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)