2. Absolute Return-on-Investment (If 500 ALLY shares assigned at $40.00 strike price at the June 17th, 2022 options expiration date): +6.9%

= +$1,363.30/$19,633.35

Annualized Return-on-Investment: +44.5%

= (+$1,363.30/$19,633.35) * (365/57 days)

 

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

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.
05/06/2022 Five Micron $73.00 Call options expired out-of-the-money, so 500 MU shares remain in the Covered Calls Advisor Portfolio.
05/09/2022 Continued Micron position by selling 5 May 20th, 2022 $72.50 Call options @ $2.02 per share against the 500 Micron shares owned.
5/20/2022 Five Micron Call options expired out-of-the-money.  The stock price was $68.90 at options expiration last Friday. 
05/23/2022 Sold 5 Micron 6/03/2022 $70.00 Call options @ $2.48 when the stock price was $69.54.

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: +$3,836.60
= ($.92 + $2.28 + $2.02 + $2.48) * 500 shares - $13.40 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Micron stock price is unchanged at $69.54 at the June 3rd, 2022 options expiration date): -$1,480.00
= ($69.54 - $72.50 original Put strike price) * 500 shares; OR
(c) Capital Appreciation (If Micron stock is above the $70.00 strike price at the June 3rd, 2022 options expiration): -$1,250.00
= ($70.00 June 3rd, 2022 strike price - $72.50 original strike price) * 500 shares

1. Total Net Profit (If Micron stock price is unchanged at $69.54 at options expiration): +$2,356.60
= (+$3,836.60 options income +$0.00 dividend income -$1,480.00 capital appreciation); OR
2. Total Net Profit (If Micron stock price is above the $70.00 strike price at options expiration): +$2,586.60
= (+$3,836.60 options income +$0.00 dividend income -$1,250.00 capital appreciation)
 

1. Absolute Return-on-Investment (If Micron stock is unchanged at $69.54 at the options expiration date of June 3rd, 2022) : +6.5%
= +$2,356.60/$36,246.65
Annualized Return-on-Investment: +36.5%
= (+$2,356.60/$36,246.65) * (365/65 days); OR

2. Absolute Return-on-Investment (If Micron stock is above $70.00 strike price at the June 3rd, 2022 options expiration date) : +7.1%
= +$2,586.60/$36,246.65
Annualized Return-on-Investment: +40.1%
= (+$2,586.60/$36,246.65)*(365/65 days)

Monthly Options Expiration Results through May 20th, 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 April 14th, 2022 options expiration through yesterday's May 20th, 2022 monthly options expiration date.  The recent decline in the overall market (as measured by the S&P 500) has been especially dramatic with weekly declines for the past seven consecutive weeks--which previously occurred 21 years ago in 2001.  And during the last month (since the April 14th options expiration date), the S&P 500 has declined by 11.0%.  

During this past month, the Covered Calls Advisor Portfolio held a total of fourteen positions.   Seven positions were closed out at a profit, four were closed out at a loss, and three are continuing positions that expired out-of-the-money on yesterday's May 20th monthly options expiration date.  A summary of results for these fourteen positions is provided below:

• Three positions expired in-the-money (stock price above the strike price) on their May 20th, 2022 monthly options expiration date with the following results: 

1. Blackstone Inc. (BX) Covered Calls -- +2.9% absolute return in 30 days (equivalent to +35.3% annualized return-on-investment).  
2. KB Home (KBH) Covered Calls -- +3.3% absolute return in 29 days (equivalent to +41.0% annualized return-on-investment).
3. Pfizer Inc. (PFE) Covered Calls -- +1.7% absolute return in 16 days (equivalent to +37.8% annualized return-on-investment).

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

1. Exxon Mobil Corporation (XOM) -- +1.0% absolute return in 6 days (equivalent to +35.6% annualized return-on-investment).
2. Wells Fargo & Company (WFC) -- +0.6% absolute return in 6 days (equivalent to +38.8% annualized return-on-investment).
   

 

• Five Covered Calls positions were closed early based on a decision by the Covered Calls Advisor to close out the positions.  Four were closed at a loss and one was closed at a profit as follows:

1. American Eagle Outfitters Inc. (AEO) -- -24.8% absolute return in 145 days (equivalent to -62.3% annualized return-on-investment).
2. Boeing Company (BA) --  -6.2% absolute return in 6 days (equivalent to -378.4% annualized return-on-investment).
3. First Third Bancorp (FITB) -- -8.5% absolute return in 30 days (equivalent to -102.9% annualized return-on-investment).
4. Lennar Corporation (LEN) --  -15.9% absolute return in 95 days (equivalent to -61.1% annualized return-on-investment).
5. Pioneer Natural Resources Company (PXD) --  +1.2% absolute return in 5 days (equivalent to +86.3% annualized return-on-investment).

 

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

1. Citigroup Inc. (C) -- +2.0% absolute return in 12 days (equivalent to +61.6% annualized return-on-investment).

• Three Covered Calls positions expired out-of-the-money on yesterday's May 20th, 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 Ally Financial Inc.;  (2) 300 shares of Micron Technology Inc.;  and (3) 200 shares of Moderna Inc.   Early 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) 119 of 131 positions (90.8%) in the Covered Calls Advisor Portfolio (CCAP) were closed out at a profit.  The Covered Calls Advisor Portfolio weighted average annualized-return-on-investment (aroi) was +24.1% during the past year and the average holding period for these 131 closed positions was 22.0 days.  In comparison, the benchmark S&P 500 returned -4.9% during the same prior one-year period.  The Covered Calls strategy can be exceptionally beneficial during Neutral to Slightly Bearish time periods like we have experienced during the past year.  However, this 29.0 percentage points outperformance (24.1% actual annualized-return-on-investment return minus -4.9% 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 last 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 at least 3 to 5 percentage points on an annualized-return-on-investment basis".

My preference is to identify opportunities to utilize my Dividend Capture Strategy (with ex-dividend dates prior to the options expiration dates) by selling moderately in-the-money strike prices for relatively low-growth dividend-paying companies in 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.  In this current bear market, new positions are being established in companies with the following characteristics: (1) good valuation metrics (such as low P/E ratios and high free cash flow yields); (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 results; 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 improving knowledge about the Covered Calls investing strategy.  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 to All,
Jeff Partlow
Covered Calls Advisor
partlow@cox.net

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

This morning the Covered Calls position in iShares China Large-Cap ETF (ticker FXI) was continued by selling 6 June 3rd, 2022 $31.00 Calls at $.77 per share when FXI's price was $30.69. The price has declined substantially along with the slowdown in China's economy which has included Covid-19 lockdowns.  However, rather than further tightening economic activity by raising interest rates, China is now easing financial conditions to re-stimulate growth. So this iShares China Large-Cap ETF Covered Calls position is being continued based on the belief that their stock market has bottomed and that this position can be repaired from its current loss back close to breakeven or even a small profitability by a strategy of regularly selling bi-weekly near-the-money Calls. Details of this position to-date are as follows: 

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.
4/14/2022 6 FXI Calls expired out-of-the-money so the 600 shares remained in the Covered Calls Advisor Portfolio.
05/20/2022 Continued this iShares China Large-Cap ETF Covered Calls position by selling 6 FXI June 3rd, 2022 $31.00 Call options @ $.77 per share.  The FXI share price was $30.69 when these Calls were sold and the Implied Volatility of these Calls was 36.4.

An overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position if the options were in-the-money and therefore assigned on the 6/3/2022 expiration date would be as follows:
Stock Purchase Cost: $20,806.02
= ($36.69 - $2.02) * 600 shares + $4.02 commission

Net Profit:
(a) Options Income: +$2,137.92
= ($2.02 + $.42 + $.38 + $.77) * 600 shares - $16.08 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 600 iShares China Large-Cap ETF shares assigned at $31.00 strike price at expiration): -$3,414.00
+($31.00 - $36.69) * 600 shares

Total Net Profit (If 600 iShares China Large-Cap ETF shares assigned at $31.00 strike price at expiration): -$1,276.08
= (+$2,137.92 options income +$0.00 dividend income -$3,414.00 capital appreciation)

Absolute Return-on-Investment: -6.1%
= -$1,276.08/$20,806.02
Annualized Return-on-Investment: -21.1%
= (-$1,276.08/$20,806.02) * (365/106 days)

Covered Calls Established in Airbnb, Inc.

Today a Covered Calls position was established in Airbnb,Inc. (ticker symbol ABNB) when the Covered Calls Advisor's buy/write limit order was executed -- 200 shares were purchased at $115.68 and 2 June 17th, 2022 Call options were sold at $19.54 at the $100.00 strike price.  The corresponding extrinsic value (i.e. time value) was $3.86 per share [$19.54 Call options premium - ($115.68 stock purchase price - $100.00 strike price)].  The $3.86 per share all will be profit if the stock remains above the $100.00 strike price (and therefore assigned) on the June 17th options expiration date.

Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Calls position was established -- the Delta was 77.8, which closely approximates the probability that the Call option will be in-the-money on the options expiration date.  In addition, the Implied Volatility of the Call was very high at 71.8 when the position was established [well above the current VIX of 28.7 and Airbnb's HV(5) which is the actual average Historic Volatility of its options during the prior 5 trading days].  This very high Implied Volatility is indicative of the volatile nature of Airbnb's stock price, but I believe it will be a strong market performer during the years ahead.  

Its Q1 2022 earnings report two weeks ago exceeded analysts' estimates to a substantial degree--so there is no quarterly earnings report (or ex-dividend date) prior to the options expiration date.  I believe Airbnb is now reaching an inflection point in which their earnings are transitioning from consistently negative to positive beginning this quarter (Q2 2022) with post-pandemic travel demand for this summer and beyond growing substantially, not only this year but for years to come.  As this occurs, it should cause additional investors (those who avoid investing in unprofitable companies) to increasingly consider making investing commitments in this company.   

Given its current $77 Billion market capitalization, Airbnb is the second largest company in the Hotels, Resorts, and Cruise Lines sub-industry within the Consumer Discretionary sector (behind only Booking Holdings Inc.).  They have been a public company for only about 2 years now, but have established their brand as the global leader in the short-term rental stays and experiences business.  Wall Street analysts are very bullish on the company's future with a current average target price of $190.52 (a full +64.7% above today's purchase price).     

Some key numbers for this Airbnb, Inc. Covered Calls position are:
Covered Calls Cost Basis: $23,137.34
Profit if Assigned on Expiration Date: $770.66
Days Until June 17th, 2022 Options Expiration: 33
Absolute Return-on-Investment if Assigned at Expiration: +3.3%
Annualized Return-on-Investment if Assigned at Expiration: +36.8%

As always, I encourage your email questions related to the Covered Calls investing strategy.

Regards and Godspeed,

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

Closed Covered Call Position in Pioneer Natural Resources Company

This Covered Call position in Pioneer Natural Resources Company (ticker PXD) was established last Wednesday when the stock was purchased at $250.88.  Since then, the stock price had risen substantially in price and I decided to close out the position early.  I prefer to receive the majority of its maximum potential profit now (after only 5 days) rather than the uncertainty in this volatile market of holding the position for another full month (until its June 17th options expiration date).   

The return-on-investment results, as detailed below, are: +1.2% absolute return-on-investment (equivalent to +86.3% annualized-return-on-investment) for the 5 days this position was held.   

 

Pioneer Natural Resources Company (PXD) -- Closed Out Covered Call Position 

The buy/write transaction was as follows:
5/11/2022 Bought 100 shares of Pioneer Natural Resources @ $250.88 per share 
5/11/2022 Sold 1 PXD June 17th, 2022 $230.00 Call option @ $25.28 per share.  Note: the Implied Volatility of the Call option was 29.4 when this transaction was executed.
5/16/2022 Unwound (i.e. Closed out) Covered Call position in PXD by simultaneously selling the 100 shares and buying-to-close the one PXD 6/17/2022 $230.00 Call option at a net credit of $228.28 per share.  
 
The overall performance results (including commissions) was as follows:
Covered Call Cost Basis: $22,560.67
= ($250.88 - $25.28) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: -$774.34
= ($25.28 - $33.01) * 100 shares - $1.34 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: -$1,041.00
+($261.29 stock selling price - $250.88 stock purchase price) * 100 shares

 

Total Net Profit: +$266.66

= (-$774.34 option income +$0.00 dividend income +$1,041.00 capital appreciation)

 

Absolute Return-on-Investment: +1.2%

= +$266.66/$22,560.67

Annualized Return-on-Investment: +86.3%

= (+$266.66/$22,560.67) * (365/5 days)

Early Assignment of Covered Calls Position in Exxon Mobil Corporation

Note: On yesterday's Pioneer Natural Resources post, I indicated an upcoming $7.38 ex-dividend.  Schwab had reported it yesterday as an "extra dividend" of $7.38, but today they are reporting it as a $.78 regular dividend and a $6.60 "special dividend".  Special dividends reduce the options strike price by the amount of the special dividend, so the maximum potential return-on-investment results are reduced accordingly.  I will be updating yesterday's post to reflect this adjustment.   

----------------------

Early this morning, I was notified via email by my broker that the two Exxon Mobil Corporation May 20th, 2022 $80.00 Call options were exercised yesterday (the last business day prior to today's 5/12/2022 ex-dividend date).  The Exxon Mobil stock price had increased from its purchase price of $85.73 to $86.79 at yesterday's market close.  

This early exercise was expected by the Covered Calls Advisor since these Call options were deep-in-the-money and had only $.035 time value remaining [($80.00 strike price +$6.825 midpoint of $6.60/$7.05 bid/ask spread) - $86.79 stock price at yesterday's market close].   So, the time value had declined from $.78 when the Covered Calls position was established to $0.035 at market close on the day prior to the ex-dividend date.  The owners of the Call options elected to purchase the 200 shares at the $80.00 strike price and thus also capture the $.88 per share ex-dividend, so I captured all the original $.78 per share time value as profit.   

The return-on-investment results are: +1.0% absolute return-on-investment (equivalent to +35.6% annualized-return-on-investment) for the 6 days this position was held. 

The transactions and detailed results for this Exxon Mobil Covered Calls position were as follows:

Exxon Mobil Corporation (XOM) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction was:

05/2/2022 Bought 200 Exxon Mobil shares @ $85.73
05/2/2022 Sold 2 XOM 5/20/2022 $80.00 Call options @ $6.51
05/12/2022 Upcoming quarterly ex-dividend of $.88 per share

The overall performance results (including commissions) for this Exxon Mobil Corp. Covered Calls position are as follows:
Covered Calls Cost Basis: $15,845.34
= ($85.73 - $6.51) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,300.66
= ($6.51 * 200 shares) - $1.34 commission
(b) Dividend Income (Call options exercised early on May 11th, the business day prior to the May 12th ex-div date): +$0.00

(c) Capital Appreciation (XOM Call options assigned early on May 12th): -$1,146.00
+($80.00 - $85.73) * 200 shares

Total Net Profit [Two Calls exercised on May 11th (business day prior to the May 12th ex-dividend date)]: +$154.66

= (+$1,300.66 options income +$0.00 dividend income -$1,146.00 capital appreciation)

 

Absolute Return-on-Investment: +1.0%

= +$154.66/$15,845.34

Annualized Return-on-Investment: +35.6%

= (+$154.66/$15,845.34)*(365/6 days)

Covered Call Established in Pioneer Natural Resources Company

A Covered Call position was established in the Pioneer Natural Resources Co. (ticker PXD), with a June 17th, 2021 options expiration date. One hundred shares of Pioneer were purchased at $250.88 and one Call option was sold at $25.28 per share at the $230.00 strike price. The time value was $4.40 per share [$230.00 strike price - ($250.88 share price - $25.28 Call option premium)] when this buy/write limit order transaction was executed.  This limit order was placed late this morning and didn't execute until 2:20pm ET this afternoon.  I normally place same day buy/write orders at limit prices below the current market.  Sometimes they get executed and sometimes not, but the stock declined substantially from its peak price today and was executed at the prices shown above.  The Delta for this Call option was 76.4 when this position was established which approximates the probability that the position will close in-the-money (and therefore be assigned) on the June 17th, 2022 options expiration date.  

Pioneer has taken the extraordinary step this quarter of paying out 80% of its $2.0 billion free cash flow to investors in an amazing $7.38 dividend with an ex-div date of May 27th, 2022.  See CEO Scott Sheffield on Jim Cramer's Mad Money discussing it here.  This represents an 11.8% annualized dividend yield at today's $250.88 stock purchase price.  This income is included in the potential return-on-investment results detailed below.  Their quarterly earnings were just reported about 4 weeks ago, so there is no quarterly earnings report prior to the June 17th, 2022 options expiration date.

Pioneer Natural Resources Company is a leading pure-play oil and gas exploration and production (E&P) company that explores for, develops, and produces oil, natural gas, natural gas liquids (NGLs) and gas within the U.S., with operations primarily in the Permian Basin in West Texas.  Pioneer is known for its low breakeven costs and its strong balance sheet.  The recent acquisition of Parsley Energy provides additional assets and further diversifies its operations into the Delaware Basin (in West Texas and Southeastern New Mexico), one of the most prolific basins in the U.S. 

There are currently 33 analysts covering Pioneer and their average price target is $293.65 (+17.0% above today's purchase price of $250.88).

Two potential return-on-investment results are as follows: (a) +2.0% absolute return-on-investment (equivalent to +44.5% annualized roi) for 16 days if this Covered Call position is assigned early on May 26th (the last business day prior to the May 27th ex-dividend date); OR  (b) +5.2% absolute return-on-investment (equivalent to +50.2% annualized roi) for 38 days if this Covered Call position is in-the-money on the June 17th, 2022 options expiration date.

Pioneer Natural Resources Company (PXD) -- New Covered Call Position Established
The buy/write transaction was as follows:
5/11/2022 Bought 100 shares of Pioneer Natural Resources @ $250.88 per share 
5/11/2022 Sold 1 PXD June 17th, 2022 $230.00 Call option @ $25.28 per share.  Note: the Implied Volatility of the Call option was 29.4 when this transaction was executed.
5/27/2021 Ex-dividend of $7.38 per share
 
Two possible overall performance results (including commissions) would be as follows:
Covered Call Cost Basis: $22,560.67
= ($250.88 - $25.28) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$2,528.00
= ($25.28 * 100 shares)
(b) Dividend Income (If option exercised early on the last business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If PXD shares assigned at June 17th, 2022 expiration): +$738.00
= ($7.38 dividend per share x 100 shares)
(c) Capital Appreciation (If Pioneer shares assigned early): -$2,088.00
+($230.00 strike price - $250.88 stock purchase cost) * 100 shares; or
(c) Capital Appreciation (If PXD shares assigned at $230.00 strike price at options expiration): -$2,088.00
+($230.00 - $250.88) * 100 shares

1. Total Net Profit [If option exercised on May 26th, 2022 (the last business day prior to the May 27th ex-dividend date)]: +$440.00

= (+$2,528.00 option income +$0.00 dividend income -$2,088.00 capital appreciation); or

2. Total Net Profit (If Pioneer Natural Resources shares assigned at $230.00 at June 17th, 2022 options expiration): +$1,178.00

= (+$2,528.00 +$738.00 -$2,088.00)

1. Absolute Return-on-Investment (If PXD options exercised early on the last business day prior to the ex-dividend date): +2.0%

= +$440.00/$22,560.67

Annualized Return-on-Investment (If PXD Call option exercised early on May 26th): +44.5%

= (+$440.00/$22,560.67) * (365/16 days); or

2. Absolute Return-on-Investment (If PXD shares assigned at $230.00 at June 17th, 2022 options expiration date): +5.2%

= +$1,178.00/$22,560.67

Annualized Return-on-Investment (If Pioneer Natural Resources stock assigned at $230.00 at June 17th, 2022 options expiration date): +50.2%

= (+$1,178.00/$22,560.67) * (365/38 days)

Either outcome would provide a very good return-on-investment result.  These returns will be achieved as long as the stock is above the $230.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $218.22 ($250.88 -$25.28 -$7.38) provides 13.0% downside protection below today's purchase price.

Continuation of Covered Calls Position in Micron Technology Inc.

At last Friday's options expiration, the five May 6th $73.00 Micron Technology Inc. Call options expired out-of-the-money (the stock closed at $70.30). Early in this morning's trading, the Covered Calls Advisor continued this Micron Covered Calls position by selling five May 20th, 2022 $72.50 Call options at $2.02 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 20th, 2022 options expiration date.  

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

•  +3.9% absolute return (equivalent to +28.5% annualized return for 50 days) if the stock price is unchanged from today's price of $70.13 on the May 20th, 2022 options expiration date; OR 

• +7.2% absolute return (equivalent to +52.4% annualized return for 50 days) if the stock is in-the-money and therefore assigned at the $72.50 strike price on the May 20th, 2022 options expiration date.

 

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

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.
05/06/2022 Five Micron $73.00 Call options expired out-of-the-money, so 500 MU shares remain in the Covered Calls Advisor Portfolio.
05/09/2022 Continued Micron position by selling 5 May 20th, 2022 $72.50 Call options @ $2.02 per share against the 500 Micron shares owned.

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: +$2,599.95
= ($.92 + $2.28 + $2.02) * 500 shares - $10.05 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Micron stock price is unchanged at $70.13 at the May 20th, 2022 options expiration date): -$1,185.00
= ($70.13 - $72.50 original Put strike price) * 500 shares; OR
(c) Capital Appreciation (If Micron stock is above the $72.50 strike price at the May 20th options expiration): +$0.00
= ($72.50 May 20th strike price - $72.50 original strike price) * 500 shares

1. Total Net Profit (If Micron stock price is unchanged at $70.13 at options expiration): +$1,414.95
= (+$2,599.95 options income +$0.00 dividend income -$1,185.00 capital appreciation); OR
2. Total Net Profit (If Micron stock price is above the $72.50 strike price at options expiration): +$2,599.95
= (+$2,599.950 options income +$0.00 dividend income +$0.00 capital appreciation)
 

1. Absolute Return-on-Investment (If Micron stock is unchanged at $70.13 at the options expiration date of May 20th, 2022) : +3.9%
= +$1,414.95/$36,246.65
Annualized Return-on-Investment: +28.5%
= (+$1,414.95/$36,246.65) * (365/50 days); OR
2. Absolute Return-on-Investment (If Micron stock is above $72.50 strike price at the May 20th, 2022 options expiration date) : +7.2%
= +$2,599.95/$36,246.65
Annualized Return-on-Investment: +52.4%
= (+$2,599.95/$36,246.65)*(365/50 days)

May 6th, 2022 Options Expiration Results

The Covered Calls Advisor Portfolio had two Covered Calls with May 6th, 2022 options expirations with the following results:

1. Citigroup Inc. (C) -- +2.0% absolute return (equivalent to +61.6% annualized return-on-investment) for the 12 days of this investment. The post when this position was originally established is here. 

The cash now available from the assignment (i.e. closing) of this position will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Given the Covered Calls Advisor's currently cautious Overall Market outlook, new positions will be hedged by continuing to establish Covered Calls at in-the-money strike prices with good downside protection. 

2. Micron Technology Inc. (MU) -- Five hundred shares were out-of-the-money at $70.30 at market close yesterday since the strike price was $73.00.  So, the five hundred Micron shares now remain in the Covered Calls Advisor Portfolio (as shown in the right sidebar of this blog).  A decision will be made early next week to either sell these shares or, more likely, to continue this Covered Calls position by selling future Call options against the shares currently held.

I encourage you to email me at the address shown below with any questions/etc. related to Covered Calls (or their equivalent Cash-Secured Puts).

Best Wishes and Godspeed,

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net

Established Covered Calls Position in Pfizer Inc.

Soon after market open this morning (at 9:34a.m.), the Covered Calls Advisors net debit buy/write limit order was transacted in Pfizer Inc. (ticker PFE). Three hundred shares were purchased at $49.06 and three May 20th, 2022 Call options were sold at $2.44 at the $47.00 strike price.  Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Calls position was established.  The Delta was 75.8 and this approximates a probability  of 75.8% that the Call options will be in-the-money on the options expiration date. Potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since Pfizer's May 12th, 2022 ex-dividend is prior to the May 20th options expiration date.  As preferred, there is no quarterly earnings report prior to the options expiration date.

As detailed below, two potential return-on-investment results for this Pfizer Covered Calls position are: +0.8% absolute return (equivalent to +41.7% annualized return-on-investment for the next 7 days) if the stock is assigned early (business day prior to the May 12th ex-dividend date); OR +1.7% absolute return (equivalent to +37.8% annualized return over the next 16 days) if the stock is assigned on the May 20th options expiration date.

Pfizer Inc. (PFE) -- New Covered Calls Position
The buy/write transaction was:
05/05/2022 Bought 300 Pfizer shares @ $49.06
05/05/2022 Sold 3 Pfizer 05/20/2022 $47.00 Call options @ $2.44  Note: the Time Value (aka Extrinsic Value) in the Call options was $.38 per share = [$2.44 Call options premium - ($49.06 stock price - $47.00 strike price)]
05/12/2022 Upcoming quarterly ex-dividend of $.40 per share

Two possible overall performance results (including commissions) for this Pfizer Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $13,988.01
= ($49.06 - $2.44) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$729.99
= ($2.44 * 300 shares) - $2.01 commission
(b) Dividend Income (If options exercised early on May 11th, 2022 -- the business day prior to the May 12th ex-div date): +$0.00; or
(b) Dividend Income (If Pfizer stock assigned at May 20th, 2022 expiration): +$120.00
= ($.40 dividend per share x 300 shares)

(c) Capital Appreciation (If Pfizer Call options assigned early on May 11th): -$618.00
+($47.00 - $49.06) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $47.00 strike price at options expiration): -$618.00
+($47.00 - $49.06) * 300 shares

1. Total Net Profit (If options exercised on business day prior to May 12th ex-dividend date): +$111.99

= (+$729.99 options income +$0.00 dividend income -$618.00 capital appreciation); or

2. Total Net Profit (If Pfizer shares assigned at $47.00 strike price on May 20th, 2022 options expiration date): +$231.99

= (+$729.99 +$120.00 -$618.00)

1. Absolute Return-on-Investment (If options exercised early on May 11th, 2022): +0.8%

= +$111.99/$13,988.01

Annualized Return-on-Investment (If options exercised early): +41.7%

= (+$111.99/$13,988.01)*(365/7 days); or

2. Absolute Return-on-Investment (If Pfizer shares assigned at $47.00 at May 20th, 2022 options expiration): +1.7%

= +$231.99/$13,988.01

Annualized Return-on-Investment (If Pfizer shares assigned at $47.00 on May 20th, 2022 options expiration): +37.8%

= (+$231.99/$13,988.01)*(365/16 days)

Either outcome provides a satisfactory return-on-investment result for this Pfizer investment.  These returns will be achieved as long as the stock is above the $47.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $46.22 ($49.06 -$2.44 -$.40) provides 5.8% 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 Pfizer position, all nine criteria were 'YES'.

Early Assignment of Covered Calls Position in Wells Fargo & Company

Early this morning the Covered Calls Advisor was notified by my broker (Schwab) that the three Wells Fargo & Company May 13th, 2022 $40.00 Call options were exercised yesterday (the last business day prior to today's 5/5/2022 ex-dividend date).  The Wells Fargo stock price had increased from its purchase price of $43.86 to $45.98 at yesterday's market close.  

This early exercise was expected by the Covered Calls Advisor since these Call options were deep-in-the-money (Delta of 94.9) and had only $.07 time value remaining [($40.00 strike price +$6.05 midpoint of $5.05/$7.05 bid/ask spread) - $45.98 stock price at yesterday's market close].   So, the time value had declined from $.26 when the Covered Calls position was established to $0.07 at market close on the day prior to the ex-dividend date.  The owners of the Call options elected to purchase the 300 shares at the $40.00 strike price and thus also capture the $.25 per share ex-dividend, so I captured all the original $.26 per share time value as profit.   

Despite not capturing today's dividend, this is a desirable outcome for the Covered Calls Advisor since the resulting +38.8% annualized return-on-investment (aroi) achieved exceeds the +30.8% maximum potential aroi that might have been achieved on the May 13th options expiration date (if the stock remains above the $40.00 strike price on that expiration date). 

The transactions and detailed results for this Covered Calls position were as follows:

Wells Fargo & Company (WFC) -- Covered Calls Position Closed by Early Assignment
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
05/04/2022 Three WFC Call options exercised early so the WFC Covered Calls position was closed out since the Calls expired and the 300 shares were sold at the $40.00 strike price.

The overall performance results (including commissions) for this Wells Fargo Covered Calls position were 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 (Call options exercised early on May 4th, the business day prior to the May 5th ex-div date): +$0.00

(c) Capital Appreciation: -$1,158.00
+($40.00 - $43.86) * 300 shares

Total Net Profit [Three Call options 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)

 

Absolute Return-on-Investment: +0.6%

= +$75.99/$11,924.01

Annualized Return-on-Investment: +38.8%

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

Covered Calls Established in Moderna Inc.

Today a Covered Calls position was established in Moderna Inc. (ticker symbol MRNA) when the Covered Calls Advisor's buy/write limit order was executed -- 200 shares were purchased at $145.50 and 2 May 20th, 2022 Call options were sold at $12.32 at the $140.00 strike price.  Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, an in-the-money Covered Calls position was established -- the Delta was 62.3, which closely approximates the probability that the Call option will be in-the-money on the options expiration date.  In addition, the Implied Volatility of the Call was very high at 75.4 when the position was established (well above the current VIX of 28.7).  There is no quarterly earnings report or ex-dividend date prior to the options expiration date.  Today's earnings report was excellent both in terms of earnings per share and revenue, and the forward guidance was also encouraging. 

Some key numbers for this Moderna Inc. Covered Call position are:
Covered Call Cost Basis: $26,637.34
Profit if Assigned on Expiration Date: $1,362.66
Days Until Expiration: 17
Absolute Return-on-Investment if Assigned at Expiration: +5.12%
Annualized Return-on-Investment if Assigned at Expiration: +109.8%

As always, I encourage your email questions related to the Covered Calls investing strategy.

Regards and Godspeed,

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

Established Covered Calls Position in Exxon Mobil Corporation

Today a Covered Calls position was established in Exxon Mobil Corporation (ticker symbol XOM) when the Covered Calls Advisor's buy/write limit order was executed -- 200 shares were purchased at $85.73 and 2 May 20th, 2022 Call options were sold at $6.51 at the $80.00 strike price.  The corresponding extrinsic value (i.e. time value) was $.78 per share [$6.51 Call options premium - ($85.73 stock purchase price - $80.00 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 or at the May 20th options expiration date).

At today's purchase price, the upcoming ex-dividend of $.88 on May 12th has a 4.1% annualized dividend yield.  So, this short-term (only 19 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, Exxon meets the four primary criteria required by the Covered Calls Advisor during this current bearish market: 

1. Good valuation -- the trailing twelve months EV/EBITDA ratio is only 9.5
2. Appear in one of my stock screeners -- Exxon appears in the Covered Calls Advisor's Energy Sector stock screener
3. Estimated FY2022 EPS greater than FY2021 actual -- FY2021 actual was $5.38 per share and the FY2022 estimate is $9.16 per share
4. Analysts' average target price at least 10% above the current stock price -- their current average target price of $94.36 is 10.1% above today's purchase price.
   

The Implied Volatility of the Call options was 38.7 which, as desired by the Covered Calls Advisor, is greater than the current 34.8 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 20th options expiration date).  Given the Covered Calls Advisor's current cautious overall market sentiment, a moderately in-the-money Covered Calls position was established--the Delta was 78.8 which approximates the probability that the stock will be in-the-money, and therefore assigned (i.e. sold), on the May 20th options expiration date.  

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

•  +1.0% absolute return (equivalent to +35.6% annualized return for the next 10 days) if the stock is assigned early (business day prior to the May 12th ex-dividend date); OR 

• +2.1% absolute return (equivalent to +40.1% annualized return over the next 19 days) if the stock is assigned on the May 20th options expiration date.

Exxon Mobil Corporation (XOM) -- New Covered Calls Position
The buy/write transaction was:

05/2/2022 Bought 200 Exxon Mobil shares @ $85.73
05/2/2022 Sold 2 XOM 5/20/2022 $80.00 Call options @ $6.51
05/12/2022 Upcoming quarterly ex-dividend of $.88 per share

Two possible overall performance results (including commissions) for this Exxon Mobil Corp. Covered Calls position are as follows:
Covered Calls Cost Basis: $15,845.34
= ($85.73 - $6.51) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,300.66
= ($6.51 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on May 11th, the business day prior to the May 12th ex-div date): +$0.00; or
(b) Dividend Income (If Exxon Mobil stock assigned at May 20th, 2022 options expiration; so the $.88 dividend is captured): +$176.00
= ($.88 dividend per share x 200 shares)

(c) Capital Appreciation (If XOM Call options assigned early on May 12th): -$1,146.00
+($80.00 - $85.73) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $80.00 strike price at options expiration): -$1,146.00
+($80.00 - $85.73) * 200 shares

1. Total Net Profit [If option exercised on May 11th (business day prior to the May 12th ex-dividend date)]: +$154.66

= (+$1,300.66 options income +$0.00 dividend income -$1,146.00 capital appreciation); or

2. Total Net Profit (If Exxon shares assigned at $80.00 at May 20th, 2022 expiration): +$330.66

= (+$1,300.66 +$176.00 -$1,146.00)

1. Absolute Return-on-Investment [If option exercised on May 11th (business day prior to ex-dividend date)]: +1.0%

= +$154.66/$15,845.34

Annualized Return-on-Investment (If option exercised early): +35.6%

= (+$154.66/$15,845.34)*(365/6 days); or

2. Absolute Return-on-Investment (If Exxon Mobil shares assigned at $80.00 on the May 20th, 2022 options expiration date): +2.1%

= +$330.66/$15,845.34

Annualized Return-on-Investment (If shares assigned at $80.00 on the May 20th, 2022 options expiration date): +40.1%

= (+$330.66/$15,845.34)*(365/19 days)

Either outcome provides an attractive return-on-investment result for this Exxon Mobil investment.  These returns will be achieved as long as the stock is above the $80.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $78.34 ($85.73 -$6.51 -$.88) provides an 8.6% 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 Exxon Mobil Corporation position, all nine criteria are met.