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.