Covered Calls Established in The Walt Disney Company

Today a Covered Calls position was established in The Walt Disney Company (ticker symbol DIS) when the Covered Calls Advisor's buy/write limit order was executed -- 200 shares were purchased at $92.60 and 2 July 15th, 2022 Call options were sold at $4.59 at the $90.00 strike price.  The corresponding extrinsic value (i.e. time value) was $1.99 per share [$4.59 Call options premium - ($92.60 stock purchase price - $90.00 strike price)].  The $1.99 per share will be profit if the stock remains above the $90.00 strike price (and therefore assigned) on the July 15th options expiration date.

Given the Covered Calls Advisor's current Bearish Overall Market Meter outlook, a moderately in-the-money Covered Calls position was established -- the Delta was 64.9, which closely approximates a 64.9% probability that the Call options will be in-the-money on the options expiration date.  In addition, the Implied Volatility of the Calls was high at 40.9 when the position was established, well above the current VIX of 30.1. 

Disney was recently added to my Watchlist and today declined to a level that I believe is a good entry point for establishing an initial position that could evolve into a long-term holding.  Revenues this quarter are expected to be slightly higher than during the same quarter 3 years ago (before the pandemic) when Disney's stock price was in the $140s. 

Some key numbers for this Walt Disney Company Covered Calls position are:
Covered Calls Cost Basis: $18,518.66
Profit if Assigned on Expiration Date: $396.66
Days Until July 15th, 2022 Options Expiration: 16
Absolute Return-on-Investment if Assigned at Expiration: +2.1%
Annualized Return-on-Investment if Assigned at Expiration: +48.9%

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

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

Established Covered Calls in Toll Brothers Inc.

Today, a July 15th, 2022 Covered Calls buy/write limit order was placed in Toll Brothers Inc. (ticker TOL) at a net debit limit price of $39.66 per share.  The order was executed by purchasing 400 shares at $44.99 and simultaneously selling four July 15th Call options at the $40.00 strike price for $5.33 per share.  The Implied Volatility of these Call options was 42.7 when this transaction was executed which, as preferred by the Covered Calls Advisor, is above the current 28.3 of the S&P 500 Volatility Index (VIX).  In addition, there is an upcoming quarterly ex-dividend of $.20 per share on July 7th which is included in the potential return-on-investment calculations detailed below.  When this deep-in-the-money Covered Calls position was established today it had a probability of assignment on the options expiration date of 86.9%.   

Toll Brothers Inc. meets the five primary criteria currently preferred for new positions established by the Covered Calls Advisor (especially its historically low valuation ratios):

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

•  +0.8% absolute return (equivalent to +34.1% annualized return for the next 9 days) if the stock is assigned early (business day prior to the July 7th, 2022 ex-dividend date); OR 

• +1.3% absolute return (equivalent to +27.3% annualized return over the next 18 days) if the stock is assigned on the July 15th, 2022 options expiration date.

These returns will be achieved as long as Toll Brothers stock price is above the $40.00 strike price at options expiration.  If the stock declines below the strike price, the breakeven price of $39.46 per share ($44.99 stock purchase price - $5.33 Call options selling price - $.20 ex-dividend amount) provides a substantial 12.3% downside breakeven protection below today's stock purchase price.
 

Toll Brothers Inc. (TOL) -- New Covered Calls Position

If the stock price increases to the point where the current time value (i.e. extrinsic value) of $.34 remaining in the short Call options decays substantially (down to about $.10 or less) by July 6th, 2022 (the last business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 400 Toll Brothers shares away to capture the dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would still be a desirable outcome since its +34.1% annualized return-on-investment (aroi) exceeds the Covered Calls Advisor's +30.0% minimum aroi threshold for an early assignment (as shown in criteria #8 in the table below).

The simultaneous buy/write transaction was:
6/28/2022 Bought 400 Toll Brothers shares @ $44.99
6/28/2022 Sold 4 TOL July 15th, 2022 $40.00 Call options @ $5.33 per share
7/07/2022 Upcoming quarterly ex-dividend at $.20 per share

Two possible overall performance results (including commissions) for this Toll Brothers Covered Calls position are as follows:
Stock Purchase Cost Basis: $15,866.68
= ($44.99 - $5.33) *400 shares + $2.68 commission

Net Profit:
(a) Options Income: +$2,129.32
= ($5.33 *400 shares) - $2.68 commission
(b) Dividend Income (If option exercised early on July 6th, the business day prior to the July 7th ex-div date): +$0.00; or
(b) Dividend Income (If Toll Brothers shares assigned at the July 15th, 2022 expiration): +$80.00
= ($.20 dividend per share x 400 shares)

(c) Capital Appreciation (If TOL assigned early): -$1,996.00
+($40.00 -$44.99) * 400 shares; or
(c) Capital Appreciation (If Toll Brothers assigned at $40.00 strike price at expiration): -$1,996.00
+($40.00-$44.99) * 400 shares

1. Total Net Profit [If option exercised on the last business day prior to the July 7th ex-dividend date)]: +$133.32

= (+$2,129.32 options income +$0.00 dividend income -$1,996.00 capital appreciation); or

2. Total Net Profit (If TOL assigned at $40.00 at July 15th, 2022 expiration): +$213.32

= (+$2,129.32 options income +$80.00 dividend income -$1,996.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on business day prior to ex-dividend date): +0.8%

= +$133.32/$15,866.68

Annualized Return-on-Investment (If option exercised early): +34.1%

= (+$133.32/$15,866.68) * (365/9 days); or

2. Absolute Return-on-Investment (If Toll Brothers assigned at $40.00 at July 15th expiration date): +1.3%

= +$213.32/$15,866.68

Annualized Return-on-Investment (If TOL shares assigned at $40.00 at July 15th, 2022 options expiration): +27.3%

= (+$213.32/$15,866.68) *(365/18 days)

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 below, all nine criteria are achieved in this Toll Brothers Inc. position.

Established Covered Calls Position in JPMorgan Chase & Co.

Today a Covered Calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) when the Covered Calls Advisor's buy/write net debit limit order at $103.78 was executed.  Two hundred JPM shares were purchased at $112.44 and two July 15th, 2022 $105.00 Call options were sold at $8.66 per share.  The time value in the Call options when this position was established was $1.22 per share = [$8.66 Call options premium received - ($112.44 stock purchase price - $105.00 strike price)] and the Implied Volatility of these Calls was 37.7.  This is a moderately in-the-money position since the stock purchase price is 7.1% above the $105.00 strike price.  The Delta of the Calls was 77.6 which provides a good approximation of 77.6% for the probability of assignment on the options expiration date.  

JPMorgan's upcoming dividend is $1.00 per share (a 3.6% annualized dividend yield based on today's stock purchase price) and it goes ex-dividend on July 5th, 2022 which is prior to the July 15th options expiration date.  So, this dividend is included in the potential return-on-investment results detailed below.  However, JPMorgan reports their Q2 2022 earnings on day prior to the options expiration date, and I prefer not holding positions on the day when any company is reporting their quarterly earnings.  So, it is likely I will decide to unwind (i.e. close out) this position prior to the earnings report.       

This position is very similar to a JPMorgan position established just prior to their last quarterly ex-dividend date on April 5th, 2022.  Like JPMorgan, most companies in the Financial Sector provide only modest growth prospects, but they often provide good annual dividend yields.  Consequently, the Covered Calls Advisor targets opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions.  This new JPMorgan Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of five very large U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, and Morgan Stanley) for each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup 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 monthly Covered Calls in these banks is to both provide an opportunity to either: (1) potentially capture the quarterly dividend payment and if the stock price remains above the strike price at options expiration, the maximum possible return-on-investment result on the options expiration date for the position would be achieved; or (2) have the stock assigned early on the day prior to the ex-dividend date in which case the Covered Calls Advisor is usually very pleased since the Dividend Capture Strategy criteria are designed such that the annualized return-on-investment for early assignment would also exceed the Covered Calls Advisor's minimum threshold.  So far, applying this approach has provided attractive annualized return results -- better than would be achieved if Covered Calls positions for these bank stocks were held in the Covered Calls Advisor Portfolio during the other two non-dividend paying months each quarter.  

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

•  +1.2% absolute return (equivalent to +35.6% annualized return for the next 12 days) if the stock is assigned early (business day prior to the July 5th, 2022 ex-dividend date); OR 

• +2.1% absolute return (equivalent to +33.8% annualized return over the next 23 days) if the stock is assigned on the July 15th, 2022 options expiration date.

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

If the stock price increases to the point where the current time value (i.e. extrinsic value) of $1.22 remaining in the short Call options decays substantially (down to about $.20 or less) by July 1st, 2022 (the last business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 JPM shares away to capture the dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would still be a desirable outcome since its +35.6% annualized return-on-investment (aroi) exceeds the Covered Calls Advisor's +25.0% minimum aroi threshold for an early assignment.

The simultaneous buy/write transaction was:
6/23/2022 Bought 200 JPM shares @ $112.44
6/23/2022 Sold 2 JPM April 15th, 2022 $105.00 Call options @ $8.66 per share
7/05/2022 Upcoming quarterly ex-dividend at $1.00 per share

Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost Basis: $20,757.34
= ($112.44 - $8.66) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,730.66
= ($8.66 *200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on July 1st, the business day prior to the July 5th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at the July 15th, 2022 expiration): +$200.00
= ($1.00 dividend per share x 200 shares)

(c) Capital Appreciation (If JPM assigned early): -$1,488.00
+($105.00 -$112.44) * 200 shares; or
(c) Capital Appreciation (If JPM assigned at $105.00 strike price at expiration): -$1,488.00
+($105.00-$112.44) * 200 shares

1. Total Net Profit [If option exercised on the last business day prior to the July 5th ex-dividend date)]: +$242.66

= (+$1,730.66 options income +$0.00 dividend income -$1,488.00 capital appreciation); or

2. Total Net Profit (If JPM assigned at $105.00 at July 5th, 2022 expiration): +$442.66

= (+$1,730.66 options income +$200.00 dividend income -$1,488.00 capital appreciation)

1. Absolute Return (If option exercised on business day prior to ex-dividend date): +1.2%

= +$242.66/$20,757.34

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

= (+$242.66/$20,757.34) * (365/12 days); or

2. Absolute Return (If JPM assigned at $105.00 at July 15th expiration date): +2.1%

= +$442.66/$20,757.34

Annualized Return (If JPM assigned at $105.00 at July 15th, 2022 options expiration): +33.8%

= (+$442.66/$20,757.34)*(365/23 days)

These return results would 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 $102.78 ($112.44 -$8.66 -$1.00) provides 8.6% downside protection below today's $112.44 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.  Eight of the nine criteria are achieved in this JPMorgan position.

Established Covered Calls in Nucor Corporation

This morning, a July 15th, 2022 Covered Calls buy/write limit order was placed in Nucor Corporation (ticker NUE) at a net debit limit price of $95.42 per share.  The order was executed by purchasing 200 shares at $107.21 and simultaneously selling two July 15th Call options at the $97.50 strike price for $11.79 per share.  In addition, there is an upcoming quarterly ex-dividend of $.50 per share on June 29th (one week from today) which is included in the potential return-on-investment calculations detailed below.  When this moderately in-the-money position was established today it had a probability of assignment on the options expiration date of 75.5%. 

As shown below, Nucor meets the five primary criteria currently preferred for new purchases, especially its historically low P/E ratio valuation:

As detailed below for this Nucor Covered Calls position, the maximum potential return-on-investment result is +2.7% absolute return in 24 days (equivalent to a + 41.0% annualized return-on-investment) if the stock price is above the $97.50 strike price on the July 15th, 2022 options expiration date.  These returns will be achieved as long as the Nucor price is above the $97.50 strike price at options expiration.  If the stock declines below the strike price, the breakeven price of $94.92 per share ($107.21 stock purchase price - $11.79 Call options price sold - $.50 ex-dividend amount) provides a substantial 11.5% downside protection below today's stock purchase price.
 

Nucor Corporation (NUE) -- New Covered Calls Position
The simultaneous buy/write transaction today was as follows:
6/22/2022 Bought 200 Nucor Corporation shares @ $107.21
6/22/2022 Sold 2 Nucor 7/15/2022 $97.50 Call options @ $11.79 per share.  Note: the Implied Volatility of the Calls was 53.6 when this transaction was executed which (as I prefer) was well above the S&P 500 Volatility Index (VIX) of 30.1 when this transaction was executed.
6/29/2022 Ex-dividend of $.50 per share

A possible overall performance result (including commissions) for this Nucor Covered Calls position are as follows:
Covered Calls Cost Basis: $19,085.34
= ($107.21 - $11.79) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$2,356.66
= ($11.79 * 200 shares) - $1.34 commissions
(b) Dividend Income: +$100.00 = $.50 per share x 200 shares
(c) Capital Appreciation (If Nucor shares assigned at $97.50 strike price at options expiration): -$1,942.00
+($97.50 stock selling price - $107.21 stock purchase price) * 200 shares

Total Net Profit (If Nucor shares assigned at $97.50 strike price at the July 15th, 2022 expiration): +$514.66

= (+$2,356.66 options income + $100.00 dividend income - $1,942.00 capital appreciation)
 

Absolute Return-on-Investment (If Nucor shares assigned at $97.50 strike price on the July 15th, 2022 options expiration date): +2.7%

= +$514.66/$19,085.34

Annualized Return-on-Investment (If Nucor stock assigned at $115.00 at Jan. 21st, 2022 expiration): +41.0%

= (+$514.66/$19,085.34) *(365/24 days)

Closed Covered Calls Position in Airbnb Inc.

At last Friday's options expiration, two June 17th, 2022 Covered Calls in Airbnb Inc. (ticker ABNB) expired with the stock price slightly below the $100.00 strike price, so the Calls expired and the 200 shares of Airbnb remained in the Covered Calls Advisor Portfolio.  I decided to close this position, so soon after this morning's market open, I closed this Airbnb position by selling the 200 shares at the market price of $102.79 per share.    

As detailed below, the return-on-investment results for this Airbnb Inc. position was: +6.9% absolute return in 36 days (equivalent to a +70.1% annualized return-on-investment).  This Covered Calls position demonstrates the benefit of selling moderately in-the-money Covered Calls in bearish markets.  This Airbnb stock price declined by 11% since its original purchase price just over one month ago, however a very attractive return-on-investment result was achieved.

Airbnb Inc. (ABNB) -- Covered Calls Position Closed
The Buy/Write limit order was executed as follows:
5/16/2022 Bought 200 shares of Airbnb Inc. stock @ $115.68 per share 
5/16/2022 Sold 2 ABNB June 17th, 2022 $100.00 Call options @ $19.54 per share
06/17/2022 Two ABNB Calls closed slightly below the $100.00 strike price @ $99.49 per share, so the 2 ABNB Call options expired and 200 Airbnb shares remained in the Covered Calls Advisor Portfolio.
06/21/2022 Closed out this Airbnb Covered Calls position by selling 200 shares @ $102.79 per share.

The overall performance results (including commissions) for this Airbnb Inc. Covered Calls position were as follows:
Stock Purchase Cost Basis: $19,229.34
= ($115.68 - $19.54) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$3,906.66
= ($19.54 * 200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (200 ABNB shares sold at $102.79 per share): -$2,578.00
= (+$102.79 sale price - $115.68 original stock price) * 200 shares

Total Net Profit: +$1,328.66

= (+$3,906.66 options income +$0.00 dividend income -$2,578.00 capital appreciation)

 

Absolute Return-on-Investment: +6.9%

= +$1,328.66/$19,229.34

Annualized Return-on-Investment: +70.1%

= (+$1,328.66/$19,229.34) * (365/36 days)

Regards and Godspeed,

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

Continuation of Covered Calls in Cigna Corporation and Micron Technology Inc.

At last Friday's options expiration, the Covered Calls positions in Cigna Corporation (ticker CI) 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 Cigna Corporation, one July 15th, 2022 $250.00 Call option was sold at $6.60 per share against the 100 shares owned in the Covered Calls Advisor Portfolio when the stock price was $247.00.  For Micron, five July 15th, 2022 $60.00 Call options were sold at $2.06 per share against the 500 Micron shares owned when the stock price was $57.20.  The details of these Covered Calls positions so far are provided below including potential return-on-investment results.

1. Cigna Corporation (CI) -- Covered Call Position Continued
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
6/17/2022 One Cigna $260.00 Call options expired out-of-the-money and 100 shares remain in the Covered Calls Advisor Portfolio
6/21/2022 Continued Cigna Covered Call position by selling one July 15th, 2022 $250.00 Call option @ $6.60 per share.  The stock price was $247.00 when this transaction was executed.  The option's Implied Volatility was 29.9 and the Delta was 45.8.

A possible overall performance result (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: +$2,077.66
= ($14.19 + $6.60) * 100 shares - $1.34 commissions
(b) Dividend Income (Cigna went ex-dividend on 6/7/2022 at $1.12 per share): +$112.00
= ($1.12 dividend per share x 100 shares)
(c) Capital Appreciation (If Cigna shares assigned at $250.00 strike price at the July 15th, 2022 options expiration): -$2,173.00
+($250.00 - $271.73) * 100 shares

Total Net Profit (If Cigna shares assigned at $250.00 strike price at July 15th, 2022 expiration): +$16.66

= (+$2,077.66 options income + $112.00 dividend income - $2,173.00 capital appreciation)
 

Absolute Return-on-Investment (If Cigna shares assigned at $250.00 strike price on July 15th, 2022 options expiration date): +0.1%

= +$16.66/$25,754.67

Annualized Return-on-Investment (If Cigna stock assigned at $250.00 at July 15th, 2022 expiration): +0.5%

= (+$16.66/$25,754.67) *(365/46 days)

2. Micron Technology Inc. (MU) -- Covered Calls Position Continued

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.
06/03/2022 5 MU $70.00 Calls closed slightly below the $70.00 strike price @ $69.94 per share.  So, the Call options expired and 500 Micron shares remain in the Covered Calls Advisor Portfolio.
06/06/2022 Continued Micron Covered Calls position by selling 5 June 17th, 2022 $70.00 Call options @ $3.20 per share against the 500 Micron shares owned.  Micron's stock price had increased to $71.53 early in this morning's trading when this transaction was executed.
6/17/2022 Five Micron $70.00 Call options expired out-of-the-money and 500 Micron shares remain in the Covered Calls Advisor Portfolio
6/21/2022 Continued Micron Covered Calls position by selling five July 15th, 2022 $60.00 Call options @ $2.06 per share.  The stock price was $57.20 when this transaction was executed.  The Call options' Implied Volatility was 53.6 and the Delta was 39.4.
7/05/2022 Estimated ex-dividend of $.10 per share.

A 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: +$6,459.90
= ($.92 + $2.28 + $2.02 + $2.48 + $3.20 +$2.06) * 500 shares - $20.10 commissions
(b) Dividend Income: +$50.00 = $.10 per share x 500 shares 
(c) Capital Appreciation (If Micron stock is above the $60.00 strike price at the July 15th, 2022 options expiration date): -$6,250.00
= ($60.00 July 15th, 2022 strike price - $72.50 original strike price) * 500 shares

Total Net Profit (If Micron stock price is above the $60.00 strike price at options expiration): +$259.90
= (+$6,459.90 options income +$50.00 dividend income -$6,250.00 capital appreciation)

Absolute Return-on-Investment (If Micron stock is above $60.00 strike price at the July 15th, 2022 options expiration date) : +0.7%
= +$259.90/$36,246.65
Annualized Return-on-Investment: +2.4%
= (+$259.90/$36,246.65) * (365/107 days)

Monthly Options Expiration Results through June 17th, 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 May 20th, 2022 options expiration through yesterday's June 17th, 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 ten of the past eleven weeks.  Consequently, we are now well into bear market territory.  But as referenced in the "Words of Wisdom" in the right sidebar: "For those properly prepared in advance, a bear market in stocks is not a calamity but an opportunity." -- John Templeton  

During this past month, the Covered Calls Advisor Portfolio held a total of eleven positions.   Five positions were closed out at a profit, three are continuing positions that expired out-of-the-money on yesterday's June 17th monthly options expiration date, and three current positions have options expirations during the upcoming month.  A summary of results for these eleven positions is provided below:

• The five positions that were closed out at a profit were:
  

1. Ally Financial Inc. (ALLY) -- +3.8% absolute return in 34 days (equivalent to +40.6% annualized return-on-investment).  
2. Best Buy Inc. (BBY) -- +2.1% absolute return in 8 days (equivalent to +94.2% annualized return-on-investment).
3. Cleveland-Cliffs Inc. (CLF) -- +6.4% absolute return in 14 days (equivalent to +167.8% annualized return-on-investment).
4. Devon Energy Corp. (DVN) -- +1.6% absolute return in 9 days (equivalent to +66.0% annualized return-on-investment).
5. Moderna Inc. (MRNA) -- +4.8% absolute return in 19 days (equivalent to +92.5% annualized return-on-investment).

• Three Covered Calls positions expired out-of-the-money on yesterday's June 17th, 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 and are as follows:  (1) 200 shares of Airbnb, Inc.;  (2) 100 shares of Cigna Corporation;  and (3) 500 shares of Micron Technology 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.

• Three existing positions with options expirations during the upcoming month are: (1) 300 Energy Select Sector SPDR Fund ETF (Covered Calls); (2) 600 iShares China Large-Cap ETF (Covered Calls); and (3) 5 Warner Brothers Discovery Inc. (Cash-Secured Puts).  The detailed results for each of these positions will be published on this blog on their respective options expiration dates.

During the past year (last 12 months) 117 of 128 positions (91.4%) 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 +26.4% during the past year and the average holding period for these 128 closed positions was 21.9 days.  In comparison, the benchmark S&P 500 returned -13.1% during the same prior one-year period.  As demonstrated by these past year's results, the Covered Calls strategy can be exceptionally beneficial during Slightly Bearish time periods such as we have experienced during the past year.  However, my one caveat is that this exceptionally large outperformance by the Covered Calls Advisor Portfolio relative to the S&P 500 substantially exceeds that which would normally be expected over a period of several years 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".  Please consider carefully re-reading the article in the link shown above.

As shown in the right sidebar, there are currently six 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 Covered Call and Cash-Secured Put positions are being established (1) for short durations (one month or less); (2) at moderately in-the-money strike prices; and (3) in companies with the following characteristics: (a) good valuation metrics (such as low P/E ratios and high free cash flow yields); (b) appear in at least one of the many stock screeners that have been developed over the years by the Covered Calls Advisor; (c) estimated next year earnings-per-share above that of their actual prior year results; and (d) analysts' average target price at least 10% above the current stock price. 

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).  

This Covered Calls Advisor blog is a free service available to anyone interested in learning how to implement a successful Covered Calls investing strategy.  As always, I welcome your emails with any comments or questions related to this post or anything related to Covered Calls investing.

Jeff Partlow
Covered Calls Advisor
partlow@cox.net

Rollout Covered Calls Position in iShares China Large-Cap ETF

This afternoon, the Covered Calls position in iShares China Large-Cap ETF (ticker FXI) was continued by rolling out today's six FXI June 17th, 2022 $32.00 Calls two additional weeks to the July 1st, 2022 $32.00 strike price.  A credit spread transaction was executed by buying-to-close 6 June 17th $32.00 Calls at $.34 per share and simultaneously selling 6 July 1st, 2022 $32.00 Calls at $1.16 per share when FXI's price was $32.275 per share.  

This is the fifth rollout for this FXI Covered Calls position.  FXI has declined substantially from its original $36.69 purchase price, yet if the price remains above the $32.00 strike price and is therefore assigned at its July 1st options expiration, this Covered Calls will have a small negative return-on-investment result despite having declined 12.8% from its $36.69 purchase price to its $32.00 selling price. This demonstrates the benefit of selling in-the-money Call options to lower the downside breakeven price in bearish markets. 

This iShares China Large-Cap ETF Covered Calls position is being continued based on the belief that their stock market is in a bottoming process with increasing equity prices likely in its near-term future.  So, I believe continuing this FXI Covered Calls position remains viable despite an economic slowdown in China that has included strict Covid-19 lockdowns.  I remain bullish on China stocks now for three primary reasons: (1) their stock valuations are very low versus their historic levels; (2) related to monetary policy, China is doing QE whereas the U.S. and Europe have now begun a QT policy mode--making China's stock markets attractive relatively speaking; and (3) China's recent Covid trends have improved significantly and they have begun easing their rigid lockdown policies. 

Note: I prefer FXI to some other China-focused ETFs since FXI options are very liquid and iShares purchases all China holdings therein (such as Alibaba, Tencent, JD, etc.) only on the Hong Kong Exchange rather than on U.S. Exchanges.  This policy avoids most of the current regulatory and political risks inherent in the U.S. listings of these Chinese companies.

 

iShares China Large-Cap ETF (FXI) -- Continuation of Covered Calls Position

The detailed transactions to-date are 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.
6/03/2022 Continued the Covered Calls position in iShares Large-Cap China ETF by Rolling-Up-and-Out the current June 3rd FXI Covered Calls position by simultaneously buying-to-close the six June 3rd $31.00 Calls at $.91 per share and selling-to-open six June 17th, 2022 $32.00 Calls at $.77 per share.  Note: the FXI price was $31.89 when this transaction was executed.
6/9/2022 Semi-annual ex-dividend of $.1459 per share.
6/17/2022 Continued the Covered Calls position in iShares Large-Cap China ETF by Rolling-Out the current June 17th FXI Covered Calls position by simultaneously buying-to-close the six June 17th $32.00 Calls at $.34 per share and selling-to-open six July 1st, 2022 $32.00 Calls at $1.16 per share.  Note: the FXI price was $32.275 when this transaction was executed.

An overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position if these new 7/1/2022 $32.00 FXI Calls are in-the-money and therefore assigned on the 7/1/2022 options 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: +$2,537.88
= ($2.02 + $.42 + $.38 + $.77 - $.91 + $.77 - $.34 + $1.16) * 600 shares - $24.12 commissions
(b) Dividend Income: +$87.54 = $.1459 per share x 600 shares.
(c) Capital Appreciation (If 600 iShares China Large-Cap ETF shares assigned at $32.00 strike price at expiration): -$2,814.00
+($32.00 - $36.69) * 600 shares

Total Net Profit (If 600 iShares China Large-Cap ETF shares assigned at $32.00 strike price at the 7/1/2022 options expiration): -$188.58
= (+$2,537.88 options income +$87.54 dividend income -$2,814.00 capital appreciation)

Absolute Return-on-Investment: -0.9%
= -$188.58/$20,806.02
Annualized Return-on-Investment: -2.5%
= (-$188.58/$20,806.02) * (365/134 days)

Covered Calls Established in Energy Select Sector SPDR Fund ETF

A Covered Calls position was established in the Energy Select Sector SPDR Fund ETF (ticker XLE), with a July 1st, 2021 weekly options expiration date. Three hundred shares of the Energy Select Sector SPDR Fund were purchased at $78.62 and three Call options were sold at $4.71 per share at the $75.00 strike price.  The Implied Volatility of these Calls was 38.5 when this position was transacted which, as preferred by the Covered Calls Advisor, is above that of the S&P 500 Volatility Index (i.e. VIX) which is currently at 32.9.

The time value was $1.09 per share [$75.00 strike price - ($78.62 share price - $4.71 options premium)] when this buy/write limit order transaction was executed.  XLE also goes ex-distribution on June 21st, 2022.  The exact amount of the XLE distribution is not pre-announced, but based on prior quarterly distributions, I estimate it will be approximately $.71 per share.   

Given my current Bearish Overall Market Meter rating, the current strategy is to established Covered Calls between 4.0% and 7.0% in-the-money.  The Delta was 72.6 when this position was established, which is a good approximation of the probability that XLE will close in-the-money (and therefore be assigned at the strike price) on the July 1st options expiration date.  This corresponds to a 4.8% [($78.62 stock purchase price - $75.00 strike price)/$70.00 strike price] in-the-money position which is within the desired 4% to 7% in-the-money range given the current Bearish market viewpoint.

As detailed below, a potential return-on-investment result is +1.5% absolute return (equivalent to +107.0% annualized return for the next 5 days) if the stock is assigned early on June 20th (the last business day prior to the June 21st ex-date); OR +2.4% absolute return (equivalent to +55.3% annualized return over the next 16 days) if the stock is assigned on the July 1st, 2022 options expiration date.

Energy Select Sector SPDR Fund ETF (XLE) -- New Covered Calls Position
The buy/write transaction today was as follows:
6/16/2022 Bought 300 Energy Select Sector SPDR Fund ETF shares @ $78.62 per share
6/16/2022 Sold 3 XLE 7/01/2022 $75.00 Call option @ $4.71 per share
6/21/2022 Upcoming quarterly ex-distribution estimated at $.71 per share

Two possible overall performance results (including commissions) for this Energy Select Sector SPDR Fund ETF Covered Call position are as follows:
Covered Call Cost Basis: $22,175.01
= ($78.62 - $4.71) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$1,410.99
= ($4.71 * 300 shares) - $2.01 commissions
(b) Dividend Income (If option exercised early on the business day prior to the June 21st ex-div date): +$0.00; or
(b) Dividend Income (If XLE shares assigned at July 1st, 2022 options expiration): +$213.00
= ($.71 dividend per share x 300 shares)
(c) Capital Appreciation (If XLE shares assigned early on June 30th): -$1,086.00
+($75.00 - $78.62) * 300 shares ;or
(c) Capital Appreciation (If shares assigned at $75.00 strike price at options expiration): -$1,086.00
+($75.00 - $78.62) * 300 shares

1. Total Net Profit [If options exercised on June 30th (last business day prior to the July 1st ex-dividend date)]: +$324.99

= (+$1,410.99 options income +$0.00 dividend income - $1,086.00 capital appreciation); or

2. Total Net Profit (If XLE shares assigned at $75.00 strike price at July 1st, 2022 expiration): +$537.99

= (+$1,410.99 options income + $213.00 dividend income - $1,086.00 capital appreciation)

1. Absolute Return [If XLE Call options exercised on final business day prior to ex-dividend date]: +1.5%

= +$324.99/$22,175.01

Annualized Return (If options exercised early): +107.0%

= (+$324.99/$22,175.01) * (365/5 days); or

2. Absolute Return (If XLE shares assigned at $75.00 strike price on July 1st, 2022 expiration): +2.4%

= +$537.99/$22,175.01

Annualized Return (If XLE shares assigned at $75.00 at July 1st, 2022 expiration): +55.3%

= (+$537.99/$22,175.01) *(365/16 days)

These returns will be achieved as long as the XLE price is above the $75.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $73.20 ($78.62 -$4.71 -$.71) provides 6.9% 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 Energy Select Sector SPDR Fund ETF Covered Call position.

Cash-Secured Puts Position Established in Warner Brothers Discovery Inc.

A new 100% Cash-Secured Puts position was established in Warner Brothers Discovery Inc. (ticker symbol WBD) at the July 1st, 2022 $13.00 strike price at $.49 per share.   Five Puts were sold at noon today when the stock price was at $13.89 and the Dow was down about 700 points.  

During this bear market, I am being very selective before establishing any new positions.  This new WBD position has been on my watch list since the merger of AT&T's WarnerMedia assets with Discovery about a year ago.  The stock price has now declined to a level that I believe is very attractive relative to its longer term price potential.  Wall Street analysts concur because their current average price target is $37.33.

Given my current Bearish outlook, a conservative strike price 6.8% below the stock price was selected.  The probability of the option expiring above the strike price on the July 1st options expiration date was approximately 69.2% when this position was established and the Implied Volatility of these five Put options was 68.2.  Because of the sharp recent decline in the Warner Brothers Discovery stock price, this current elevated Implied Volatility provides the potential +71.5% annualized return-on-investment result shown below (despite the substantial 6.8% downside protection provided to the $13.00 strike price).

Some key numbers for this Warner Brothers Discovery Cash-Secured Puts position are:
Cash-Secured Put Cost Basis: $6,496.65
Profit if Stock Price is Above $13.00 Strike Price on July 1st, 2022 Expiration Date: $241.65
Days Until Expiration: 19
Absolute Return-on-Investment: +3.7%
Annualized Return-on-Investment: +71.5%

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

Overall Market Viewpoint Remains at Bearish

Today, the Covered Calls Advisor evaluated the current values for each of the seven factors used to determine the "Overall Market Meter" rating.  The prior rating done 3 months ago was Bearish and today's rating is also Bearish.  Of the seven factors used in the analysis, they can be categorized as macroeconomic, momentum, value, and growth metrics as as follows:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next two indicators), and
- growth (the last indicator).

The current Market Meter average of 1.43 (see blue line at the bottom of the chart above) is in the Bearish range (Note: the Bearish range is from 0.75 to 1.50).  This is the identical total to the prior analysis done 3 months ago but there were four changes to individual factors:

- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next two indicators), and
- growth (the last indicator).  

So what is our current Covered Calls investing strategy?  Based on the Covered Calls Advisor's "Bearish" Overall Market Meter (see right sidebar), the corresponding strategy is to "on-average sell between 4% and 7% in-the-money Covered Calls for options expiration dates during the next month".   

I agree with the 'Bearish' Overall Market Meter reading.  Consequently, I plan to continue following my process which is, when Bearish, to establish in-the-money Covered Calls positions.  It is generally agreed that The Federal Reserve's policy of Quantitative Easing (i.e. QE) during the most recent years provided a consistent tailwind to the stock market.  Since the Fed has now begun reversing policies to: (1) regular increases in the Federal Funds rate to try to obtain control of inflation, but which will most likely be accompanied by a deceleration beginning this year in corporate earnings growth rates compared with their growth rates the past two years; and (2) Quantitative Tightening which will likely have the effect of being a headwind (the opposite effect that the QE tailwind was) for the stock market.  In addition, despite the current bear market, the stock market's current overall valuation remains historically high by several metrics, including the two valuation factors used in my Overall Market Meter analysis (i.e. Total-Market- Cap-to-GDP ratio and the Trailing-Twelve Montths P/E ratio) both of which continue as headwinds to the overall market.  

Corporate earnings trends are perhaps the single most important factor in stock market performance and starting in another two weeks we will begin to receive Q3 2022 earnings reports and a majority of reports will be released during the next 2 months--so I intend to conduct my next Overall Market Meter analysis in about two months. 

Note: If you haven't recently carefully read the 3 linked blog posts included in this paragraph, please do so.
I agree with Ben Graham and with the content of this article: link -- that it is impossible to successfully time the market on a consistent basis.  But I cannot seem to totally ignore my need to have an opinion on its most likely upcoming direction.  As Covered Calls investors, we need to select a strike price for every position we establish.  Some Covered Calls investors avoid this important strike price selection decision entirely by always picking the same strike price every time (for example, the closest to at-the-money strike price, or one strike out-of-the-money).  But I've never been able to do that.  I prefer a more active decision-making approach; so I select strike prices based on my Overall Market Meter sentiment indicator -- at-the-money strike prices if the Overall Market Meter is Neutral, out-of-the-money if Bullish, and in-the-money if Bearish.  Sometimes my Market Meter is right and sometimes its wrong, but over the years it has helped me in three primary ways: (1) it has helped me read more and thus learn more about the myriad factors that influence the overall stock market and the individual companies that comprise it; (2) it has given me a slight return-on-investment edge compared with always using the same strike price [and we all need to seek and find our investing edges: (See Link)]; and (3) it has contributed to my commitment to maintaining a disciplined investing process -- and with a "disciplined investing process", we are following Warren Buffett's advice to "take the emotion out of investing and simply stick with good businesses" (read this prior article from my blog: (link).       

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

Established Covered Calls in Best Buy Inc.

Today at 1:45pm, a new short-term (one week) Covered Calls position was entered in Best Buy Inc. (ticker BBY) for the June 17th, 2022 options expiration and at the $70.00 strike price when the stock was at $72.56.  The Call options premium received was $3.12 per share and the Implied Volatility of these Calls was 33.7 which, as I prefer, exceeds the current S&P 500 Volatility Index (VIX) of 28.1.  Based on the Covered Calls Advisor's current cautious sentiment, a moderately in-the-money position was established at a Delta of 76.0 (which approximates a 76.0% probability that the Calls will expire in-the-money on the options expiration date).  There is an upcoming ex-dividend on Monday (June 13th) of $.88 per share (4.9% annualized dividend yield) which is included in the potential return-on-investment results detailed below. 

Analysts covering Best Buy have an average target price of $94.71 (+30.5% above today's purchase price).  The Covered Calls Advisor also likes the valuation based on its P/E Ratio -- based on estimates for this fiscal year's earnings per share, the P/E would be 8.5 based on today's stock purchase price, which compares very favorably with their prior 5-year average of 14.7. 

As detailed below, a potential return-on-investment result is +2.1% absolute return (equivalent to +94.2% annualized return for the next 8 days) if the stock is assigned on the June 17th, 2021 options expiration date.

Best Buy Inc. (BBY) -- New Covered Calls Position

The transactions were as follows:
6/10/2022 Bought 200 shares of Best Buy shares @ $72.56 per share 
6/10/2022 Sold 2 Best Buy June 17th, 2022 $70.00 Call options @ $3.12 per share
Note: this was a net debit limit simultaneous Buy/Write transaction
06/13/2022 Upcoming quarterly ex-dividend of $.88 per share

A possible overall performance result (including commissions) for this Best Buy Covered Calls position are as follows:
Covered Calls Cost Basis: $13,889.34
= ($72.56 - $3.12) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$622.66
= ($3.12 * 200 shares) - $1.34 commissions
(b) Dividend Income (If BBY shares assigned at the June 17th, 2022 options expiration): +$176.00
= ($.88 dividend per share x 200 shares)
(c) Capital Appreciation (If Best Buy shares assigned at $70.00 strike price at options expiration): -$512.00
+($70.00 - $72.56) * 200 shares

Total Net Profit (If Best Buy shares assigned at $70.00 strike price at the June 17th, 2022 expiration): +$286.66

= (+$622.66 options income +$176.00 dividend income - $512.00 capital appreciation)
 

Absolute Return-on-Investment (If BBY shares are in-the-money and therefore assigned at the $70.00 strike price on the June 17th, 2022 options expiration date): +2.1%

= +$286.66/$13,889.34

Annualized Return-on-Investment (If Best Buy stock assigned at $70.00 at the 6/17/2022 expiration): +94.2%

= (+$286.66/$13,889.34) *(365/8 days)

These returns will be achieved as long as the stock is above the $70.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $68.56 ($72.56 -$3.12 -$.88) provides 5.5% downside protection below today's purchase price.

 

Early Assignment of Covered Calls Position in Devon Energy Corp.

Three Devon Energy Corp. June 17th, 2022 $72.00 Call options were exercised yesterday (the last business day prior to today's 6/10/2022 ex-dividend date). This early exercise was expected by the Covered Calls Advisor since these Call options had close to $0.00 time value remaining at yesterday's market close.   The owners of the Call options elected to purchase the 300 shares at the $72.00 strike price and thus also capture today's $1.27 per share ex-dividend.  So, I captured all the original $1.16 per share [$5.36 Call options premium - ($76.20 stock purchase price - $72.00 strike price)] time value as profit.   

The return-on-investment results are: +1.6% absolute return-on-investment (equivalent to +66.0% annualized-return-on-investment) for the 9 days this position was held. 

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

Devon Energy Corp. (DVN) -- Covered Calls Position Closed by Early Assignment
The buy/write transaction was:

6/01/2022 Bought 300 Devon Energy shares @ $76.20
6/01/2022 Sold 3 Devon 6/17/2022 $72.00 Call options @ $5.36   Note: the Implied Volatility of these Call options was 44.9 when this position was established and their Bid/Ask spread was $5.20/$5.55.
6/10/2022 3 DVN Call options exercised early (on the day prior to the ex-dividend date), so the Devon Covered Calls position was closed by assignment--the 3 Call options expired and the 300 Devon shares were sold at the $72.00 strike price.

The overall performance results (including commissions) for this Devon Energy Covered Calls position were as follows:
Covered Calls Cost Basis: $21,254.01
= ($76.20 - $5.36) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$1,605.99
= ($5.36 * 300 shares) - $2.01 commissions
(b) Dividend Income (Call options exercised early on the business day prior to the June 10th ex-div date): +$0.00
(c) Capital Appreciation: -$1,260.00
+($72.00 - $76.20) * 300 shares

Total Net Profit [Call options exercised on June 9th (business day prior to the June 10th ex-dividend date)]: +$345.99

= (+$1,605.99 options income +$0.00 dividend income - $1,260.00 capital appreciation)

Absolute Return-on-Investment: +1.6%

= +$345.99/$21,254.01

Annualized Return-on-Investment: +66.0%

= (+$345.99/$21,254.01) * (365/9 days)

 

The Covered Calls Advisor Portfolio normally maintains about a dozen positions, but given the current elevated volatility in the market along with my current Overall Market Meter sentiment of "Slightly Bearish", I will continue to be very selective in my stock selections and continue to establish only moderately in-the-money Covered Calls on value-oriented companies and with short-term options expiration dates of one month or less.  As was the case with this Devon Energy position, I will also continue to include among my new positions quality companies with ex-dividend dates prior to the options expiration date that meet the Dividend Capture Strategy criteria that I have established.  

Closed the Covered Calls Position in Cleveland-Cliffs Inc.

At last Friday's options expiration, five June 3rd, 2022 Covered Calls in Cleveland-Cliffs Inc. (ticker CLF) expired with the stock price slightly below the $23.00 strike price, so the Calls expired and the 500 shares of Cleveland-Cliffs remained in the Covered Calls Advisor Portfolio.  I decided to close this position to make additional cash available for future Covered Calls positions.  So, soon after this morning's market open, I closed this Cleveland-Cliffs position by selling the 500 shares at the market price of $22.955 per share.    

As detailed below, the return-on-investment results for this Cleveland-Cliffs Inc. position was: +6.4% absolute return in 14 days (equivalent to a +167.8% annualized return-on-investment).

Cleveland-Cliffs Inc. (CLF) -- Covered Calls Position Closed
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
06/03/2022 5 CLF Calls closed slightly below the $23.00 strike price @ $22.98 per share, so the 5 CLF Call options expired and 500 Micron shares remained in the Covered Calls Advisor Portfolio.
06/06/2022 Closed out this CLF Covered Calls position by selling 500 shares @ $22.955 per share.

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

Net Profit Components:
(a) Options Income: +$371.65
= ($.75 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (500 CLF shares sold at $22.955 per share): +$322.50
= (+$22.955 -$22.31) * 500 shares

Total Net Profit: +$694.15

= (+$371.65 options income +$0.00 dividend income +$322.50) capital appreciation

 

Absolute Return-on-Investment: +6.4%

= +$694.15/$10,783.35

Annualized Return-on-Investment: +167.8%

= (+$694.15/$10,783.35) * (365/14 days)

Continuation of Covered Calls Position in Micron Technology Inc.

At last Friday's options expiration, the Covered Calls positions in Micron Technology Inc. (MU) closed slightly 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, five Call options were sold against the 500 Micron shares owned to continue this Covered Calls position.  Five June 17th, 2022 $70.00 Call options were sold at $3.20 per share when the stock price was $71.53.  The Implied Volatility of the Calls was 44.8 and the Delta was 61.3 when this transaction occurred.  As preferred by the Covered Calls Advisor, the next quarterly earnings report on June 30th is after the June 17th options expiration date.  

This position was continued since Micron continues to be a good value-oriented investment that meets all four primary criteria used by the Covered Calls Advisor to identify good candidates for investment in the current volatile stock market environment:

As detailed below, a potential return-on-investment result is +11.5% absolute return (equivalent to +53.3% annualized return over the 79 total days of this position) if the stock is above the $70.00 strike price and therefore assigned on the June 17th, 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.
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.
06/03/2022 5 MU $70.00 Calls closed slightly below the $70.00 strike price @ $69.94 per share.  So, the Call options expired and 500 Micron shares remain in the Covered Calls Advisor Portfolio.
06/06/2022 Continued Micron Covered Calls position by selling 5 June 17th, 2022 $70.00 Call options @ $3.20 per share against the 500 Micron shares owned.  Micron's stock price had increased to $71.53 early in this morning's trading when this transaction was executed.

A 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: +$5,433.25
= ($.92 + $2.28 + $2.02 + $2.48 + $3.20) * 500 shares - $16.75 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Micron stock remains above the $70.00 strike price at the June 17th, 2022 options expiration date): -$1,250.00
= ($70.00 June 17th, 2022 strike price - $72.50 original strike price) * 500 shares

Total Net Profit (If Micron stock price is above the $70.00 strike price at options expiration): +$4,183.25
= (+$5,433.25 options income +$0.00 dividend income -$1,250.00 capital appreciation)
 

Absolute Return-on-Investment (If Micron stock is above $70.00 strike price at the June 17th, 2022 options expiration date) : +11.5%
= +$4,183.25/$36,246.65
Annualized Return-on-Investment: +53.3%
= (+$4,183.25/$36,246.65)*(365/79 days)

June 3rd, 2022 Options Expiration Results

The Covered Calls Advisor Portfolio had three Covered Calls with June 3rd, 2022 options expirations with the following results:

1. Cleveland-Cliffs Inc. (CLF) -- Five hundred shares were slightly out-of-the-money at $22.98 at market close yesterday since the strike price was $23.00.  So, the five hundred Cleveland-Cliffs shares now remain in the Covered Calls Advisor Portfolio.  A decision will be made early next week to either sell these shares or to continue this Covered Calls position by selling future Call options against the shares currently held. 

2. Micron Technology Inc. (MU) -- Five hundred shares were slightly out-of-the-money at $69.94 at market close yesterday since the strike price was $70.00.  So, the five hundred Micron shares now remain in the Covered Calls Advisor Portfolio.  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.

Whatever decision is made for these Cleveland-Cliffs and Micron Technology positions, the detailed transactions-to-date for these positions will be posted to this Covered Calls Advisor blog on the same day the transactions occur.

3. iShares Large-Cap China ETF (FXI) --  Continuation of Covered Calls Position
With only about 10 minutes remaining in yesterday's (Friday's) trading session, the Covered Calls position in iShares China Large-Cap ETF (ticker FXI) was continued by rolling the iShares China Large-Cap Covered Calls position up-and-out from the June 3rd, 2022 $31.00 Calls to the June 17th, 2022 $32.00 Calls.  

When the FXI price was $31.89, a Call options spread was executed at the Covered Calls Advisor's net debit limit order price of $.14 per share.  The six June 3rd $31.00 Calls were bought-to-close @ $.91 per share and six June 17th, 2022 $32.00 Calls were sold-to-open @ $.77 per share to continue this Covered Calls position.  In doing this roll-up-and-out transaction, I am continuing the approach stated in my previous rollout transaction on May 20th, 2022 which was based on a conviction that Chinese stocks are in a bottoming process and that this position can be repaired from its current loss back close to breakeven or even back to profitability by a strategy of regularly rolling out existing Calls to the next bi-weekly options expiration date (June 17th in today's case) late in the trading day on the existing FXI Covered Calls position's options expiration date (June 3rd in this case).

As detailed below, the price of FXI has declined along with the over market since this position was first established on February 18th, 2022 but the position remains viable despite an economic slowdown in China  including the Covid-19 lockdowns.  I remain bullish on China stocks now for three primary reasons: (1) their stock valuations are very low versus their historic levels; (2) related to monetary policy, China is doing QE whereas the U.S. and Europe have now begun a QT policy mode--making China's stock markets attractive relatively speaking; and (3) China's recent Covid trends have improved significantly and they have begun easing their rigid lockdown policies. 

Note: I prefer FXI to some other China-focused ETFs since FXI options are very liquid and iShares purchases all China holdings therein (such as Alibaba, Tencent, JD, etc.) only on the Hong Kong Exchange rather than on U.S. Exchanges.  This policy avoids most of the current regulatory and political risks inherent in the U.S. listings of these Chinese companies.

The detailed transactions to-date are 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.
6/03/2022 Continued the Covered Calls position in iShares Large-Cap China ETF by Rolling-Up-and-Out the current June 3rd FXI Covered Calls position by simultaneously buying-to-close the six June 3rd $31.00 Calls at $.91 per share and selling-to-open six June 17th, 2022 $32.00 Calls at $.77 per share.  Note: the FXI price was $31.89 when this transaction was executed.

An overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position if the 6/17 $32.00 Calls are in-the-money and therefore assigned on the 6/17/2022 options 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: +$2,049.90
= ($2.02 + $.42 + $.38 + $.77 - $.91 + $.77) * 600 shares - $20.10 commissions
(b) Dividend Income: +$0.00  Note: there will be an ex-distribution prior to the 6/17 options expiration date, but the amount of this distribution is unknown now, so the amount is not yet included in these roi calculations.
(c) Capital Appreciation (If 600 iShares China Large-Cap ETF shares assigned at $32.00 strike price at expiration): -$2,814.00
+($32.00 - $36.69) * 600 shares

Total Net Profit (If 600 iShares China Large-Cap ETF shares assigned at $32.00 strike price at the 6/17/2022 options expiration): -$764.10
= (+$2,049.90 options income +$0.00 dividend income -$2,814.00 capital appreciation)

Absolute Return-on-Investment: -3.7%
= -$764.10/$20,806.02
Annualized Return-on-Investment: -11.2%
= (-$764.10/$20,806.02) * (365/120 days)

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The six current positions in the Covered Calls Advisor Portfolio are shown in the right sidebar on the homepage of my blog here:  http://coveredcallsadvisor.blogspot.com/   

This blog is intended for all who are interested in and want to learn more about the Covered Calls investing strategy.  I reply to all emails and encourage you to email me at any time 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

Covered Calls Established in Devon Energy Corp.

Today, a new Covered Calls position was established in Devon Energy Corp. when 300 shares were purchased at $76.20 and 3 June 17th, 2022 Call options were sold at $5.36 per share at the $72.00 strike price.  The net debit limit order at $70.84 was executed, so the time value was $1.16 per share [$5.36 Call options premium - ($76.20 stock purchase price - $72.00 strike price)]. There is a very generous upcoming ex-dividend of $1.27 per share (6.7% annualized yield) on June 10th, 2022.  Two potential return-on-investment results for this position are detailed below and includes the possibility of early exercise since this ex-dividend is prior to the options expiration date.  

Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, an in-the-money Covered Calls position was established -- the Delta was 71.9, which approximates a probability of 71.9% that the Call options will be in-the-money on the options expiration date.  The Covered Calls Advisor Portfolio did not have a company in the Energy Sector and Devon appeared in my Energy Sector stock screener and it also provides a very substantial upcoming ex-dividend prior to the June 17th options expiration date--which presented a good opportunity to deploy my Dividend Capture Strategy.  

In addition, and as is the case now with many companies in the Energy Sector, the Implied Volatility of the Devon Calls was high at 44.9 when this transaction was executed, and as desired by the Covered Calls Advisor, substantially higher than the current 25.8 of the S&P 500 Volatility Index (i.e. VIX).  This elevated Implied Volatility provides attractive annualized-return-on-investment potential (as demonstrated in the detailed potential return-on-investment results shown below).  Also as desired, the next quarterly earnings report on August 2nd is after the June 17th options expiration date, thereby avoiding the normal even more volatile price swings caused by the uncertainty surrounding companies' earnings reports.

As detailed below, a potential return-on-investment result is +1.6% absolute return (equivalent to +66.0% annualized return for the next 9 days) if the stock is assigned early (business day prior to the June 10th ex-date); OR +3.4% absolute return (equivalent to +73.4% annualized return over the next 17 days) if the stock is assigned on the June 17th, 2022 options expiration date.

Devon Energy Corp. (DVN) -- New Covered Calls Position
The net debit limit order buy/write transaction today was as follows:
6/01/2022 Bought 300 Devon Energy shares @ $76.20
6/01/2022 Sold 3 Devon 6/17/2022 $72.00 Call options @ $5.36   Note: the Implied Volatility of these Call options was 44.9 when this position was established and their Bid/Ask spread was $5.20/$5.55.
6/10/2022 Upcoming quarterly ex-dividends of $1.27 per share

Two possible overall performance results (including commissions) for this Devon Energy Covered Calls position are as follows:
Covered Calls Cost Basis: $21,254.01
= ($76.20 - $5.36) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$1,605.99
= ($5.36 * 300 shares) - $2.01 commissions
(b) Dividend Income (If option exercised early on the business day prior to the June 10th ex-div date): +$0.00; or
(b) Dividend Income (If Devon shares assigned at the June 17th, 2022 options expiration): +$381.00
= ($1.27 dividend per share x 300 shares)
(c) Capital Appreciation (If Devon shares assigned early on June 9th): -$1,260.00
+($72.00 - $76.20) * 300 shares ;or
(c) Capital Appreciation (If Devon shares assigned at $72.00 strike price at the 6/17/2022 options expiration): -$1,260.00
+($72.00 - $76.20) * 300 shares

1. Total Net Profit [If options exercised on June 9th (business day prior to the June 10th ex-dividend date)]: +$345.99

= (+$1,605.99 +$0.00 - $1,260.00); or

2. Total Net Profit (If Devon shares assigned at $72.00 strike price at the June 17th, 2022 expiration): +$726.99

= (+$1,605.99 + $381.00 - $1,260.00)

1. Absolute Return-on-Investment [If Devon Call options exercised on business day prior to ex-dividend date]: +1.6%

= +$345.99/$21,254.01

Annualized Return-on-Investment (If options exercised early): +66.0%

= (+$345.99/$21,254.01) * (365/9 days); or

2. Absolute Return-on-Investment (If Devon shares assigned at $72.00 strike price on June 17th, 2022 expiration): +3.4%

= +$726.99/$21,254.01

Annualized Return-on-Investment (If Devon stock assigned at $72.00 strike at the June 17th, 2022 expiration): +73.4%

= (+$726.99/$21,254.01) *(365/17 days)

These very attractive returns will be achieved as long as the stock is above the $72.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $69.57 ($76.20 -$5.36 -$1.27) provides 8.7% 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 Devon Energy Corp. Covered Calls position.