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
= (+$19.32/$17,085.34) * (365/46 days)
