Established Covered Calls in Abbvie Inc.

Today, a Covered Calls position was established in Abbvie Inc. (ticker ABBV) with the purchase of 200 shares at $136.86 per share and two October 21st, 2022 Call options were sold for $8.24 per share at the $130.00 strike price.  This transaction occurred as a buy/write limit order at a net debit of $128.62 per share.  The corresponding time value (aka extrinsic value) in the Call options was $1.38 per share = [$8.24 Call options premium received - ($136.86 stock purchase price - $130.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at 74.5 when this buy/write transaction was executed, which approximates the probability of assignment on the options expiration date. 

Abbvie goes ex-dividend at $1.41 per share (4.1% annualized dividend yield at the current stock price) on October 13th which is prior to the October 21st options expiration date, so this dividend is included in the potential return-on-investment results shown below.  In addition, as shown in the chart below at the end of this blog post, all nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position.

Abbvie meets all five primary criteria currently preferred for new positions established by the Covered Calls Advisor (as shown below):

Abbvie is a research-based pharmaceutical company with a strong pipeline in immunology, oncology, neuroscience plus targeted efforts in cystic fibrosis and women's health.  They acquired Allergan (think Botox) two years ago which is aiding Abbvie's growth prospects.  Its #1 drug (Humira) faces biosimilar competition beginning in 2023, so its aggressive pipeline and acquisition strategy is designed to mitigate the upcoming revenue decline from that event.  But the Covered Calls Advisor does not view Abbvie as a long-term core holding.  Instead, because of its generous dividend, it will continue to re-evaluated each quarter as a Dividend Capture Strategy candidate. 

Two potential return-on-investment results are: (a) +1.1% absolute return (equivalent to +29.9% annualized return-on-investment for the next 13 days) if the stock is assigned early on the day prior to the October 13th ex-dividend date; or (b) +2.2% absolute return (equivalent to +35.9% annualized return-on-investment for the next 22 days) if the stock is assigned at market close on the October 21st, 2022 options expiration date.  

 

Abbvie Inc. (ABBV) -- New Covered Calls Position
The simultaneous buy/write transaction was as follows:
9/30/2022 Bought 200 shares of Abbvie Inc. stock @ $136.86 per share 
9/30/2022 Sold 2 ABBV October 21st, 2022 $130.00 Call options @ $8.24 per share.  The Implied Volatility of these Calls was 31.4 when this position was established.
10/13/2022 Upcoming ex-dividend of $1.41 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Net Investment: $25,725.34
= ($136.86 - $8.24) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,646.34
= ($8.24 * 200 shares) - $1.34 commission
(b) Dividend Income (If Abbvie shares assigned on 10/12/2022, the business day prior to the 10/14/2022 ex-dividend date): = +$0.00; or
(b) Dividend Income (If Abbvie shares assigned at the October 21st, 2022 options expiration): +$282.00
= $1.41 per share x 200 shares
(c) Capital Appreciation (If ABBV shares assigned early on Oct. 13th 2022): -$1,372.00
= ($130.00 strike price - $136.86 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If ABBV shares assigned with stock above $130.00 strike price on the Oct. 21st, 2022 options expiration): -$1,372.00
= ($130.00 strike price - $1136.86 stock purchase price) * 200 shares

1. Potential Net Profit (If Abbvie shares assigned early on 10/12/2022, the day prior to the ex-dividend date): +$274.34
= (+$1,646.34 options income +$0.00 dividend income - $1,372.00 capital appreciation)
2. Potential Net Profit (If ABBV price is above $130.00 strike price at October 21st options expiration): +$556.34
= (+$1,646.34 options income +$282.00 dividend income - $1,372.00 capital appreciation)

1. Absolute Return-on-Investment (If ABBV shares assigned early on the day prior to the Oct.13th ex-dividend date): +1.1%
= +$274.34/$25,725.34
Equivalent Annualized Return-on-Investment (If assigned early on day prior to ex-div date): +29.9%
= (+$274.34/$25,725.34) * (365/13 days)
2. Absolute Return-on-Investment (If Abbvie price is above $130.00 strike price at the October 21st options expiration date): +2.2%
= +$556.34/$25,725.34
Equivalent Annualized Return-on-Investment (If assigned on the 10/21/2022 options expiration date): +35.9%
= (+$556.34/$25,725.34) * (365/22 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 9 criteria are achieved for this Abbvie Inc. Covered Call position.

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 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).  Although it remains in the Bearish range, a net increase of only 1 point in only 1 of the 7 categories would be enough to improve the Overall Market Meter Rating from Bearish to Slightly Bearish (albeit at the lower end of Slightly Bearish).   

This 1.43 total is identical to the prior analysis done 3 months ago, but there were four changes (two positive and two negative) to individual factors:
- Bank Lending declined from Neutral to Slightly Bearish,
- High Yield Credit Spread-to-Unemployment Rate improved from Slightly Bearish to Neutral
- Interest Rates declined from Slightly Bearish to Bearish, and
- Total Market Index-to-GDP improved from Very Bearish to Bearish  

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 my current cautious strategy of establishing moderately 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 reversed policies to: (1) regular increases in the Federal Funds rate to try to obtain control of inflation, but which is beginning to show signs of a significant deceleration 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, the stock market's current valuation remains historically high on several metrics, including the two used in my Overall Market Meter (namely the Total Market Cap-to-GDP ratio and the S&P 500 Trailing-Twelve-Months P/E ratio) which provides an added headwind to the overall market.  

Note: If you have not recently read the three linked articles below in this paragraph, please consider reading them carefully.  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 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 $98.78 was executed.  Two hundred JPM shares were purchased at $108.93 and two October 21st, 2022 $100.00 Call options were sold at $10.15 per share.  The time value in the Call options when this position was established was $1.22 per share = [$10.15 Call options premium received - ($108.93 stock purchase price - $100.00 strike price)] and the Implied Volatility of these Calls when this position was established was 38.3.  

I am being very conservative in establishing in-the-money strike prices in this bear market.  For example, this JPMorgan Covered Calls position is a deep-in-the-money position since the stock purchase price is 8.9% above the $100.00 strike price.  The Delta of the Calls was 79.3 which provides a good approximation of 79.3% for the probability of assignment on the options expiration date.  

JPMorgan's upcoming dividend is $1.00 per share (a 3.7% annualized dividend yield based on today's stock purchase price) and it goes ex-dividend on October 5th, 2022 which is prior to the October 21st options expiration date--so this dividend is included in the potential return-on-investment results detailed below.  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 JPMorgan's next quarterly earnings report on October 14th.       

This position is very similar to a JPMorgan position established just prior to their last quarterly ex-dividend date.  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 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 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 +37.4% annualized return for the next 12 days) if the stock is assigned early (business day prior to the October 5th, 2022 ex-dividend date); OR 

• +2.2% absolute return (equivalent to +28.2% annualized return over the next 29 days) if the stock is assigned on the October 21st, 2022 options expiration date.

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

The simultaneous buy/write transaction was:
9/23/2022 Bought 200 JPM shares @ $108.93
9/23/2022 Sold 2 JPM October 21st, 2022 $100.00 Call options @ $10.15 per share
10/05/2022 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 Net Investment: $19,757.34
= ($108.93 - $10.15) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$2,028.66
= ($10.15 *200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on October 4th, the business day prior to the October 5th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at the Oct. 21st, 2022 options expiration date): +$200.00
= ($1.00 dividend per share x 200 shares)

(c) Capital Appreciation (If JPM assigned early): -$1,786.00
+($100.00 -$108.93) * 200 shares; or
(c) Capital Appreciation (If JPM assigned at $100.00 strike price at expiration): -$1,786.00
+($100.00-$108.93) * 200 shares

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

= (+$2,028.66 options income +$0.00 dividend income -$1,786.00 capital appreciation); or

2. Total Net Profit (If JPM assigned at $100.00 at Oct. 5th, 2022 expiration): +$442.66

= (+$2,028.66 options income +$200.00 dividend income -$1,786.00 capital appreciation)

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

= +$242.66/$19,757.34

Annualized Return-on-Investment (If option exercised early): +37.4%

= (+$242.66/$19,757.34) * (365/12 days); or

2. Absolute Return-on-Investment (If JPM assigned at $100.00 at October 21st expiration date): +2.2%

= +$442.66/$19,757.34

Annualized Return-on-Investment (If JPM assigned at $100.00 at the Oct 21st, 2022 options expiration): +28.2%

= (+$442.66/$19,757.34) * (365/29 days)

These return results would be achieved as long as the stock is above the $100.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $97.78 ($108.93 -$10.15 -$1.00) provides 10.2% downside protection below today's $108.93 purchase price.  As detailed in the Dividend Capture spreadsheet below, early assignment would still be a desirable outcome since its +37.4% annualized return-on-investment (aroi) exceeds both: (1) the Covered Calls Advisor's +25.0% minimum aroi threshold for an early assignment; and (2) the +28.2% aroi if the position is in-the-money and therefore assigned on the October 21st options expiration date.

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 Position in Medtronic PLC

Last Friday, the Covered Calls position in Medtronic PLC (ticker symbol MDT) expired out-of-the-money (the stock price was $83.26 and the strike price was $84.00).  This morning, when Medtronic's strike price had risen to $84.05, this Covered Calls position was continued by selling two November 4th, 2022 $81.00 Calls at $3.85 per share against the 200 Medtronic shares.  An in-the-money position was chosen with a Delta of 73.1. 

As detailed below, a potential return-on-investment result if the Medtronic stock price remains in-the-money at the Nov. 4th options expiration is +0.1% absolute return (equivalent to +0.9% annualized return-on-investment over the 46 days period).   This result provides another example of the benefit of the downside protection inherent in selling in-the-money Covered Calls in bearish markets.  If this positive return is achieved, it will be a welcome recovery to profitability from a losing position in which Medtronic's stock price will have declined by -8.2% (from its $88.19 purchase price to the $81.00 assignment price at the positions closing).

Medtronic PLC (MDT) -- New Covered Calls Position
The buy/write transaction was:
09/19/2022 Bought 200 Medtronic PLC shares @ $88.19
09/19/2022 Sold 2 MDT 9/30/2022 $86.00 Call options @ $2.77
Note 1: the Implied Volatility of the Calls was 23.2 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.58 per share = [$2.77 Call options premium - ($88.19 stock price - $86.00 strike price)]
09/22/2022 Upcoming quarterly ex-dividend of $.68 per share
9/30/2022 Bought-to-Close 2 MDT Sept 30th, 2022 $86.00 Call Options @ $.01 per share and simultaneously Sold-to-Open 2 MDT October 21st, 2022 $84.00 Calls @ $1.16 per share.      10/21/2022 Two Call options expired out-of-the-money and 200 shares of Medtronic stock retained in the Covered Calls Advisor Portfolio.
10/24/2022 Rolled-Down-and-Out by selling two November 4th, 2022 $81.00 Calls at $3.85. 

A possible overall performance result (including commissions) for this Medtronic Covered Calls position are as follows:
Covered Calls Net Investment: $17,085.34
= ($88.19 - $2.77) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,321.32
= ($2.77 + $3.85) * 200 shares - $2.68 commissions
(b) Dividend Income: +$136.00
= ($.68 dividend per share x 200 shares)
(c) Capital Appreciation (If MDT shares assigned at $81.00 strike price at the Nov. 4th, 2022 options expiration): -$1,438.00
+($81.00 - $88.19) * 200 shares

Total Net Profit (If Medtronic shares assigned at $81.00 strike price at the Nov. 4th, 2022 expiration): +$19.32

= (+$1,321.32 options income +$136.00 dividend income -$1,438.00 capital appreciation)
 

Absolute Return-on-Investment (If Medtronic shares assigned at $81.00 at the Nov. 4th, 2022 options expiration): +0.1%

= +$19.32/$17,085.34

Annualized Return-on-Investment (If MDT shares assigned at $86.00 at Sept 30th, 2022 expiration): +0.9%
= (+$19.32/$17,085.34) * (365/46 days)

Rollout Covered Calls Positions in Applied Materials and Suncor Energy

At last Friday's options expiration, the Covered Calls positions in Applied Materials Inc. (ticker AMAT) and Suncor Energy Inc. (SU) closed out-of-the-money, so their Call options expired and the shares remained in the Covered Calls Advisor Portfolio.  This morning, Call options were sold against the shares owned in both companies in an attempt to repair the current Covered Call positions for both companies back toward profitability.  

For Applied Materials, two September 30th, 2022 $91.00 Call options were sold at $2.42 per share against the 200 shares owned in the Covered Calls Advisor Portfolio when the stock price today was $89.40.  For Suncor Energy, four October 7th, 2022 $31.00 Call options were sold at $1.00 per share against the 400 Suncor shares owned when the stock price was $30.47.  The details of these Covered Calls positions so far are provided below including potential return-on-investment results.

1. Applied Materials Inc. -- Continuation of Covered Calls Position 

The original $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.
9/2/2022 AMAT shares closed at $91.35, well below the $95.00 strike price, so the Calls expired and 200 AMAT shares remain in the Covered Calls Advisor Portfolio.
9/7/2022 Continued Applied Materials Covered Calls position by selling two Sept 16th, 2022 $92.50 Call options @ $2.30 per share.  The stock price was $91.42 when this transaction was executed.
9/16/2022 Two AMAT Call options expired out-of-the-money and 200 AMAT shares remain in the Covered Calls Advisor Portfolio.
9/19/2022 Continued Applied Materials Covered Calls position by selling two Sept 30th, 2022 $91.00 Call options @ $2.42 per share. 

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

Net Profit Components:
(a) Options Income: +$2,279.98
= ($6.70 + $2.30 + $2.42) * 200 shares - $4.02 commission
(b) Dividend Income: $0.00
(c) Capital Appreciation (If AMAT stock is above $91.00 strike price and therefore assigned on the Sept. 30th options expiration): -$1,952.00
= ($91.00 -$100.76) * 200 shares

Total Net Profit (If stock assigned on the September 30th options expiration date): +$327.98
= (+$2,279.98 options income +$0.00 dividend income -$1,952.00 capital appreciation)

Absolute Return-on-Investment (If stock assigned at $91.00 strike price on Sept 30th, 2022 options expiration date): +1.7%
= +$327.98/$18,813.34
Equivalent Annualized Return-on-Investment: +16.3%
= (+$327.98/$18,813.34) * (365/39 days)

 

2. Suncor Energy Inc. (SU) -- Continuation of Covered Calls Position
The original 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 Ex-dividend at $.3573 per share
9/16/2022 Four Suncor Call options expired out-of-the-money and 400 Suncor shares remain in the Covered Calls Advisor Portfolio.
9/19/2022 Continued Suncor Covered Calls position by selling four October 7th, 2022 $31.00 Call options @ $1.00 per share.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Net Investment: $12,865.36
= ($34.77 - $2.62) * 400 shares + $5.36 commission

Net Profit Components:
(a) Options Income: +$1,442.64
= ($2.62 + $1.00) * 400 shares - $5.36 commission
(b) Dividend Income: $142.92
= $.3573 per share x 400 shares
(c) Capital Appreciation (If Suncor stock is above $31.00 strike price and therefore assigned on the Oct. 7th options expiration): -$1,508.00
= ($31.00 - $34.77) * 400 shares

Total Net Profit (If stock assigned on the October 7th options expiration date): +$77.56
= (+$1,442.64 options income +$142.92 dividend income -$1,508.00 capital appreciation)

Absolute Return-on-Investment (If stock assigned on the Oct. 7th, 2022 options expiration date): +0.6%
= +$77.56/$12,865.36
Equivalent Annualized Return-on-Investment: +5.0%
= (+$77.56/$12,865.36) * (365/44 days)

Monthly Options Expiration Results through September 16th, 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 August 19th, 2022 options expiration through yesterday's September 16th, 2022 monthly options expiration date.  

During this past month, the Covered Calls Advisor Portfolio held a total of twelve Covered Calls positions.  Ten positions were closed out at a profit and two are continuing positions that expired out-of-the-money on yesterday's September 16th monthly options expiration date.  These results demonstrate the potential benefit of establishing in-the-money Covered Calls positions during a bearish market.  During this past month, the benchmark S&P 500 (SPY) declined by -8.3%--but all ten closed positions in the Covered Calls Advisor Portfolio were closed out at a profit.  

The specific results for each position are summarized as follows: 

• Four Covered Calls positions expired in-the-money (stock price above the strike price) on their September 16th, 2022 monthly options expiration date with the following results: 

1. Discover Financial Services (DFS) -- +1.3% absolute return in 38 days (equivalent to +12.1% annualized return-on-investment).  
2. Goldman Sachs Group (GS) -- +1.6% absolute return in 19 days (equivalent to +30.1% annualized return-on-investment).
3. Moderna Inc. (MRNA) -- +3.6% absolute return in 24 days (equivalent to +54.7% annualized return-on-investment).
4. Mosaic Inc. (MOS) -- +1.9% absolute return in 10 days (equivalent to +67.9% annualized return-on-investment).

• Four Covered Calls positions expired in-the-money and were therefore closed out during the past month on their Weekly options expiration dates with the following results:

1. Bank of America Corporation (BAC) -- +1.7% absolute return in 19 days (equivalent to +32.7% annualized return-on-investment).
2. Cleveland-Cliffs Inc. (CLF) -- +1.5% absolute return in 15 days (equivalent to +37.3% annualized return-on-investment).
3. FedEx Corporation (FDX) -- +1.1% absolute return in 11 days (equivalent to +37.8% annualized return-on-investment).
4. iShares China Large-Cap ETF (FXI) -- +2.2% absolute return in 15 days (equivalent to +37.3% annualized return-on-investment).

• Two Covered Calls positions were closed early based on a decision at that time by the Covered Calls Advisor to close out the positions.  Both positions were profitable positions as follows:

1. MGM Resorts International (MGM) -- +1.6% absolute return in 20 days (equivalent to +28.8% annualized return-on-investment).
2. Qualcomm Inc. (QCOM) --  +1.0% absolute return in 20 days (equivalent to +19.1% annualized return-on-investment).
   

• Two Covered Calls positions in Applied Materials Inc. and Suncor Energy Inc. expired out-of-the-money on yesterday's Sept 16th 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.   Early next week, decisions will be made to either sell these shares or to continue these Covered Calls positions by selling future Call options against the shares currently held.

During the past year (last 12 months) 118 of 128 positions (92.2%) 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 +23.6% during the past year and the average holding period for these 128 closed positions was 22.5 days.  In comparison, the benchmark S&P 500 returned -13.8% during the same prior one-year period.  As demonstrated by these past year's results, the Covered Calls strategy can be exceptionally beneficial during Bearish time periods such as we have experienced during the past year, and especially by selling in-the-money strike prices to provide added downside protection in bearish markets.  However, be advised that these return-on-investment results by the Covered Calls Advisor Portfolio above that of the benchmark S&P 500 (i.e. +23.6% versus -13.8%) 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".  If you haven't carefully read the linked article above recently, please do so and think about how you can apply all of these twelve "edges" to your own Covered Calls investing.  

This Covered Calls Advisor blog is a free service available to anyone interested in learning about implementing a successful Covered Calls investing strategy.  As always, I welcome your emails to partlow@cox.net 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

Covered Call Established in Meta Platforms Inc.

At 11:23am this morning, my Covered Call net debit limit order in Meta Platforms Inc. (ticker META) was executed when 100 shares were purchased at $145.83 and 1 September 30th, 2022 Call option was sold at $9.25 at the $140.00 strike price.  The corresponding extrinsic value (i.e. time value) was $3.42 per share [$9.25 Call option premium - ($145.83 stock purchase price - $140.00 strike price)].  

This is the fourth Covered Calls position established at the September 30th quarterly options expiration date and I have not yet established a position with an options expiration date later than September 30th.  I prefer to establish new Covered Calls with a duration of less than 30 days (note: the average holding period for my positions during the past 12 months has been 22.1 days).  The October 2022 monthly options expiration date is October 21st which, as of today, is 36 days away.  The two primary reasons I prefer shorter duration Covered Calls are: (1) they provide higher potential annualized return-on-investment potentials because of Theta--that is, the rate of time value decay in options premiums increases the closer the option is to its expiration date; and (2) shorter duration positions provide more frequent opportunities to re-evaluate current stock holdings and to modify ongoing strike prices given the volatility of stock prices and our outlook for the individual stocks we own.    

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 67.4 which is an aproximate two-thirds probability that the Call option will be in-the-money on the options expiration date.  In addition, the Implied Volatility of the Calls was high at 50.5 when the position was established (well above the current VIX of 27.7), so the options premium received for selling this Call was very attractive.  As preferred, the next earnings report on Oct 24th is after the Sept 30th options expiration date.

Some key numbers for this Meta Platforms Inc. Covered Call position are:
Covered Call Net Investment: $13,658.67
Profit if Assigned on Expiration Date: $341.33
Days Until September 30th, 2022 Options Expiration: 15
Absolute Return-on-Investment if Assigned at Expiration: +2.5%
Annualized Return-on-Investment if Assigned at Expiration: +60.8%

Best Wishes,

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

Established Covered Calls in Cleveland-Cliffs Inc.

This afternoon, a September 30th, 2022 Covered Calls buy/write limit order was executed today in Cleveland-Cliffs Inc. (ticker CLF) at a net debit price of $13.66 per share.  Five hundred shares were purchased at $15.47 and five Sept 30th, 2022 $14.00 strike price Call options were sold at $1.81 per share.  The corresponding extrinsic value (i.e. time value) was $.34 per share [$1.81 Call options premium - ($15.47 stock purchase price - $14.00 strike price)].   The Implied Volatility of the Calls was very high at 66.7 when this position was established, so the options premium received was very attractive.  The probability that the position will be assigned at expiration is approximately 77.2%.  There is no ex-dividend and no earnings report prior to the options expiration date.

This is the third Covered Calls position established at the September 30th quarterly options expiration date and I have yet to establish a position with an options expiration date later than September 30th.  Today's position has 17 days remaining until its Sept. 30th expiration date.  I prefer to establish new Covered Calls with a duration of less than 30 days (note: the average holding period for my positions during the past 12 months has been 22.1 days).  The October 2022 monthly options expiration date is not until October 21st which, as of today, is 38 days away.  The two primary reasons I prefer shorter duration Covered Calls are: (1) they provide higher potential annualized return-on-investment results because of Theta (which is that the rate of time value decay in options premiums increases the closer the option is to its expiration date); and (2) shorter duration positions provide more frequent opportunities to re-evaluate current stock holdings and to modify ongoing strike prices given the volatility of stock prices and our outlook for the individual stocks we own.  

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' stock price declined precipitously today in sympathy with today's negative news from Nucor, but I view today's position as an attractive risk given the company's current valuation.  Cleveland-Cliffs' current TTM EV/EBITDA is only 2.4 which is amazingly low in comparison to its 5-year median of 7.2.  This is the lowest EV/EBITDA of the companies that appeared today in the Covered Calls Advisor's stock screener for companies in the Materials Sector.  Furthermore, the average analysts' target price is $22.83 (+47.6% above today's purchase price). 

Some key numbers for this Cleveland-Cliffs Inc. Covered Calls position are:
Covered Calls Net Investment: $6,833.35
Profit if Assigned on Expiration Date: $166.65
Days Until September 30th, 2022 Options Expiration: 17
Absolute Return-on-Investment if Assigned at Expiration: +2.4%
Annualized Return-on-Investment if Assigned at Expiration: +52.4%

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

Covered Calls Established in Energy Select Sector SPDR Fund ETF

Today at 1:21pm, a Covered Calls position was established in the Energy Select Sector SPDR Fund ETF (ticker XLE), with a September 30th, 2022 quarterly options expiration date. Three hundred shares of the Energy Select Sector SPDR Fund were purchased at $80.31 and three Call options were sold at $4.91 per share at the $76.00 strike price.  The Implied Volatility of these Calls was 31.0 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 25.6.

The time value was $.60 per share [$4.91 options premium - ($80.31 share price - $76.00 strike price)] when this buy/write limit order transaction was executed.  XLE also goes ex-distribution on September 19th, 2022.  The exact amount of the XLE distribution is not pre-announced, but based on prior quarterly distributions, I estimate it will be approximately $.80 per share.   

Given my current Bearish Overall Market Meter rating, the current strategy is to establish Covered Calls with moderately in-the-money strike prices.  The Delta was 78.8 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 options expiration date.  This corresponds to a 5.7% [($80.31 stock purchase price - $76.00 strike price)/$76.00 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 +0.8% absolute return (equivalent to +47.9% annualized return for the next 6 days) if the stock is assigned early on September 16th (the last business day prior to the Sept 19th ex-dividend date); OR +1.8% absolute return (equivalent to +37.5% annualized return over the next 18 days) if the stock is assigned on the September 30th, 2022 options expiration date.

Energy Select Sector SPDR Fund ETF (XLE) -- New Covered Calls Position
The buy/write transaction today was as follows:
9/13/2022 Bought 300 Energy Select Sector SPDR Fund ETF shares @ $80.31 per share
9/13/2022 Sold 3 XLE 9/30/2022 $76.00 Call options @ $4.91 per share
9/19/2022 Upcoming quarterly ex-distribution estimated at $.80 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 Net Investment: $22,622.01
= ($80.31 - $4.91) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$1,470.99
= ($4.91 * 300 shares) - $2.01 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Sept 19th ex-distribution date): +$0.00; or
(b) Dividend Income (If XLE shares assigned at September 30th, 2022 options expiration): +$240.00
= ($.80 dividend per share x 300 shares)
(c) Capital Appreciation (If XLE shares assigned early on Sept 19th): -$1,293.00
+($76.00 - $80.31) * 300 shares ;or
(c) Capital Appreciation (If shares assigned at $76.00 strike price at options expiration): -$1,293.00
+($76.00 - $80.31) * 300 shares

1. Total Net Profit [If options exercised this Friday, Sept 16th (the last business day prior to Monday's September 19th ex-distribution date)]: +$177.99

= (+$1,470.99 options income +$0.00 dividend income - $1,293.00 capital appreciation); or

2. Total Net Profit (If XLE shares assigned at $76.00 strike price at the Sept 30th, 2022 expiration): +$417.99

= (+$1,470.99 options income + $240.00 distribution income - $1,293.00 capital appreciation)

1. Absolute Return-on-Investment [If XLE Call options exercised on final business day prior to ex-distribution date]: +0.8%

= +$177.99/$22,622.01

Annualized Return-on-Investment (If options exercised early this Friday): +47.9%

= (+$177.99/$22,622.01) * (365/6 days); or

2. Absolute Return-on-Investment (If XLE shares assigned at $76.00 strike price on Sept 30th, 2022 expiration): +1.8%

= +$417.99/$22,622.01

Annualized Return-on-Investment (If XLE shares assigned at $76.00 at Sept 30th, 2022 expiration): +37.5%

= (+$417.99/$22,622.01) *(365/18 days)

These returns will be achieved as long as the XLE price is above the $76.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $74.60 ($80.31 -$4.91 -$.80) provides 7.1% downside protection below today's purchase price.

Established Covered Calls in Best Buy Inc.

Today at 1:04pm, the Covered Calls Advisor's buy/write limit order in Best Buy Inc. (ticker BBY) was executed.  Two hundred Best Buy shares were purchased at $74.90 per share and two September 30th, 2022 $71.00 Call options were sold for $4.64 per share.  The Implied Volatility of these Calls was 34.6 which, as preferred, exceeds the current S&P 500 Volatility Index (VIX) of 25.6.  Based on the Covered Calls Advisor's current bearish sentiment, a moderately in-the-money position was established at a Delta of 75.8 (which approximates a 75.8% probability that the Calls will expire in-the-money on the options expiration date).  There is an upcoming ex-dividend on Monday September 19th of $.88 per share (4.7% annualized dividend yield) which is included in the potential return-on-investment results detailed below.  This is the first position in the Covered Calls Advisor Portfolio with an options expiration date after this Friday's September 16th, 2022 monthly options expiration date for September.

Two potential return-on-investment results are: (1) +1.0% absolute return (equivalent to +63.5% annualized return for the next 6 days) if the stock is assigned this Friday (the last business day prior to next Monday's September 19th, 2022 ex-dividend date; or (2) +2.3% absolute return (equivalent to +46.6% annualized return for the next 18 days) if the stock is assigned on the September 30th, 2022 options expiration date.

Best Buy Inc. (BBY) -- New Covered Calls Position
The buy/write transaction was:
9/13/2022 Bought 200 shares of Best Buy shares @ $74.90 per share 
9/13/2022 Sold 2 Best Buy September 30th, 2022 $71.00 Call options @ $4.64 per share
Note: this was a $70.26 net debit limit Buy/Write transaction
09/19/2022 Upcoming quarterly ex-dividend of $.88 per share

Two possible overall performance results (including commissions) for this Best Buy Covered Calls position are as follows:
Covered Calls Net Investment: $14,053.34
= ($74.90 - $4.64) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$926.66
= ($4.64 * 200 shares) - $1.34 commissions
(b) Dividend Income [If BBY shares assigned this Friday (the last business day prior to the September 19th ex-div date)]: +$176.00
= ($.88 dividend per share x 200 shares)
(b) Dividend Income (If BBY shares assigned at the September 30th, 2022 options expiration): +$176.00
= ($.88 dividend per share x 200 shares)
(c) Capital Appreciation (If Best Buy shares assigned early on the last business day prior to the September 19th ex-dividend date): -$780.00
= +($71.00 - $74.90) * 200 shares
(c) Capital Appreciation (If Best Buy shares assigned at $71.00 strike price at options expiration): -$780.00
+($71.00 - $74.90) * 200 shares 

1. Total Net Profit (If Best Buy shares assigned at $71.00 strike price on the last business day prior to the Sept 19th, 2022 ex-dividend date): +$146.66

= (+$926.66 options income +$0.00 dividend income - $780.00 capital appreciation); OR
2. Total Net Profit (If Best Buy shares assigned at $71.00 strike price at the September 30th, 2022 expiration): +$322.66

 = (+$926.66 options income +$176.00 dividend income - $780.00 capital appreciation)

 

1. Absolute Return-on-Investment (If BBY shares are in-the-money and therefore assigned on the last business day prior to the Sept 19th, 2022 ex-dividend date): +1.0%

= +$146.66/$14,053.34

Annualized Return-on-Investment (If Best Buy stock assigned early): +63.5%

= (+$146.66/$14,053.34) *(365/6 days); OR
2. Absolute Return-on-Investment (If BBY shares are in-the-money and therefore assigned on the last business day prior to the Sept 19th, 2022 ex-dividend date): +2.3%
= +$322.66/$14,053.34

Annualized Return-on-Investment (If Best Buy stock assigned at $71.00 at the 9/30/2022 expiration): +46.6%

= (+$322.66/$14,053.34) *(365/18 days)

These returns will be achieved as long as the stock is above the $71.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $69.38 ($74.90 -$4.64 -$.88) provides a substantial 7.4% downside protection below today's 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.  As shown below, all nine criteria are achieved for this Best Buy Inc. Covered Calls position.

Closed Covered Calls Position in Qualcomm Inc.

At last Friday's options expiration, two September 9th, 2022 Covered Calls in Qualcomm Inc. (ticker QCOM) expired out-of-the-money with the stock price below the $134.00 strike price, so the Calls expired and the 200 shares of Qualcomm remained in the Covered Calls Advisor Portfolio.  I decided to close this position given the current bearishness in the semiconductor industry in general and for Qualcomm specifically and also since another semiconductor stock (Applied Materials) is currently also in the Covered Calls Advisor Portfolio.  So soon after this morning's market open, I closed this Qualcomm Inc. position by selling the 200 shares at a market price of $132.94 per share.    

The return-on-investment results for this Qualcomm Inc. position was: +1.0% absolute return in 20 days (equivalent to a +19.1% annualized return-on-investment).   

This Covered Calls position demonstrates the benefit of selling moderately in-the-money Covered Calls in bearish markets.  This Qualcomm stock price declined by 5.6% since its original purchase price just 20 days ago, however a satisfactory return-on-investment profit was still achieved (as detailed below).

Qualcomm Inc.(QCOM) -- Covered Calls Position Closed
The original 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 Ex-dividend of $150.00 ($.75 per share x 200 shares)
09/09/2022 Two QCOM Calls closed below the $134.00 strike price @ $132.05 per share, so the 2 QCOM Call options expired and 200 Qualcomm shares remained in the Covered Calls Advisor Portfolio.
09/12/2022 Closed out this Qualcomm Covered Calls position by selling 200 shares @ $132.94 early in today's trading day.

The overall performance results (including commissions) are 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: +$150.00
= $.75 dividend per share x 200 shares
(c) Capital Appreciation (Qualcomm stock sold on 9/12/2022 @ $132.94 per share): -$1,572.00
= ($132.94 - $140.80) * 200 shares

Net Profit: +$276.66
= (+$1,698.66 options income +$150.00 dividend income - $1,572.00 capital appreciation)

Absolute Return-on-Investment: +1.0%
= +$276.66/$26,461.34
Equivalent Annualized Return-on-Investment: +19.1%
= (+$276.66/$26,461.34) * (365/20 days)

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

September 9th, 2022 Options Expiration Results

The Covered Calls Advisor Portfolio had three Covered Calls positions with September 9th, 2022 weekly options expiration dates.  Two positions (Bank of America Corporation and Fedex Corporation) were in-the-money and therefore assigned on their Sept 9th options expiration date.  The third position in Qualcomm Inc. was a Covered Calls position that closed out-of-the-money.  The results to-date for each position were as follows:

1. Bank of America Corporation (BAC) -- +1.7% absolute return (equivalent to +32.7% annualized return-on-investment) for the 19 days of this investment.  The original post for this position is here.  The five hundred shares were in-the-money since the closing price of $34.94 was above the $33.00 strike price. 

2. Fedex Corporation (FDX) -- +1.1% absolute return (equivalent to +37.8% annualized return-on-investment) for the 11 days of this investment.  The original post for this position is here.  The one hundred shares were in-the-money since the closing price of $209.07 was above the $205.00 strike price. 

The cash now available from the assignment (i.e. closing) of these Bank of America and Fedex Covered Calls positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Given the Covered Calls Advisor's currently Bearish Overall Market outlook, new positions will be hedged by continuing to establish Covered Calls at in-the-money strike prices with good downside protection. 

3. Qualcomm Inc. (QCOM) -- The six hundred shares closed out-of-the-money with the $132.05 stock price below the $134.00 strike price at expiration.  So, the Call options expired and the 600 QCOM shares remain in the Covered Calls Advisor Portfolio.  

A decision will be made early next week to either sell these Qualcomm shares or, more likely, to continue this Covered Calls position with a rollout transaction by selling future Qualcomm Call options against the 600 shares currently held.  When rolling an existing Covered Calls position, I often like to choose a future expiration date of about two weeks duration, which would be September 23rd for this Qualcomm position.  This approach is contingent on: (1) the bid/ask spread for the Calls being sufficiently tight; and (2) there is no intervening quarterly earnings report prior to the options expiration date.   

Email me at the address shown below with any questions you might have related to the Covered Calls investing strategy.

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net

Rollout Covered Calls Positions in Applied Materials and Discover Financial Services

At last Friday's options expiration, the Covered Calls positions in Applied Materials Inc. (ticker AMAT) and Discover Financial Services (DFS) closed out-of-the-money, so their Call options expired and the shares remained in the Covered Calls Advisor Portfolio.  Today, September 16th, 2022 Call options were sold against the shares owned in both companies in an attempt to repair the current Covered Call positions for both companies back to profitability.  

For Applied Materials, two September 16th, 2022 $92.50 Call options were sold at $2.30 per share against the 200 shares owned in the Covered Calls Advisor Portfolio when the stock price today was $91.42.  For Discover Financial Services, two Sept 16th, 2022 $100.00 Call options were sold at $1.80 per share against the 200 Discover shares owned when the stock price was $98.66.  The details of these Covered Calls positions so far are provided below including potential return-on-investment results.

1. Applied Materials Inc. -- Continuation of Covered Calls Position 

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.
9/2/2022 AMAT shares closed at $91.35, well below the $95.00 strike price, so the Calls expired and 200 AMAT shares remain in the Covered Calls Advisor Portfolio.
9/7/2022 Continued Applied Materials Covered Calls position by selling two Sept 16th, 2022 $92.50 Call options @ $2.30 per share.  The stock price was $91.42 when this transaction was executed. 

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: +$1,797.32
= ($6.70 + $2.30) * 200 shares - $2.68 commission
(b) Dividend Income: $0.00
(c) Capital Appreciation (If AMAT stock is above $92.50 strike price and therefore assigned on the Sept. 16th options expiration): -$1,652.00
= ($92.50 -$100.76) * 200 shares

Total Net Profit (If stock assigned on the September 16th options expiration date): +$145.32
= (+$1,797.32 options income +$0.00 dividend income -$1,652.00 capital appreciation)

Absolute Return-on-Investment (If stock assigned on Sept 16th, 2022 options expiration date): +0.8%
= +$145.32/$18,813.34
Equivalent Annualized Return-on-Investment: +11.7%
= (+$145.32/$18,813.34) * (365/24 days)

2. Discover Financial Services (DFS) -- Continuation of Covered Calls Position 
The original 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
9/2/2022 DFS shares closed at $99.53, well below the $102.00 strike price, so the Calls expired and 200 Discover shares remain in the Covered Calls Advisor Portfolio.
9/7/2022 Continued Discover Financial Covered Calls position by selling two Sept 16th, 2022 $100.00 Call options @ $1.80 per share.  The stock price was $98.66 when this transaction was executed. 

A possible overall performance result (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: +$1,755.32
= ($6.99 + $1.80) * 200 shares - $2.68 commission
(b) Dividend Income: $120.00
= $.60 per share x 200 shares
(c) Capital Appreciation (If DFS stock is above $100.00 strike price and therefore assigned on the Sept. 16th options expiration): -$1,620.00
= ($100.00 -$108.10) * 200 shares

Total Net Profit (If stock assigned on the September 16th options expiration date): +$255.32
= (+$1,755.32 options income +$120.00 dividend income -$1,620.00 capital appreciation)

Absolute Return-on-Investment (If stock assigned on Sept 16th, 2022 options expiration date): +1.3%
= +$255.32/$20,223.34
Equivalent Annualized Return-on-Investment: +12.1%
= (+$255.32/$20,223.34) * (365/38 days)

Covered Calls Established in Mosaic Inc.

Soon after the market opened today, a short-term Covered Calls position was established in Mosaic Inc. (ticker symbol MOS) when the Covered Calls Advisor's buy/write limit order was executed -- 300 shares were purchased at $52.60 and 3 September 16th, 2022 $50.00 Call options were sold at $3.52 per share.  This position is a replacement in the Materials Sector for the Cleveland-Cliffs position that was assigned last Friday upon its options expiration date.  Mosaic appeared in my Materials Sector stock screener and analysts' average target price is $69.09 (+31.3% above today's purchase price). 

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 69.7, 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 high at 55.3 when the position was established, so the potential annualized return-on-investment of +67.9% if assigned at expiration (as shown below) would be a very attractive outcome.  There is no quarterly earnings report or ex-dividend date prior to the September 16th options expiration date.   

Some key numbers for this Mosaic Inc. Covered Calls position are:
Covered Call Cost Basis: $14,726.01
Profit if Assigned on Expiration Date: $273.99
Days Until Expiration: 10
Absolute Return-on-Investment if Assigned at 9/16/2022 Options Expiration Date: +1.9%
Annualized Return-on-Investment if Assigned at 9/16/2022 Options Expiration Date: +67.9%

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

Closed Covered Calls Position in MGM Resorts International

At last Friday's options expiration, four September 2nd, 2022 Covered Calls in MGM Resorts International (ticker MGM) expired with the stock price slightly below the $33.00 strike price, so the Calls expired and the 400 shares of MGM remained in the Covered Calls Advisor Portfolio.  I decided to close this position, so soon after this morning's market open, I closed this MGM Resorts position by selling the 400 shares at a market price of $33.00 per share.    

The return-on-investment results for this MGM Resorts International position was: +1.6% absolute return in 20 days (equivalent to a +28.8% annualized return-on-investment).   

This Covered Calls position demonstrates the benefit of selling moderately in-the-money Covered Calls in bearish markets.  This MGM stock price declined by 6.3% since its original purchase price just 20 days ago, however an attractive return-on-investment result was still achieved--as detailed below.

MGM Resorts International (MGM) -- Covered Calls Position Closed
The original Buy/Write limit order was executed as follows:
8/17/2022 Bought 400 shares of MGM Resorts stock @ $35.21 per share 
8/17/2022 Sold 4 MGM September 2nd, 2022 $33.00 Call options @ $2.73 per share
09/02/2022 Two MGM Calls closed slightly below the $33.00 strike price @ $32.64 per share, so the 4 MGM Call options expired and 400 MGM Resorts shares remained in the Covered Calls Advisor Portfolio.
09/06/2022 Closed out this MGM Resorts International Covered Calls position by selling 400 shares was @ $33.00 early this morning.

The overall performance results (including commissions) for this MGM Resorts International Covered Calls position were as follows:
Stock Purchase Cost Basis: $12,994.68
= ($35.21 - $2.73) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,089.32
= ($2.73 * 400 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (400 MGM shares sold at $33.00 per share): -$884.00
= (+$33.00 sale price - $35.21 original stock price) * 400 shares

Total Net Profit: +$205.32

= (+$1,089.32 options income +$0.00 dividend income -$884.00 capital appreciation)

 

Absolute Return-on-Investment: +1.6%

= +$205.32/$12,994.68

Annualized Return-on-Investment: +28.8%

= (+$205.32/$12,994.68) * (365/20 days)

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

September 2nd, 2022 Options Expiration Results

During the past month (since August 1st), the benchmark S&P 500 (SPY) has experienced a substantial decline of -4.5%.  The Covered Calls Advisor Portfolio had four positions with September 2nd, 2022 options expirations, all of which were established with moderately in-the-money strike prices.  

Only one of these positions (Cleveland-Cliffs Inc.) closed in-the-money at yesterday's expiration .  The other three companies (Applied Materials Inc., Discover Financial Services, and MGM Resorts International) closed out-of-the-money (i.e. with their stock prices below their strike price).  So, the Call options for these 3 positions expired and their shares now remain in the Covered Calls Advisor Portfolio.  A decision will be made next week to either sell these shares or to continue these Covered Calls positions by selling future Call options against the shares currently held.  

The results for the closed position in Cleveland-Cliffs was +1.5% absolute return (equivalent to +37.3% annualized return-on-investment) for the 15 days of this investment.  The original post detailing this Covered Calls position 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 Bearish Overall Market outlook, new positions will be hedged by continuing to establish Covered Calls at in-the-money strike prices with good downside protection.

Please email me at the address shown below if you would like my feedback on any questions or comments you have related to the Covered Calls investing strategy.

Best Wishes,

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net