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.