Covered Call Established in Fedex Corporation

Today a Covered Call position was established in FedEx Corporation (ticker symbol FDX) when the Covered Calls Advisor's buy/write limit order was executed. One hundred shares were purchased at $213.49 and 1 September 9th, 2022 Call option was sold at $9.67 at the $205.00 strike price--so, the corresponding time value was $1.18 per share [$9.67 Call option premium - ($213.49 stock purchase price - $205.00 strike price)].  Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Call position was established -- the Delta was 78.8, which closely approximates the probability that the Call options will be in-the-money on the options expiration date. There is an upcoming ex-dividend on Sept.1st of $1.15 per share (2.2% annual dividend yield), which is included in the potential return-on-investment results detailed below.  

Fedex meets all five of the metrics currently favored for new positions in the Covered Calls Advisor Portfolio:

 

FedEx Corporation (FDX) -- New Covered Call Position
The buy/write transaction was:
08/30/2022 Bought 100 shares of Fedex Corporation stock @ $213.49 per share 
08/30/2022 Sold 1 Sept 9th, 2022 $205.00 Call option @ $9.67 per share
Note: The Implied Volatility of the Call option was 28.4.
09/01/2022 Upcoming ex-dividend of $1.15 per share

A possible overall performance result (including commissions) for this Fedex Corp. Covered Call position is as follows:
Covered Call Cost Basis: $20,382.67
= ($213.49 - $9.67) * 100 shares + $.67 commission

Net Profit Components:
(a) Option Income: +$966.33
= ($9.67 * 100 shares) - $.67 commission
(b) Dividend Income (If Fedex stock assigned at Sept 9th, 2022 expiration): +$115.00
= ($1.15 dividend per share x 100 shares)
(c) Capital Appreciation (If shares assigned at $205.00 strike price on the options expiration date): -$849.00
+($205.00 - $213.49) * 100 shares

Total Net Profit (If Fedex shares assigned at $205.00 strike price on the Sept 9th, 2022 options expiration date): +$232.33

= (+$966.33 option income +$115.00 dividend income -$849.00 capital appreciation)
 

Absolute Return-on-Investment (If Fedex shares assigned at $205.00 at September 9th, 2022 options expiration): +1.1%

= +$232.33/$20,382.67

Annualized Return-on-Investment (If Fedex shares assigned at $205.00 at Sept. 9th, 2022 expiration): +37.8%

= (+$232.33/$20,382.67) * (365/11 days)

Covered Call Established in Goldman Sachs Group Inc.

Today a Covered Call position was established in Goldman Sachs Group Inc. (ticker symbol GS) when the Covered Calls Advisor's buy/write limit order was executed -- 100 shares were purchased at $334.35 and 1 September 16th, 2022 Call option was sold at $16.83 at the $320.00 strike price. 

There is an upcoming ex-dividend of $2.50 per share (a 3.0% annualized dividend yield) on August 31st (this Wednesday) which is included in the potential return-on-investment results detailed below.  This quarterly dividend provides a 25.0% increase over the dividend rate during the prior year.  Goldman's current valuation metrics are attractive such as its: (1) Current Trailing-Twelve-Months P/E Ratio of 7.6; and (2) Price-to-Tangible-Book-Value of 1.03.  In addition, analysts' current average target price is $394.07 (+17.9% above today's purchase price).  Given the Covered Calls Advisor's current cautious outlook, an in-the-money Covered Calls position was established -- the Delta was 77.2, which approximates the probability that the Call option will be in-the-money on the options expiration date.  Importantly, there is no earnings report prior to the September 16th options expiration date. 

As detailed below, a potential return-on-investment result is +1.6% absolute return (equivalent to +30.1% annualized return for the next 19 days) if the stock is assigned on the September 16th, 2022 options expiration date.

Goldman Sachs Group Inc. (GS) -- New Covered Call Position

The buy/write transaction was as follows:
08/29/2022 Bought 100 shares of Goldman Sachs stock @ $334.35 per share 
08/29/2022 Sold 1 Sept 16th, 2022 $320.00 Call option @ $16.83 per share
Note: The Implied Volatility of the Call option was 26.3.
08/31/2022 Upcoming ex-dividend of $2.50 per share

A possible overall performance result (including commissions) for this Goldman Sachs Covered Call position is as follows:
Covered Call Cost Basis: $31,752.67
= ($334.35 - $16.83) * 100 shares + $.67 commission

Net Profit Components:
(a) Option Income: +$1,682.33
= ($16.83 * 100 shares) - $.67 commission
(b) Dividend Income (If Goldman Sachs stock assigned at Sept 16th, 2022 expiration): +$250.00
= ($2.50 dividend per share x 100 shares)

(c) Capital Appreciation (If shares assigned at $320.00 strike price on the options expiration date): -$1,435.00
+($320.00 - $334.35) * 100 shares

Total Net Profit (If Goldman Sachs shares assigned at $320.00 strike price on the Sept 16th, 2022 options expiration date): +$497.33

= (+$1,682.33 options income +$250.00 dividend income -$1,435.00 capital appreciation)
 

Absolute Return-on-Investment (If Goldman Sachs shares assigned at $320.00 at September 16th, 2022 options expiration): +1.6%

= +$497.33/$31,752.67

Annualized Return-on-Investment (If Goldman Sachs shares assigned at $320.00 at Sept. 16th, 2022 expiration): +30.1%

= (+$497.33/$31,752.67) * (365/19 days)

August 26th, 2022 Options Expiration Results

Yesterday, the Covered Calls position in iShares China Large-Cap ETF (ticker FXI) was closed out on its August 26th, 2022 options expiration date.  The strike price was $30.50 and FXI was in-the-money at market closing yesterday (the FXI price was $30.70).  So, the 500 FXI shares were assigned (i.e. sold) at the $30.50 strike price.  As detailed below, the return-on-investment (ROI) result was  +2.2% absolute return (equivalent to +15.3% annualized return-on-investment for the 53 days holding period).

This result demonstrates a benefit of hedging our investments via the Covered Calls investing strategy (i.e. selling Call options against our long stock holdings).  In this case, FXI declined by -8.2% (from an original buy price of $33.21 to a sold price of $30.50 per share).  But the income received from continually selling Calls more than offsets the loss from the stock price decline.  So, as detailed below, a -8.2% stock price loss is avoided and a +2.2% absolute gain (a +15.3% annualized return-on-investment) was achieved for this iShares China Large-Cap ETF Covered Calls position.

iShares China Large-Cap ETF (FXI) -- Covered Calls Position Rolled Out
The original net debit limit order buy/write transaction was as follows:
7/5/2022 Bought 500 shares of iShares China Large-Cap ETF shares @ $33.21 per share 
7/5/2022 Sold 5 FXI July 15th, 2022 $32.00 Call options @ $1.62 per share
7/15/2022 Bought-to-Close 5 FXI July 15th, 2022 $32.00 Call Options @ $.01 per share and simultaneously Sold-to-Open 5 FXI July 29th, 2022 $31.00 Calls @ $.80 per share.
7/29/2022 Bought-to-Close 5 FXI July 29th, 2022 $31.00 Call Options @ $.01 per share and simultaneously Sold-to-Open 5 FXI August 12th, 2022 $30.50 Calls @ $.68 per share per share.
08/12/2022 5 FXI Call options expired out-of-the-money, so 500 FXI shares remain in the Covered Calls Advisor Portfolio.
8/15/2022 Sold 5 FXI 8/26/2022 $30.50 Calls @ $.36 per share. Note: the FXI price was $29.93 when this transaction was executed.
8/26/2022 Five FXI $30.50 Calls expired in-the-money (FXI price was $30.70 at market close on 8/26), so the 500 FXI shares were sold at the $30.50 strike price.

The overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position was as follows:
Original Net Investment: $15,798.35
= ($33.21 - $1.62) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$1,706.60
= ($1.62 -$.01 +$.80 -$.01 +$.68 +.36) * 500 shares - $13.40 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (500 iShares China Large-Cap ETF shares assigned at $30.50 strike price at expiration): -$1,355.00
+($30.50 - $33.21) * 500 shares

Total Net Profit (500 iShares China Large-Cap ETF shares assigned at $30.50 strike price at expiration): +$351.60
= (+$1,706.60 options income +$0.00 dividend income -$1,355.00 capital appreciation)

Absolute Return-on-Investment: +2.2%
= +$351.60/$15,798.35
Annualized Return-on-Investment: +15.3%
= (+$351.60/$15,798.35) * (365/53 days)

Established Covered Calls in Suncor Energy Inc.

This afternoon, my net debit limit order was executed and a Covered Calls position was established in Suncor Energy Inc. (ticker SU) when the Covered Calls Advisor's buy/write limit order for the September 16th, 2022 $32.50s executed at a net debit price of $32.15.  Four hundred Suncor Energy shares were purchased at $34.77 and 4 September 16th, 2022 $32.50 Calls were sold at $2.62 per share.  So, the corresponding time value (aka extrinsic value) was $.35 per share = [$2.62 Call options premium - ($34.77 stock purchase price - $32.50 strike price)].  Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Call position was established--the Delta was 78.0 which closely approximates the probability that the Call options will be in-the-money on the options expiration date.  In addition, the Implied Volatility of the Calls was 34.3 when the position was established which, as desired, was above the VIX which was at 22.2. 

Suncor goes ex-dividend at $.47 (Canadian $s)--which is about $.362 U.S.$s per share on September 1st, 2022 (a 4.2% annualized dividend yield at today's stock purchase price).  This dividend is included in the potential return-on-investment results shown below.  There is no earnings report prior to the options expiration date.

Suncor appeared in my Energy Sector stock screener and the average analysts' target price is currently $43.20 (+24.2% above today's purchase price).

As detailed below, two potential return-on-investment results for this Suncor Covered Calls position are: (a) +1.1% absolute return (equivalent to +55.7% annualized return for the next 7 days) if the stock is assigned early [i.e. on Aug. 31st which is the last trading day prior to the September 1st ex-dividend date]; OR (b) +2.2% absolute return (equivalent to +34.8% annualized return over the next 23 days) if the stock is assigned on the September 16th, 2022 options expiration date. 

Suncor Energy Inc. (SU) -- New Covered Calls Position
The simultaneous buy/write transactions was as follows:
08/25/2022 Bought 400 shares of Suncor stock @ $34.77 per share 
08/25/2022 Sold 4 Suncor Sept. 16th, 2022 $32.50 Call options @ $2.62 per share
09/01/2022 Upcoming ex-dividend at $.362 per share

The overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $12,862.68
= ($34.77 - $2.62) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,045.32
= ($2.62 * 400 shares) - $2.68 commission
(b) Dividend Income (If Suncor stock assigned on the September 1st ex-dividend date): $0.00
(b) Dividend Income (If Suncor stock assigned on the Sept. 16th options expiration date): +$144.80
= $.362 dividend per share x 400 shares
(c) Capital Appreciation (If Suncor stock assigned on the Sept 1st ex-dividend date): -$908.00
= ($32.50 - $34.77) * 400 shares
(c) Capital Appreciation (If Suncor stock is above $32.50 strike price and therefore assigned at the September 16th expiration): -$908.00
= ($32.50 - $34.77) * 400 shares

1. Potential Net Profit (If Suncor shares assigned on 8/31/2022, the day prior to the Sept. 1st ex-dividend date): +$137.32
= (+$1,045.32 options income +$0.00 dividend income - $908.00 capital appreciation)
2. Potential Net Profit (If Suncor price is above $32.50 strike price at the Sept. 16th options expiration): +$282.12
= (+$1,045.32 options income +$144.80 dividend income - $908.00 capital appreciation)

1. Absolute Return-on-Investment (If Suncor shares assigned on 8/31/2022, the day prior to the 9/1/2022 ex-dividend date): +1.1%
= +$137.32/$12,862.68
Equivalent Annualized Return-on-Investment (If assigned early on day prior to ex-div date): +55.7%
= (+$137.32/$12,862.68)*(365/7 days)
2. Absolute Return-on-Investment (If Suncor price is above $32.50 strike price and therefore assigned at the Sept. 16th options expiration): +2.2%
= +$282.12/$12,862.68
Equivalent Annualized Return-on-Investment (If assigned on 9/16/2022 options expiration date): +34.8%
= (+$282.12/$12,862.68)*(365/23 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 for this Suncor Energy Inc. Covered Calls position.

Covered Calls Established in Applied Materials Inc.

A short-term Covered Calls position was established this afternoon in Applied Materials Inc. (ticker AMAT) with a September 2nd, 2022 options expiration date.   A buy/write transaction entered at a net debit of $94.06 was executed by purchasing 200 shares of AMAT at $100.76 and simultaneously selling two September 2nd, 2022 Call options at the $95.00 strike price at $6.70 per share. The time value when this Covered Calls position was established was $.94 per share = [$6.70 Call options price - ($100.76 stock price - $95.00 strike price)].  Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Calls position was established.  The Delta was 79.1 which approximates a probability of 79.1% that the Call options will be in-the-money and therefore the stock assigned (i.e. sold) on the options expiration date. The Implied Volatility of these Calls was high at 45.3 when this transaction was executed. There is no ex-dividend and no earnings report prior to the options expiration date.

Applied Materials is a leader in the wafer fabrication equipment industry--balanced between logic/foundry and memory markets.  Last week they beat analysts' revenue and earnings estimates in their quarterly earnings report and cited a robust demand.  Supply-chain mobility has been an issue, but they indicated the situation is improving which bodes well for AMAT given their growing backlog.  Given this positive outlook, the stock price decline since their earnings report seems unwarranted given that they meet all five primary criteria currently preferred for new positions established by the Covered Calls Advisor (as shown below):

As shown below, a potential return-on-investment result for this Applied Materials Covered Calls position is +1.0% absolute return in 10 days (equivalent to a +36.2% annualized return-on-investment if the position is assigned at the September 2nd, 2022 options expiration.

  

Applied Materials Inc. -- New Covered Calls Position Established

The $94.06 net debit buy/write limit order was transacted as follows:
08/24/2022 Bought 200 AMAT shares @ $100.76
08/24/2022 Sold 2 AMAT Sept. 2nd, 2022 $95.00 Call options @ $6.70 per share.
Note: as is often the case, these Call options were transacted slightly below the midpoint of the $6.65/$6.80 bid/ask spread.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $18,813.34
= ($100.76 - $6.70) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,338.66
= ($6.70 * 200 shares) - $1.34 commission
(b) Dividend Income (If AMAT stock assigned on Sept 2nd, 2022 options expiration date): $0.00
= $.24 dividend per share x 200 shares
(c) Capital Appreciation (If AMAT stock is above $95.00 strike price and therefore assigned on the Sept. 2nd options expiration): -$1,152.00
= ($95.00 -$100.76) * 200 shares

Total Net Profit (If stock assigned on the September 2nd options expiration date): +$186.66
= (+$1,338.66 options income +$0.00 dividend income -$1,152.00 capital appreciation)

Absolute Return-on-Investment (If stock assigned on Sept 2nd, 2022 options expiration date): +1.0%
= +$186.66/$18,813.34
Equivalent Annualized Return-on-Investment: +36.2%
= (+$186.66/$18,813.34)*(365/10 days)

These returns will be achieved as long as the stock is above the $95.00 strike price on the Sept. 2nd options expiration date.  If the stock declines below the strike price, the breakeven price of $94.06 ($100.76 -$6.70) provides 6.6% downside protection below today's stock purchase price.

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 $141.60 and 2 September 16th, 2022 $130.00 Call options were sold at $16.12 per share.  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 71.2, 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 Calls was very high at 64.8 when the position was established.  There is no quarterly earnings report or ex-dividend date prior to the options expiration date.   

Some key numbers for this Moderna Inc. Covered Calls position are:
Covered Call Cost Basis: $25,094.66
Profit if Assigned on Expiration Date: $902.66
Days Until Expiration: 24
Absolute Return-on-Investment if Assigned at 9/16/2022 Options Expiration Date: +3.6%
Annualized Return-on-Investment if Assigned at 9/16/2022 Options Expiration Date: +54.7%

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 in Qualcomm Inc.

This afternoon shortly before the market close (at 3:50pm), a Covered Calls position was established in Qualcomm Inc. (ticker QCOM) when the Covered Calls Advisor's buy/write limit order for the September 9th, 2022 $134.00s executed at a net debit price of $132.30.  Two hundred QCOM shares were purchased at $140.80 and 2 September 11th, 2022 $134.00 Calls were sold at $8.50 per share.  So, the corresponding time value (aka extrinsic value) was $1.70 per share = [$8.50 Call options premium - ($140.80 stock purchase price - $134.00 strike price)].  Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Call position was established--the Delta was 74.4, which closely approximates the probability that the Call options will be in-the-money on the options expiration date.  In addition, the Implied Volatility of the Calls was 35.5 when the position was established which, as desired, was above the VIX which was at 24.1. 

Qualcomm Inc. goes ex-dividend at $.75 per share (2.1% annualized dividend yield at the current stock price) on August 31st, 2022, so this dividend is included in the potential return-on-investment results shown below.  There is no earnings report prior to the options expiration date.

Qualcomm appeared in my Large-Cap Value+Profitability+Growth stock screener and the average analysts' target price is currently $186.64 (+32.6% above today's purchase price).

Two potential return-on-investment results for this Qualcomm Covered Calls position are: (a) +1.3% absolute return (equivalent to +58.4% annualized return for the next 8 days) if the stock is assigned early [i.e. on Aug. 30th which is the last trading day prior to the August 31st ex-dividend date]; OR (b) +1.8% absolute return (equivalent to +37.4% annualized return over the next 18 days) if the stock is assigned on the September 9th, 2022 options expiration date. 

Qualcomm Inc.(QCOM) -- New Covered Calls Position
The simultaneous buy/write transactions was as follows:
08/23/2022 Bought 200 shares of Qualcomm stock @ $140.80 per share 
08/23/2022 Sold 2 Qualcomm Sept. 9th, 2022 $134.00 Call options @ $8.50 per share
08/31/2022 Upcoming ex-dividend at $.75 per share

The overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $26,461.34
= ($140.80 - $8.50) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,698.66
= ($8.50 * 200 shares) - $1.34 commission
(b) Dividend Income (If Qualcomm stock assigned on the August 31st ex-dividend date): $0.00
(b) Dividend Income (If Qualcomm stock assigned on the Sept. 9th options expiration date): +$150.00
= $.75 dividend per share x 200 shares
(c) Capital Appreciation (If Qualcomm stock assigned on the August 31st ex-dividend date): -$1,360.00
= ($134.00 - $140.80) * 200 shares
(c) Capital Appreciation (If Qualcomm stock is above $134.00 strike price and therefore assigned at the September 9th expiration): -$1,360.00
= ($134.00 - $140.80) * 200 shares

1. Potential Net Profit (If Qualcomm shares assigned on 8/30/2022, the day prior to the Aug. 31st ex-dividend date): +$338.66
= (+$1,698.66 options income +$0.00 dividend income - $1,360.00 capital appreciation)
2. Potential Net Profit (If QCOM price is above $134.00 strike price at the Sept. 9th options expiration): +$488.66
= (+$1,698.66 options income +$150.00 dividend income - $1,360.00 capital appreciation)

1. Absolute Return (If Qualcomm shares assigned on 8/30/2022, the day prior to the 8/31/2022 ex-dividend date): +1.3%
= +$338.66/$26,461.34
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +58.4%
= (+$338.66/$26,461.34)*(365/8 days)
2. Absolute Return (If QCOM price is above $134.00 strike price at the Sept. 9th options expiration): +1.8%
= +$488.66/$26,461.34
Equivalent Annualized Return (If assigned on 9/9/2022 options expiration date): +37.4%
= (+$278.35/$16,338.35)*(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 for this Qualcomm Inc. Covered Calls position.

Covered Calls Established in Bank of America Corporation

Today, a Covered Calls position was established in Bank of America Corp. (ticker BAC) with the purchase of 500 shares at $34.57 per share and five September 9th, 2022 Call options were sold for $1.90 per share at the $33.00 strike price.  This transaction occurred via a simultaneous buy/write transaction at a net debit of $32.67 per share.  The corresponding time value (aka extrinsic value) in the Call options was $.33 per share = [$1.90 Call options premium received - ($34.57 stock purchase price - $33.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at approximately 75.7 when this buy/write transaction was executed, which approximates the probability of assignment on the September 9th, 2022 options expiration date. 

Bank of America goes ex-dividend at $.22 per share (2.5% annualized dividend yield at the current stock price) on September 1st which is prior to the September 9th options expiration date, so this dividend is included in the potential return-on-investment results shown below.  This 2.5% annual dividend yield exceeds the current 1.5% annual dividend yield of the S&P 500 Index (i.e. SPY).  Also shown below, all nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and (as preferred by the Covered Calls Advisor) the next quarterly earnings report on October 17th, 2022 is after the September 9th, 2022 options expiration date. 

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 September 9th, 2022 Bank of America Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of six very large U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Wells Fargo) for each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup, Morgan Stanley, and/or Wells Fargo 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 most often the annualized return-on-investment for early assignment is greater than that would be achieved if the stock was instead assigned on the options expiration date.  So far, applying this approach has provided attractive annualized return results -- significantly better than would be achieved if Covered Calls positions for these bank stocks were held in the Covered Calls Advisor Portfolio in the other two non-dividend paying months each quarter.  

Two potential return-on-investment results for this Bank of America Covered Calls position are: (a) +1.0% absolute return (equivalent to +37.6% annualized return for the next 10 days) in the event that the stock is assigned early [i.e. on Aug. 31st which is the last trading day prior to the Sept. 1st ex-dividend date]; OR (b) +1.7% absolute return (equivalent to +32.7% annualized return over the next 19 days) if the stock is assigned on the September 9th, 2022 options expiration date. 

Bank of America Corporation (BAC) -- New Covered Calls Position

The buy/write transaction was as follows:
8/22/2022 Bought 500 shares of Bank of America Corp. stock @ $34.57 per share 
8/22/2022 Sold 5 BAC September 9th, 2022 $33.00 Call options @ $1.90 per share
Note: The Implied Volatility of these Calls was 30.0 which (as preferred by the Covered Calls Advisor) exceeds the current 24.3 of the S&P 500 Volatility Index (i.e. VIX).
9/01/2022 Ex-dividend of $.22 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $16,338.35
= ($34.57 - $1.90) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$953.35
= ($1.90 * 500 shares) - $3.35 commission
(b) Dividend Income (If BAC shares assigned on 8/31/2022, the business day prior to the 9/01/2022 ex-dividend date): = +$0.00; or
(b) Dividend Income (If BAC shares assigned at 9/09/2022 options expiration): +$110.00
= $.22 per share x 500 shares
(c) Capital Appreciation (If BAC shares assigned early on 9/01/2022): -$785.00
= ($33.00 -$34.57) * 500 shares; or
(c) Capital Appreciation (If shares above $33.00 strike price at the Sept 9th options expiration): -$785.00
= ($33.00 -$34.57) * 500 shares

1. Potential Net Profit (If Bank of America shares assigned on 8/31/2022, the day prior to the Sept. 1st ex-dividend date): +$168.35
= (+$953.35 options income +$0.00 dividend income - $785.00 capital appreciation)
2. Potential Net Profit (If BAC price is above $33.00 strike price at the Sept. 9th options expiration): +$278.35
= (+$953.35 options income +$110.00 dividend income - $785.00 capital appreciation)

1. Absolute Return (If BAC shares assigned on 8/31/2022, the day prior to the Sept. 1st ex-dividend date): +1.0%
= +$168.35/$16,338.35
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +37.6%
= (+$168.35/$16,338.35)*(365/10 days)
2. Absolute Return (If BAC price is above $33.00 strike price at the Sept. 9th options expiration): +1.7%
= +$278.35/$16,338.35
Equivalent Annualized Return (If assigned on 6/18/2021 options expiration date): +32.7%
= (+$278.35/$16,338.35)*(365/19 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 for this Bank of America Covered Calls position.

Monthly Options Expiration Results through August 19th, 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 July 15th, 2022 options expiration through yesterday's August 19th, 2022 monthly options expiration date.  

During this past month, the Covered Calls Advisor Portfolio held a total of seven positions.  All seven positions were closed out at a profit.  A summary of results for these seven positions is provided below:

• Four Covered Calls positions expired in-the-money (stock price above the strike price) on their August 19th, 2022 monthly options expiration date with the following results: 

1. Alcoa Corporation (AA) -- +3.1% absolute return in 19 days (equivalent to +59.4% annualized return-on-investment).  
2. Exxon Mobil Corporation (XOM) -- +2.1% absolute return in 16 days (equivalent to +48.1% annualized return-on-investment).
3. Pfizer Inc. (PFE) -- +0.9% absolute return in 9 days (equivalent to +36.9% annualized return-on-investment).
4. Valero Energy Corporation (VLO) -- +2.3% absolute return in 23 days (equivalent to +36.5% annualized return-on-investment).

 

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

1. Lowes Companies Inc. (LOW) -- +0.9% absolute return in 7 days (equivalent to +45.6% annualized return-on-investment).

• Two positions expired on their Weekly options expiration date with the following results:

1. Delta Air Lines Inc. (DAL) Covered Calls -- +2.9% absolute return in 17 days (equivalent to +61.6% annualized return-on-investment).
2. Wells Fargo Inc. (WFC) Covered Calls -- +1.3% absolute return in 12 days (equivalent to +40.3% annualized return-on-investment).
   

During the past year (last 12 months) 115 of 125 positions (92%) 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 +24.6% during the past year and the average holding period for these 125 closed positions was 22.1 days.  In comparison, the benchmark S&P 500 returned -4.8% 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. 

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. 

Best Wishes and Godspeed,

Jeff Partlow
Covered Calls Advisor
partlow@cox.net

Established Covered Calls in Cleveland-Cliffs Inc.

A September 2nd, 2022 Covered Calls buy/write net debit limit order was executed today in Cleveland-Cliffs Inc. (ticker CLF). Five hundred shares were purchased at $17.84 and five Sept 2nd, 2022 $16.50 strike price Call options were sold at $1.62 per share.  The corresponding extrinsic value (i.e. time value) was $.28 per share [$1.62 Call options premium - ($17.84 stock purchase price - $16.50 strike price)].  The $.28 per share will be profit if the stock remains above the $16.50 strike price (and therefore assigned) in two weeks on the Sept 2nd options expiration date.  The Implied Volatility of the Calls was 55.0 when this position was established and the probability that position will be assigned at expiration is approximately 76.8%.  There is no ex-dividend and no earnings report prior to the options expiration date.

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.  

Cleveland-Cliffs' current fiscal year P/E Ratio is estimated at 4.4 which is a very attractive valuation.  Furthermore, the average analysts' target price is $22.12 (+24.0% above today's purchase price). 

Some key numbers for this Cleveland-Cliffs Inc. Covered Calls position are:
Covered Calls Cost Basis: $8,923.35
Profit if Assigned on Expiration Date: $136.65
Days Until September 2nd, 2022 Options Expiration: 15
Absolute Return-on-Investment if Assigned at Expiration: +1.5%
Annualized Return-on-Investment if Assigned at Expiration: +37.3%

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

Covered Calls Position Established in Discover Financial Services

This afternoon a Covered Calls position was established in Discover Financial Services (ticker DFS), with a September 2nd, 2022 options expiration date. Two hundred shares of Discover were purchased at $108.10 and two Call options were sold at $6.99 per share at the $102.00 strike price. Hence, the time value was $.89 per share [$102.00 strike price - ($108.10 share price - $6.99 Call options premium)] when this buy/write limit order transaction was executed.  Discover also has an upcoming ex-dividend date exactly one week from today at $.60 per share, so this is included in the potential return-on-investment results detailed below.  There is no quarterly earnings report prior to the Sept 2nd, 2022 options expiration date.  The probability of assignment was about 78.5% when this position was established.

I was seeking to identify a Covered Calls position in the Financial Sector that could take advantage of the Dividend Capture Strategy criteria (see nine criteria at the bottom of this post).  Discover meets these criteria at the current time.  Discover exceeded analysts' estimates in their recently reported quarterly earnings and their strong consumer credit loss performance.  They continue to demonstrate a triple benefit from growth, credit performance, and profitability.  They are a significant beneficiary of higher interest rates from an increasing net interest income in their growing credit card receivables base.  Moreover, their return-on-equity (which exceeds their cost of capital) is among the highest in the consumer finance industry and their trailing-twelve-months (ttm) P/E Ratio is attractively valued at 7.0. Finally, there are currently 20 Wall Street analysts covering Discover and their average target price target is $122.67 (+13.5% above today's purchase price of $108.10).

Two potential return-on-investment results are as follows: (a) +0.9% absolute return-on-investment (equivalent to +45.5% annualized roi) for 7 days if this Covered Calls position is assigned early on August 23rd, 2022 (the last business day prior to the Aug. 24th ex-dividend date); OR  (b) +1.5% absolute return-on-investment (equivalent to +31.5% annualized roi) for 17 days if this Covered Calls position is in-the-money on the September 2nd, 2022 options expiration date.

Discover Financial Services (DFS) -- New Covered Calls Position Established
The buy/write transaction was as follows:
8/17/2022 Bought 200 shares of Discover Financial Services @ $108.10 per share 
8/17/2022 Sold 2 DFS Sept. 2nd, 2022 $102.00 Call options @ $6.99 per share
8/24/2022 Ex-dividend of $.60 per share
 
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $20,223.34
= ($108.10 - $6.99) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,396.66
= ($6.99 * 200 shares) - $1.34 commission
(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 DFS shares assigned at the Sept. 2nd, 2022 expiration): +$120.00
= ($.60 dividend per share x 200 shares)
(c) Capital Appreciation (If Discover shares assigned early): -$1,220.00
+($102.00 strike price - $108.10 stock purchase cost) * 200 shares; or
(c) Capital Appreciation (If DFS shares assigned at $102.00 strike price at options expiration): -$1,220.00
+($102.00 - $108.10) * 200 shares

1. Total Net Profit [If option exercised on Aug. 23rd, 2022 (the last business day prior to the August 24th ex-dividend date)]: +$176.66

= (+$1,396.66 options income +$0.00 dividend income -$1,220.00 capital appreciation); or

2. Total Net Profit (If Discover Financial shares assigned at $102.00 strike price at the September 2nd, 2022 options expiration): +$296.66

= (+$1,396.66 +$120.00 -$1,220.00)

1. Absolute Return-on-Investment (If DFS options exercised early on the last business day prior to the ex-dividend date): +0.9%

= +$176.66/$20,223.34

Annualized Return-on-Investment (If DFS Call options exercised early on Aug. 23rd): +45.5%

= (+$176.66/$20,223.34)*(365/7 days); or

2. Absolute Return-on-Investment (If DFS shares assigned at $102.00 at Sept. 2nd, 2022 options expiration date): +1.5%

= +$296.66/$20,223.34

Annualized Return-on-Investment (If DFS stock assigned at $102.00 at Sept. 2nd, 2022 options expiration date): +31.5%

= (+$296.66/$20,223.34)*(365/17 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 $102.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $100.51 ($108.10 -$6.99 -$.60) provides 7.0% 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 achieved for this Discover Financial Services Covered Calls position.

Covered Calls Established in MGM Resorts International

This morning a Covered Calls position was established in MGM Resorts International (ticker MGM) when 400 shares were purchased at $35.21 and 4 September 2nd, 2022 Call options were sold at $2.73 at the $33.00 strike price.  The corresponding extrinsic value (i.e. time value) was $.52 per share [$2.73 Call options premium - ($35.21 stock purchase price - $33.00 strike price)].  The $.52 per share will be profit if the stock remains above the $33.00 strike price (and therefore assigned) on the Sept 2nd.  There is no ex-dividend and no earnings report prior to the 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 76.3, which closely approximates a 76.3% 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 42.8 when the position was established (well above the current VIX of 20.2), so the options premium received for selling this Call was very attractive. 

MGM Resorts International is a leading owner and operator of casinos, hotels, and entertainment resorts.  Their stock is trading near pre-pandemic levels but they are now poised to benefit from the several future growth opportunities that senior management is pursuing.  These include a fully re-opened (after Covid restricted) Las Vegas, recent removal of capacity restrictions at their regional properties, BetMGM is a strong market participant in the rapidly growing online sports betting and iGaming markets, and re-opening from Covid restricted (hopefully in the near future) of their China casinos.  

Their current stock valuation seems attractive since (1) their current free cash flow yield of 9.2% is the highest in the past decade, thus enabling them to make strategic buybacks and debt reductions; and (2) Analysts' average target price is $52.34 which is +48.7% above today's purchase price. 

Some key numbers for this MGM Resorts International Covered Calls position are:
Covered Calls Cost Basis: $12,994.68
Profit if Assigned on Expiration Date: $205.32
Days Until September 2nd, 2022 Options Expiration: 17
Absolute Return-on-Investment if Assigned at Expiration: +1.6%
Annualized Return-on-Investment if Assigned at Expiration: +33.9%

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

Rolled Out the iShares Large-Cap China ETF Covered Calls

The Covered Calls Advisor Portfolio has a Covered Calls position in iShares China Large-Cap ETF (ticker FXI)  that expired out-of-the-money on last Friday's options expiration.  FXI closed at $30.24 Friday and the strike price was $30.50.  I decided to continue this FXI Covered Calls position by rolling-out at the same $30.50 strike price to the August 26th, 2022 expiration by selling 5 Calls at $.36 per share when the price of FXI was $29.93.   

As detailed below, a potential return-on-investment result is +2.2% absolute return (equivalent to +15.3% annualized return for the 53 days holding period) if the FXI price is in-the-money (i.e. above the $30.50 strike price) and therefore assigned on the August 26th options expiration date.  If this result is achieved, it will demonstrate an advantage of hedging our investments with the Covered Calls investing strategy (i.e. selling Call options against our long stock holdings).  In this case, FXI will have declined by -8.2% (from a buy price of $33.21 to a sold price of $30.50).  But the income received from continually selling Calls more than offsets the loss from the stock price decline -- so a -8.2% stock price loss is avoided and a +2.2% absolute gain (a +15.3% annualized return-on-investment) would be achieved for this Covered Calls position if it is assigned on the August 26th options expiration.

iShares China Large-Cap ETF (FXI) -- Covered Calls Position Rolled Out
The original net debit limit order buy/write transaction was as follows:
7/5/2022 Bought 500 shares of iShares China Large-Cap ETF shares @ $33.21 per share 
7/5/2022 Sold 5 FXI July 15th, 2022 $32.00 Call options @ $1.62 per share
7/15/2022 Bought-to-Close 5 FXI July 15th, 2022 $32.00 Call Options @ $.01 per share and simultaneously Sold-to-Open 5 FXI July 29th, 2022 $31.00 Calls @ $.80 per share.
7/29/2022 Bought-to-Close 5 FXI July 29th, 2022 $31.00 Call Options @ $.01 per share and simultaneously Sold-to-Open 5 FXI August 12th, 2022 $30.50 Calls @ $.68 per share per share.
08/12/2022 5 FXI Call options expired out-of-the-money, so 500 FXI shares remain in the Covered Calls Advisor Portfolio.
8/15/2022 Sold 5 FXI 8/26/2022 $30.50 Calls @ $.36 per share. Note: the FXI price was $29.93 when this transaction was executed.

A possible overall performance result (including commissions) if this iShares China Large-Cap ETF Covered Calls position is assigned at the 8/26/2022 options expiration date is as follows:
Original Net Investment: $15,798.35
= ($33.21 - $1.62) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$1,706.60
= ($1.62 -$.01 +$.80 -$.01 +$.68 +.36) * 500 shares - $13.40 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 500 iShares China Large-Cap ETF shares assigned at $30.50 strike price at expiration): -$1,355.00
+($30.50 - $33.21) * 500 shares

Total Net Profit (If 500 iShares China Large-Cap ETF shares assigned at $30.50 strike price at expiration): +$351.60
= (+$1,706.60 options income +$0.00 dividend income -$1,355.00 capital appreciation)

Absolute Return-on-Investment: +2.2%
= +$351.60/$15,798.35
Annualized Return-on-Investment: +15.3%
= (+$351.60/$15,798.35) * (365/53 days)

Investing Words of Wisdom

You might have noticed a category called "Investing Words of Wisdom" in the right sidebar on the homepage of my blog (see homepage here).  I change the quotations used about once a month.  Normally, the quotations are from legendary investors (such as Buffett, Templeton, etc.).  But today I chose a quotation from John Wooden: "It’s the little details that are vital. Little things make big things happen.".  So you might ask, "Why a quote from John Wooden on an investing blog?" 

John Wooden is not a legendary investor.  But many consider him the greatest basketball coach of all time. During a twelve year period, his UCLA team won an unprecedented ten national championships.  But he prided himself more as a teacher than a coach.  His "Pyramid of Success" was his method of teaching his players to succeed not only in basketball, but more importantly to him, in their life.

Playing basketball was my greatest passion for a decade beginning when I was about 8 years old.  My first exposure to Coach Wooden happened during the summer after my sophomore year in high school when I attended the week-long Pocono Mountain Basketball Camp in Pennsylvania. The highlight of that experience was the appearance of Coach Wooden after dinner Friday night and the talk he gave to us on his ‘Pyramid of Success’. He developed his own definition of success: “Success is peace of mind which is a direct result of self-satisfaction in knowing you made the effort to do the best of which you are capable." He explained the Pyramid to us in some detail that evening; and yes, he described how it related to playing basketball. But the primary focus of the pyramid really had little to do with basketball, but everything to do with how to live our lives. Even to this day, I have a framed ‘Pyramid of Success’ which is signed by ‘John Wooden’ hanging in front of me above my computer desk.

"It’s the little details that are vital. Little things make big things happen."--John Wooden.  So how does this relate to investing success?   My own Investing Pyramid of Success (read about it here) was inspired from Coach Wooden's Pyramid of Success.  His quotation reminds me of the twelve "edges" (analogous to the "little details" in his quote) that we can use to achieve Covered Calls investing success (read my "Exploiting Our Covered Calls Investing "Edges" article here).

Finally, I encourage you to spend some time reading at this link dedicated to Coach Wooden.  I especially recommend you spend time in the links to "The Pyramid of Success" and also "Favorite Maxims" (especially his Seven Point Creed).  

Best Wishes and Godspeed,
Jeff

August 12th, 2022 Options Expiration Results

The Covered Calls Advisor Portfolio had two Covered Calls positions with August 12th, 2022 options expirations with the following results:

1. Wells Fargo Inc. (WFC) -- +1.3% absolute return (equivalent to +40.3% 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. iShares Large-Cap China ETF (FXI) -- Five hundred shares were out-of-the-money at $30.24 at the market close yesterday since the strike price was $30.50.  So, the five hundred FXI 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 to continue this Covered Calls position by selling future Call options against the shares currently held.

Food-for-Thought: About once a month I change the "Words of Wisdom" quotation in the right sidebar of my blog (view my blog homepage is here).  I just added a new one today: "It’s the little details that are vital. Little things make big things happen."--John Wooden.  My own Investing Pyramid of Success (see here) was developed from legendary basketball coach and teacher John Wooden's Pyramid of Success.  Coach Wooden's quotation reminded me of the twelve "edges" (analogous to Coach Wooden's "little details") that we can benefit us as Covered Calls investors (see this article here). 

I encourage your feedback on any topics related to the Covered Calls investing strategy.  My email address is shown below.

Best Wishes and Godspeed,

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net

Covered Calls Established in Pfizer Inc.

This afternoon my Covered Calls net debit limit order was executed.  A very short-term (9 days) position was established in Pfizer Inc. (ticker PFE) when 400 shares were purchased at $48.00 and 4 August 19th, 2022 Call options were sold at $1.43 at the $47.00 strike price.  The corresponding extrinsic value (i.e. time value) was $.43 per share [$1.43 Call options premium - ($48.00 stock purchase price - $47.00 strike price)]. 

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 67.9, which closely approximates a 67.9% probability that the Call option will be in-the-money on the options expiration date.  In addition, the Implied Volatility of the Calls was 28.8 when the position was established which exceeds the current VIX of 20.4.  This is a very short-term position of only 9 days duration and the next earnings report is after the August 19th options expiration date. 

Pfizer meets the five primary criteria currently preferred for new positions established by the Covered Calls Advisor:

Some key numbers for this Pfizer Inc. Covered Calls position are:
Net Investment: $18,630.68
Profit if Assigned on Expiration Date: $169.32
Days Until August 19th, 2022 Options Expiration: 9
Absolute Return-on-Investment if Assigned at Expiration: +0.9%
Annualized Return-on-Investment if Assigned at Expiration: +36.9%

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

Established Covered Calls Position in Exxon Mobil Corporation

An August 19th, 2022 Covered Calls buy/write limit order was placed in Exxon Mobil Corporation (ticker XOM) at a net debit limit price of $84.10 per share.  The order was executed this morning when 300 shares were purchased at $88.92 and three 8/19/2022 Call options were simultaneously sold at the $85.00 strike price for $4.82 per share.  The Implied Volatility of these Call options was 33.2 when this transaction was executed which, as preferred by the Covered Calls Advisor, is greater than the current 22.5 of the S&P 500 Volatility Index (VIX).  In addition, there is an upcoming quarterly ex-dividend of $.88 per share (4.0% annual dividend yield) on August 11th, which is included in the potential return-on-investment calculations detailed below.  When this in-the-money Covered Calls position was established today it had a probability of assignment on the options expiration date of 73.8%. 

Exxon Mobil meets the five primary criteria currently preferred for new positions established by the Covered Calls Advisor:

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

•  +1.1% absolute return (equivalent to +55.4% annualized return for the next 7 days) if the stock is assigned early (business day prior to the August 11th, 2022 ex-dividend date); OR 

• +2.1% absolute return (equivalent to +48.1% annualized return over the next 16 days) if the stock is assigned on the August 19th, 2022 options expiration date.

These returns will be achieved as long as Exxon Mobil's stock price is above the $85.00 strike price at options expiration.  If the stock declines below the strike price, the breakeven price of $83.22 per share ($88.92 stock purchase price - $4.82 Call options selling price - $.88 ex-dividend amount) provides a 6.4% downside breakeven protection below today's stock purchase price.
 

Exxon Mobil Corporation (XOM) -- New Covered Calls Position

If the stock price increases to the point where the current time value (i.e. extrinsic value) of $.90 remaining in the short Call options decays substantially (down to about $.15 or less) by August 10th, 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 300 Exxon Mobil shares away to capture the August 11th dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be a desirable outcome since its +55.4% annualized return-on-investment (aroi) exceeds the +48.1% aroi that would be achieved if the assignment occurred instead on the August 19th options expiration date.

The simultaneous buy/write transaction was:
8/4/2022 Bought 300 Exxon Mobil shares @ $88.92
8/4/2022 Sold 3 Exxon Mobil August 19th, 2022 $85.00 Call options @ $4.82 per share
8/11/2022 Upcoming quarterly ex-dividend at $.88 per share

Two possible overall performance results (including commissions) for this Exxon Mobil Covered Calls position are as follows:
Net Investment: $25,226.01
= ($88.92 - $4.82) *300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,443.99
= ($4.82 *300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on Aug 10th, the business day prior to the August 11th ex-div date): +$0.00; or
(b) Dividend Income (If Exxon Mobil's shares assigned at the August 19th, 2022 expiration): +$264.00
= ($.88 dividend per share x 300 shares)

(c) Capital Appreciation (If Exxon Mobil's stock assigned early): -$1,176.00
+($85.00 -$88.92) * 300 shares; or
(c) Capital Appreciation (If Exxon Mobil shares assigned at $85.00 strike price at options expiration): -$1,176.00
+($85.00 -$88.92) * 300 shares

1. Total Net Profit [If option exercised on the last business day prior to the August 11th ex-dividend date)]: +$267.99

= (+$1,443.99 options income +$0.00 dividend income -$1,176.00 capital appreciation); or

2. Total Net Profit (If Exxon Mobil stock assigned at $85.00 at the August 19th, 2022 expiration): +$531.99

= (+$1,443.99 options income +$264.00 dividend income -$1,176.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on business day prior to ex-dividend date): +1.1%

= +$267.99/$25,226.01

Annualized Return-on-Investment (If option exercised early): +55.4%

= (+$267.99/$25,226.01) * (365/7 days); or

2. Absolute Return-on-Investment (If Exxon Mobil stock assigned at $85.00 at August 19th expiration date): +2.1%

= +$531.99/$25,226.01

Annualized Return-on-Investment (If Exxon Mobil shares assigned at $85.00 at the 8/19/2022 options expiration date): +48.1%

= (+$531.99/$25,226.01) *(365/16 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 Exxon Mobil Corp. position.

Covered Calls Established in Alcoa Corporation

A Covered Calls position was established by buying 400 shares of Alcoa Corporation (ticker symbol AA) stock at $48.30 and simultaneously selling 4 August 19th, 2022 $45.00 Call options at $4.56 per share -- a net debit of $43.74 per share.  The Implied Volatility of these Call options was very high at 61.1 when this position was established which is much higher than the current 23.1 value of VIX.  This elevated IV level is especially true given that the Q2 2022 earnings have already been reported, so there is no increased Implied Volatility because of an upcoming earnings report.  Given the Covered Calls Advisor's current Overall Market Meter sentiment of Bearish, a moderately in-the-money position was established.  The Delta of these Call options was 71.2 which approximates the probability that this Covered Calls position will be in-the-money and therefore assigned on the August 19th, 2022 options expiration date.  

According to Reuters Research, the analysts' average current target price is $60.70 (+25.7% above today's purchase price).  Their estimated FY2022 earnings per share is $7.30, a P/E ratio of only 6.6 based on today's purchase price.

As detailed below, a potential outcome for this investment is +3.1% absolute return-on-investment for the next 19 days (equivalent to +59.4% on an annualized return basis) if the stock closes above the $45.00 strike price on the August 19th options expiration date.

Alcoa Corporation (AA) -- New Covered Calls Position

The net debit buy/write limit order was executed as follows:
8/01/2022 Bought 400 shares of Alcoa stock @ $48.30 per share 
8/01/2022 Sold 4 Alcoa August 19th, 2022 $45.00 Call options @ $4.56 per share
8/08/2022 Ex-dividend of $.10 per share

A possible overall performance result (including commissions) would be as follows:
Net Investment: $17,498.68
= ($48.30 - $4.56) * 400 shares + $2.68 commission
 

Net Profit Components:
(a) Options Income: +$1,821.32
= ($4.56 * 400 shares) - $2.68 commission
(b) Dividend Income: +$40.00 = $.10 per share x 400 shares
(c) Capital Appreciation (If Alcoa stock is above the $45.00 strike price at the Aug. 19th expiration): -$1,320.00
= ($45.00 -$48.30) * 400 shares

Potential Total Net Profit (If assigned at expiration): +$541.32
= (+$1,821.32 options income +$40.00 dividend income -$1,320.00 capital appreciation)

Absolute Return-on-Investment: +3.1%
= +$541.32/$17,498.68
Equivalent Annualized Return-on-Investment: +59.4%
= (+$541.32/$17,498.68)*(365/19 days)

The downside 'breakeven price' at expiration is at $40.92 ($46.32 - $5.40), which is 11.7% below the current market price of $46.32.  This is good protection given the relatively high +43.5% potential annualized ROI for this investment.

Established Covered Calls Position in Wells Fargo & Company

A Covered Calls position was established in Wells Fargo & Company (ticker symbol WFC) today when the Covered Calls Advisor's buy/write limit order was executed -- 500 shares were purchased at $43.54 and 5 August 12th, 2022 weekly Call options were sold at $1.80 at the $42.00 strike price.  The corresponding extrinsic value (i.e. time value) was $.26 per share [$1.80 Call options premium - ($43.54 stock purchase price - $42.00 strike price)], all of which will be profit if the stock is assigned (either by early assignment on the day prior to the August 4th ex-dividend date or at the August 12th options expiration date).

At today's purchase price, the upcoming ex-dividend of $.30 (note: a 20% increase above the prior regular quarterly dividend) on August 4th has a 2.8% annualized dividend yield.  So, this short-term (only 12 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, Wells Fargo fundamentally is historically undervalued since it now trades at a price-to-tangible-book-value ratio of 1.09, a level below its prior 5-year average of 1.31.  Also, the investment firm analysts covering Wells Fargo have a current average price target of $53.08 (+21.9% above today's purchase price). 

The Implied Volatility of the Call options was 26.8 which, as desired by the Covered Calls Advisor, is above the current 22.5 of the S&P 500 Volatility Index (i.e. VIX).

This position is similar to a Wells Fargo Covered Calls position established last quarter just prior to their ex-dividend date.  Most companies in the Financial Sector (such as Wells Fargo) 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 Wells Fargo Covered Calls position continues the Covered Calls Advisor's Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of six mega-cap U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Wells Fargo) for each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup, Morgan Stanley, and/or Wells Fargo 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, in which case 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 normally exceeds the Covered Calls Advisor's minimum threshold (as is the case with this Wells Fargo position).  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.  

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 August 12th 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 77.3 which approximates a probability of 77.3% that the stock will be in-the-money, and therefore assigned (i.e. sold), on the August 12th options expiration date.  

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

•  +0.6% absolute return (equivalent to +73.8% annualized return for the next 3 days) in the relatively unlikely event that the stock is assigned early (business day prior to the August 4th ex-dividend date); OR 

• +1.3% absolute return (equivalent to +40.3% annualized return over the next 12 days) if the stock is assigned on the August 12th options expiration date.

Wells Fargo & Company (WFC) -- New Covered Calls Position
The buy/write transaction was:

8/01/2022 Bought 500 Wells Fargo shares @ $43.54
8/01/2022 Sold 5 Wells Fargo 8/12/2022 $42.00 Call options @ $1.80
8/04/2022 Upcoming quarterly ex-dividend of $.30 per share

Two possible overall performance results (including commissions) for this Wells Fargo Covered Calls position are as follows:
Covered Calls Cost Basis: $20,873.35
= ($43.54 - $1.80) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$896.65
= ($1.80 * 500 shares) - $3.35 commission
(b) Dividend Income (If option exercised early on August 3rd, the day prior to the Aug 4th ex-div date): +$0.00; or
(b) Dividend Income (If Wells Fargo stock assigned at the August 12th, 2022 options expiration; so the $.30 dividend is captured): +$150.00
= ($.30 dividend per share x 500 shares)

(c) Capital Appreciation (If Wells Fargo Call options assigned early on Aug 4th): -$770.00
+($42.00 - $43.54) * 500 shares; or
(c) Capital Appreciation (If shares assigned at $42.00 strike price at options expiration): -$770.00
+($42.00 - $43.54) * 500 shares

1. Total Net Profit [If option exercised on 8/3/2022 (business day prior to the August 4th ex-dividend date)]: +$126.65

= (+$896.65 options income +$0.00 dividend income -$770.00 capital appreciation); or

2. Total Net Profit (If Wells Fargo shares assigned at $42.00 at the August 12th, 2022 expiration): +$276.65

= (+$896.65 +$150.00 -$770.00)

1. Absolute Return-on-Investment [If option exercised on Aug 3rd (business day prior to ex-dividend date)]: +0.6%

= +$126.65/$20,873.35

Annualized Return-on-Investment (If option exercised early): +73.8%

= (+$126.65/$20,873.35)*(365/3 days); or

2. Absolute Return-on-Investment (If Wells Fargo shares assigned at $42.00 at the 8/12/2022 options expiration): +1.3%

= +$276.65/$20,873.35

Annualized Return-on-Investment (If Wells Fargo shares assigned at $42.00 at the August 12th, 2022 expiration): +40.3%

= (+$276.65/$20,873.35)*(365/12 days)

Either outcome provides an attractive return-on-investment result for this Wells Fargo investment.  These returns will be achieved as long as the stock is above the $42.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $41.44 ($43.54 -$1.80 -$.30) provides a 4.8% 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 Wells Fargo position, all nine criteria are met.