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.