Established Covered Calls Position in Tapestry Inc.

A December 16th, 2022 Covered Calls buy/write limit order was placed in Tapestry Inc. (ticker TPR) at a net debit limit price of $34.51 per share.  Tapestry Inc. owns and is the designer and marketer of luxury accessories and lifestyle brands Coach, Kate Spade, and Stuart Weitzman.  The order was executed and 500 shares were purchased at $36.96 and five December 16th Call options were sold at the $35.00 strike price for $2.45 per share.  The Implied Volatility of these Call options was 39.9 when this transaction was executed and the Delta was 72.5.  In addition, there is an upcoming quarterly ex-dividend of $.30 per share (3.2% annual dividend yield) on December 8th which is prior to the options expiration date; so it is included in the potential return-on-investment calculations detailed below. 

Tapestry meets the five primary criteria currently preferred for new positions established by the Covered Calls Advisor:

 

As detailed below, two potential return-on-investment results are: 

•  +1.4% absolute return (equivalent to +63.9% annualized return for the next 8 days) if the stock is assigned early (business day prior to the December 8th, 2022 ex-dividend date); OR 

• +2.3% absolute return (equivalent to +48.6% annualized return over the next 17 days) if the stock is assigned on the December 16th, 2022 options expiration date.

These returns will be achieved as long as Tapestry's stock price is above the $35.00 strike price at options expiration.  If the stock declines below the strike price, the breakeven price of $34.21 per share ($36.96 stock purchase price - $2.45 Call options selling price - $.30 ex-dividend amount) provides a substantial 7.4% downside breakeven protection below today's stock purchase price.

Tapestry Inc. (TPR) -- New Covered Calls Position

The transactions were:
11/30/2022 Bought 500 Tapestry Inc. shares @ $36.96
11/30/2022 Sold 5 TPR 12/16/2022 $35.00 Call options @ $2.45 per share
12/08/2022 Upcoming quarterly ex-dividend of $.30 per share

Two possible overall performance results (including commissions) for this Tapestry Covered Calls position are as follows:
Covered Calls Net Investment: $17,258.35
= ($36.96 - $2.45) * 500 shares + $3.35 commissions

Net Profit Components:
(a) Options Income: +$1,221.65
= ($2.45 * 500 shares) - $3.35 commissions
(b) Dividend Income (If option exercised early on the business day prior to the Dec. 8th ex-div date): +$0.00; or
(b) Dividend Income (If Tapestry shares assigned at the Dec 16th, 2022 options expiration): +$150.00
= ($.30 dividend per share x 500 shares)
(c) Capital Appreciation (If TPR assigned early on Dec 8th): -$980.00
+($35.00 - $36.96) * 500 shares ;or
(c) Capital Appreciation (If TPR shares assigned at $35.00 strike price at options expiration): -$980.00
+($35.00 - $36.96) * 500 shares

1. Total Net Profit [If options exercised on Dec. 7th (business day prior to the Dec. 8th ex-dividend date)]: +$241.65

= (+$1,221.65 +$0.00 - $980.00); or

2. Total Net Profit (If Tapestry shares assigned at $35.00 strike price at Dec. 16th, 2022 expiration): +$391.65

= (+$1,221.65 + $150.00 - $980.00)

1. Absolute Return [If TPR Call options exercised on business day prior to ex-dividend date]: +1.4%

= +$241.65/$17,258.35

Annualized Return (If options exercised early): +63.9%

= (+$241.65/$17,258.35) * (365/8 days); or

2. Absolute Return (If Tapestry shares assigned at $35.00 strike price on Dec. 16th, 2022 expiration): +2.3%

= +$391.65/$17,285.35

Annualized Return (If Tapestry stock assigned at $35.00 at the Dec. 16, 2022 expiration): +48.6%

= (+$391.65/$17,285.35) *(365/17 days)

The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a Dividend Capture Strategy.  The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved.  As shown in the table below, all nine criteria are met for this Tapestry Inc. Covered Calls position.

Covered Calls Established in Bank of America Corporation

A December 16th, 2022 Covered Calls buy/write limit order was executed today in Bank of America (ticker BAC) at a net debit price of $35.13 per share.  Five hundred shares were purchased at $36.80 and five December 16th, 2022 $35.50 strike price Call options were sold at $1.67 per share.  The corresponding extrinsic value (i.e. time value) was $.37 per share [$1.67 Call options premium - ($36.80 stock purchase price - $35.50 strike price)].   There is an intervening ex-dividend prior to the options expiration date in two days (on December 1st) at $.22 per share which is included in the potential return-on-investment results shown below.  The Implied Volatility of the Call options was 27.9 and the Delta was 72.6 when this position was established.  And as preferred, there is no quarterly earnings report prior to the options expiration date.

Some key numbers for this Bank of America Covered Calls position are:
Covered Calls Net Investment: $17,568.35
Time Value Profit if Assigned on Expiration Date: $181.65
Dividend Income if Assigned on the Options Expiration Date: $110.00
Total Potential Profit if Assigned ($181.65 time value profit + $110.00 dividend income): $291.65
Days Until the December 16th, 2022 Options Expiration: 18
Absolute Return-on-Investment if Assigned at Expiration: +1.7%
Annualized Return-on-Investment if Assigned at Expiration: +33.7%

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

November 25th, 2022 Options Expiration Results

There was one Covered Calls position in the Covered Calls Advisor Portfolio with a  November 25th, 2022 weekly options expiration date.   This position in Exxon Mobil Corporation (ticker XOM) was closed out yesterday since its stock price of $113.21 at the market close yesterday was in-the-money, so the 200 shares owned were assigned (i.e. sold) at their $108.00 strike price.  

As detailed below, the return-on-investment (ROI) result was a +1.9% absolute return-on-investment (equivalent to +32.0% annualized return-on-investment) for the 22 days holding period).  This position was established using my Dividend Capture Strategy, so the return-on-investment result achieved includes receiving Exxon's $.91 per share quarterly dividend since the ex-dividend date occurred on November 14th which was during the 22 day period between November 4th when this Covered Calls position was established and the November 25th options expiration date.

Exxon Mobil Corporation (XOM) -- Covered Calls Position Assigned on the November 25th Options Expiration Date

The original simultaneous buy/write transactions was as follows: 11/4/2022 Bought 200 Exxon Mobil shares @ $112.53
11/4/2022 Sold 2 Exxon Mobil November 25th, 2022 $108.00 Call options @ $5.69 per share
11/14/2022 Quarterly ex-dividend at $.91 per share
11/25/2022 Two XOM $108.00 Calls expired in-the-money (Exxon Mobil stock was $113.21 at the market close yesterday (11/25/2022) and the 200 stock shares were sold at the $108.00 strike price to close out this Covered Calls position.

The overall performance result (including commissions) was as follows:
Covered Calls Net Investment: $21,369.34
= ($112.53 - $5.69) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,136.66
= ($5.69 * 200 shares) - $1.34 commission
(b) Dividend Income (XOM shares assigned at the Nov. 25th, 2022 expiration): +$182.00
= ($.91 dividend per share x 200 shares)
(c) Capital Appreciation (Exxon Mobil shares assigned at $108.00 strike price at options expiration): -$906.00
+($108.00 -$112.53) * 200 shares

Total Net Profit: +$412.66

= (+$1,136.66 options income +$182.00 dividend income -$906.00 capital appreciation)
 

Absolute Return-on-Investment: +1.9%

= +$412.66/$21,369.34

Annualized Return-on-Investment: +32.0%

= (+$412.66/$21,369.34) *(365/22 days)

Established Covered Calls in Kohl's Corporation

Late this afternoon, a Covered Calls position was established in Kohl's Corporation (ticker KSS) when the Covered Calls Advisor's buy/write limit order for the December 16th, 2022 $30.00s executed at a net debit price of $29.40.  Four hundred KSS shares were purchased at $31.98 and 4 December 16th, 2022 $30.00 Calls were sold at $2.58 per share.  So, the corresponding time value (aka extrinsic value) was $.60 per share = [$2.58 Call options premium - ($31.98 stock purchase price - $30.00 strike price)].  Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Call position was established--the Delta was 71.4, which closely approximates the probability that the Call options will be in-the-money on the options expiration date.  In addition, the Implied Volatility of the Calls was 48.0 when the position was established which, as desired, was above the VIX which was at 20.5. 

Kohl's goes ex-dividend at $.50 per share (6.3% annualized dividend yield at the current stock price) on December 6th, 2022, so this dividend is included in the potential return-on-investment results shown below.  There is no earnings report prior to the options expiration date.

Two potential return-on-investment results for this Kohl's Covered Calls position are: (a) +2.0% absolute return (equivalent to +67.3% annualized return for the next 11 days) if the stock is assigned early [i.e. on December 5th which is the last trading day prior to the December 6th ex-dividend date]; OR (b) +3.7% absolute return (equivalent to +61.9% annualized return over the next 22 days) if the stock is assigned on its December 16th, 2022 options expiration date. 

Kohl's Corporation (KSS) -- New Covered Calls Position
The simultaneous buy/write transactions was as follows:
11/25/2022 Bought 400 shares of Kohl's Corporation stock @ $31.98 per share 
11/25/2022 Sold 4 Kohl's Dec. 16th, 2022 $30.00 Call options @ $2.58 per share
12/6/2022 Upcoming ex-dividend at $.50 per share

The overall performance results (including commissions) would be as follows:
Covered Calls Net Investment: $11,761.34
= ($31.98 - $2.58) * 400 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,030.66
= ($2.58 * 400 shares) - $1.34 commission
(b) Dividend Income (If Kohl's stock assigned on the Dec. 6th ex-dividend date): $0.00
(b) Dividend Income (If Kohl's stock assigned on the December 16th options expiration date): +$200.00
= $.50 dividend per share x 400 shares
(c) Capital Appreciation (If Kohl's stock assigned on the 12/6/2022 ex-dividend date): -$792.00
= ($30.00 - $31.98) * 400 shares
(c) Capital Appreciation (If KSS stock is above $30.00 strike price and therefore assigned at the December 16th expiration): -$792.00
= ($30.00 - $31.98) * 400 shares

1. Potential Net Profit (If Kohl's shares assigned early on 12/5/2022, the day prior to the December 6th ex-dividend date): +$238.66
= (+$1,030.66 options income +$0.00 dividend income - $792.00 capital appreciation)
2. Potential Net Profit (If Kohl's stock price is above $30.00 strike price at the Dec.16th options expiration): +$438.66
= (+$1,030.66 options income +$200.00 dividend income - $792.00 capital appreciation)

1. Absolute Return-on-Investment (If Kohl's shares assigned on 12/5/2022, the day prior to the December 6th, 2022 ex-dividend date): +2.0%
= +$238.66/$11,761.34
Equivalent Annualized Return-on-Investment (If assigned early on day prior to ex-div date): +67.3%
= (+$238.66/$11,761.34 ) * (365/11 days)
2. Absolute Return-on-Investment (If KSS share price is above $30.00 strike price at the December 16th options expiration): +3.7%
= +$438.66/$11,761.34
Equivalent Annualized Return-on-Investment (If Kohl's shares assigned on the 12/16/2022 options expiration date): +61.9%
= (+$438.66/$11,761.34) * (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 nine criteria are achieved for this Kohl's Corporation Covered Calls position.

Established Covered Calls in Qualcomm Inc.

This afternoon with less than 30 minutes until market closing, a short-term dividend capture Covered Calls position was established in Qualcomm Inc. (ticker QCOM) when my buy/write limit order for the March 10th, 2023 $120.00s executed at a net debit price of $119.12.  Two hundred QCOM shares were purchased at $124.05 and 2 March 10th, 2023 $120.00 Calls were sold at $4.93 per share.  So, the corresponding time value (aka extrinsic value) was $.88 per share = [$4.93 Call options premium - ($124.05 stock purchase price - $120.00 strike price)].  Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Call position was established--the Delta was 75.1, which closely approximates the probability that the Call options will be in-the-money on the options expiration date.  In addition, the Implied Volatility of the Calls was 28.5 when the position was established which, as desired, was above the VIX which was 20.4. 

Qualcomm Inc. goes ex-dividend tomorrow at $.75 per share (2.4% annualized dividend yield at the current stock price), so this dividend is included in the potential return-on-investment results shown below.  There is no earnings report prior to the options expiration date.

Qualcomm appeared in my Large-Cap Value+Profitability+Growth stock screener and the average analysts' target price is currently $149.84 (+20.3% above today's purchase price).

Two potential return-on-investment results for this Qualcomm Covered Calls position are: (a) +1.1% absolute return (equivalent to +80.8% annualized return for the next 5 days) if the stock is assigned early [i.e. on Nov. 29th which is the last trading day prior to the November 30th ex-dividend date]; OR (b) +1.7% absolute return (equivalent to +42.3% annualized return over the next 15 days) if the stock is assigned on its December 9th, 2022 options expiration date. 

Qualcomm Inc.(QCOM) -- New Covered Calls Position
The simultaneous buy/write transactions was as follows:
11/25/2022 Bought 200 shares of Qualcomm stock @ $124.52 per share 
11/25/2022 Sold 2 Qualcomm Dec. 9th, 2022 $120.00 Call options @ $5.84 per share
11/30/2022 Upcoming ex-dividend at $.75 per share

The overall performance results (including commissions) would be as follows:
Covered Calls Net Investment: $23,737.34
= ($124.52 - $5.84) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,166.66
= ($5.84 * 200 shares) - $1.34 commission
(b) Dividend Income (If Qualcomm stock assigned on the November 30th ex-dividend date): $0.00
(b) Dividend Income (If Qualcomm stock assigned on the December 9th options expiration date): +$150.00
= $.75 dividend per share x 200 shares
(c) Capital Appreciation (If Qualcomm stock assigned on the Nov. 30th ex-dividend date): -$904.00
= ($120.00 - $124.52) * 200 shares
(c) Capital Appreciation (If Qualcomm stock is above $120.00 strike price and therefore assigned at the December 9th expiration): -$904.00
= ($120.00 - $124.52) * 200 shares

1. Potential Net Profit (If Qualcomm shares assigned early on 11/29/2022, the day prior to the November 30th ex-dividend date): +$262.66
= (+$1,166.66 options income +$0.00 dividend income - $904.00 capital appreciation)
2. Potential Net Profit (If QCOM price is above $120.00 strike price at the Dec. 9th options expiration): +$412.66
= (+$1,166.66 options income +$150.00 dividend income - $904.00 capital appreciation)

1. Absolute Return (If Qualcomm shares assigned on 11/29/2022, the day prior to the Nov. 30th, 2022 ex-dividend date): +1.1%
= +$262.66/$23,737.34
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +80.8%
= (+$262.66/$23,737.34) * (365/5 days)
2. Absolute Return (If QCOM price is above $120.00 strike price at the December 9th options expiration): +1.7%
= +$412.66/$23,737.34
Equivalent Annualized Return (If assigned on the 12/9/2022 options expiration date): +42.3%
= (+$412.66/$23,737.34) * (365/15 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 nine criteria are achieved for this Qualcomm Inc. Covered Calls position.

Established Covered Calls Positions in Devon Energy Corp. and Tyson Foods Inc.

Today two Covered Call positions were established in Devon Energy Corp. (ticker DVN) and Tyson Foods Inc. (TSN) when the Covered Calls Advisor's buy/write limit orders were executed.   For Devon Energy, 300 shares were purchased at $67.27 and 3 December 16th, 2022 Call options were sold at $5.61 per share at the $63.00 strike price.   For Tyson Foods, 200 shares were purchased at $66.99 and 2 December 16th, 2022 Call options were sold at $2.59 at the $65.00 strike price.  Given the Covered Calls Advisor's current cautious outlook, moderately in-the-money Covered Calls positions were established for both companies. 

Devon Energy goes ex-dividend at $1.35 per share (8.0% annual dividend yield) on December 9th which is one week prior to the December 16th options expiration date, so the potential for capturing this dividend is included in the potential return-on-investment results detailed below.  As preferred, there is no intervening earnings report prior to the options expiration date.   As I also prefer, the Implied Volatility of the Devon Calls was 48.0 which is substantially above that of VIX which is currently 20.8.  This provides a very good options premium received (and therefore also an attractive potential annualized return-on-investment) from selling these Devon Energy Call options.  

Devon's trailing twelve months P/E ratio is only 7.2 and it should continue to decline based on next quarter's EPS estimated to be 49.6% higher than the same quarter last year.  Devon has exceeded quarterly earnings estimates in each of its last 4 quarters.  This positive trend should continue to benefit the stock price which is reflected in Wall Street analysts' current average target price at $80.44 (+19.6% above today's purchase price).

The second Covered Calls position is in Tyson Foods Inc.  The time value was $.60 per share = [$65.00 strike price - ($66.99 stock purchase price - $2.59 Call options price)].   Tyson Foods goes ex-dividend next Wednesday at $.48 per share (2.9% annual dividend yield), so the potential for capturing this dividend is included in the potential return-on-investment results detailed below.  There is no earnings report prior to the December 16th options expiration date.  The Implied Volatility of the Call options was 21.4 and the Delta was 70.2 which approximates the probability of the Call option being in-the-money on the Dec. 16th options expiration date.  If Tyson Foods closes in-the-money on the December 16th options expiration date, then the maximum return-on-investment result would be achieved for this position.  

As detailed below, the potential return-on-investment results for these Covered Calls positions are: 

• For Devon Energy: +2.2% absolute return (equivalent to +49.3% annualized return-on-investment for the next 16 days) if the stock is assigned early (last trading day prior to the December 9th ex-dividend date); OR (2) +4.4% absolute return (equivalent to +66.2% annualized return over the next 24 days) if the stock is assigned on its Dec. 16th options expiration date.

• For Tyson Foods Inc.: +1.7% absolute return (equivalent to +25.3% annualized return-on-investment for the next 24 days) if the stock is assigned on the December 16th, 2022 options expiration date.

1.  Devon Energy Corp (DVN) -- New Covered Calls Position                                                         The buy/write transaction was:
11/23/2022 Bought 300 Devon Energy shares @ $67.27 each
11/23/2022 Sold 3 DVN 12/16/2022 $63.00 Call options @ $5.61 per share
12/9/2022 Upcoming quarterly ex-dividend of $1.35 per share

Two possible overall performance results (including commissions) for this Devon Covered Calls position are as follows:
Covered Calls Net Investment: $18,500.01
= ($67.27 - $5.61) * 300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,680.99
= ($5.61 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on December 8th, 2022 the business day prior to the Dec. 9th ex-div date): +$0.00; or
(b) Dividend Income (If Devon shares assigned at December 16th, 2022 expiration): +$405.00
= ($1.35 dividend per share x 300 shares)
(c) Capital Appreciation (If Devon shares assigned early): -$1,281.00
+($63.00 - $67.27) * 300 shares; or
(c) Capital Appreciation (If Devon shares assigned at $63.00 strike price at expiration): -$1,281.00
+($63.00 - $67.27) * 300 shares

1. Total Net Profit [If option exercised on Dec. 8th (business day prior to the Dec. 9th, 2022 ex-dividend date)]: +$399.99

= (+$1,680.99 options income +$0.00 dividend income -$1,281.00 capital appreciation); or

2. Total Net Profit (If Devon shares assigned at $63.00 strike price at December 16th, 2022 expiration): +$804.99

= (+$1,680.99 options income +$405.00 dividend income -$1,281.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on business day prior to ex-dividend date): +2.2%

= +$399.99/$18,500.01

Annualized Return-on-Investment (If option exercised early): +49.3%

= (+$399.99/$18,500.01) * (365/16 days); or

2. Absolute Return-on-Investment (If Devon shares assigned at $63.00 at the Dec. 16th, 2022 expiration): +4.4%

= +$804.99/$18,500.01

Annualized Return-on-Investment (If 300 DVN shares assigned at $63.00 at the Dec. 16th, 2022 options expiration): +66.2%

= (+$804.99/$18,500.01) * (365/24 days)

Either outcome provides a very good return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $63.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $60.31 ($67.27 -$5.61 -$1.35) provides 10.3% 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, in this case all nine criteria are achieved for this Devon Energy Covered Calls position.

2.  Tyson Foods Inc. (TSN) -- New Covered Calls Position
The simultaneous buy/write transaction was:

11/23/2022 Bought 200 Tyson Foods shares @ $66.99
11/23/2022 Sold 2 Tyson Foods 12/16/2022 $65.00 Call options @ $2.59
11/30/2022 Upcoming quarterly ex-dividend of $.48 per share

A possible overall performance result (including commissions) for this Tyson Foods Covered Calls position is as follows:
Covered Calls Net Investment: $12,881.34
= ($66.99 - $2.59) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$516.66
= ($2.59 * 200 shares) - $1.34 commission
(b) Dividend Income (If Tyson Foods stock assigned at Dec. 16th, 2022 options expiration): +$96.00
= ($.48 dividend per share x 200 shares)

(c) Capital Appreciation (If 200 TSN shares assigned at $65.00 strike price at options expiration): -$398.00
+($65.00 - $66.99) * 200 shares

Total Net Profit (If Tyson Foods shares assigned at $65.00 at the Dec. 16th, 2022 expiration): +$214.66

= (+$516.66 options income +$96.00 dividend income -$398.00 capital appreciation)
 

Absolute Return (If Tyson Foods shares assigned at $65.00 at December 16th, 2022 options expiration): +1.7%

= +$214.66/$12,881.34

Annualized Return (If Tyson Foods shares assigned at $65.00 at 12/19/2022 options expiration): +25.3%

= (+$214.66/$12,881.34) * (365/24 days)

Monthly Options Expiration Results through November 18th, 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 October 21st, 2022 options expiration through Friday's November 18th, 2022 monthly options expiration date.  

During this past month, the Covered Calls Advisor Portfolio held a total of nine Covered Calls positions.  All nine positions were closed out at a profit. 

The specific results for each position are summarized as follows: 

• One Covered Calls position in Global Payments Inc. expired in-the-money (stock price above the strike price) on the November 18th, 2022 monthly options expiration date and was therefore assigned at a +0.9% absolute return in 12 days (equivalent to a +28.8% annualized return-on-investment). 

• Four Covered Calls positions expired in-the-money on their respective Weekly options expiration dates during the past month as follows:

1. DraftKings Inc. -- +5.4% absolute return-on-investment in 19 days (equivalent to a +103.3% annualized return-on-investment).
2. Lowe's Companies Inc. -- +1.6% absolute return-on-investment in 16 days (equivalent to a +36.4% annualized return-on-investment).
3. Medtronic PLC -- +1.5% absolute return-on-investment in 46 days (equivalent to a +11.5% annualized return-on-investment).
4. Mosaic Company -- +1.5% absolute return-on-investment in 15 days (equivalent to a +35.9% annualized return-on-investment).

• Three Covered Call positions were closed out by early assignment on the day prior to their ex-dividend dates as follows:
  

1. Bank of New York Mellon Corp. -- +1.3% absolute return-on-investment in 8 days (equivalent to a +60.0% annualized return-on-investment).
2. Capital One Financial Corporation -- +1.0% absolute return-on-investment in 3 days (equivalent to a +124.0% annualized return-on-investment).
3. IBM Corporation -- +0.6% absolute return-on-investment in 9 days (equivalent to a +34.2% annualized return-on-investment).

• One Covered Call position in Cisco Systems Inc. was closed out early based on my decision at the time with a +1.0% absolute return-on-investment in 2 days (equivalent to a +174.1% annualized return-on-investment).

During the past year (last 12 months) 114 of 123 positions (92.7%) 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 +20.2% during the past year and the average holding period for these 123 closed positions was 22.6 days.  In comparison, the benchmark S&P 500 returned -15.3% during the same prior one-year period.   

As demonstrated by these past year's results, the Covered Calls strategy can be extraordinarily beneficial during Bearish time periods such as we have experienced during the past year, and especially by selling moderately 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. +20.2% versus -15.3%) 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". 

This Covered Calls Advisor blog is freely available to anyone interested in applying an informed and disciplined Covered Calls investing strategy.  As always, I also encourage you to email me at partlow@cox.net any time you would like my feedback on your comments or questions on anything related to Covered Calls. 

Best Wishes and Godspeed,

Jeff Partlow
Covered Calls Advisor
partlow@cox.net

Closed Out Cisco Systems Inc. Covered Calls Position

This past Wednesday, on the day that Cisco was to report their Q4 2022 earnings after the market close, I established a Covered Calls position by buying 400 Cisco shares at $44.47 and simultaneously selling 4 December 2nd, 2022 $41.00 Call options at $3.95 per share. The blog post when this position was established was detailed here.  

Because Cisco's CEO was scheduled to be interviewed by Jim Cramer on his CNBC "Mad Money" show less than two hours after the earnings release, I speculated that Cisco's earnings would be positive.  Fortunately my speculation was correct since Cisco beat both earnings and revenue estimates and also raised their future guidance.  The stock reacted positively to this news and increased from my purchase price of $44.47 on Wednesday to $47.63 two days later on Friday.  The Delta had increased from 79.9 when I bought to 94.1 when I sold yesterday (Friday) afternoon.  The Covered Calls unwind transaction to close out the position was: Sold-to-Close 400 Cisco shares at $47.63 per share and simultaneously Bought-to-Close 4 December 2nd $41.00 Calls at $6.71 per share.  By closing early, 83.3% [($.48 original time value - $.08 closing time value)/$.48 original time value) of the maximum potential time value profit of $.48 per share was achieved by holding the position for only two days.

As detailed below, the return-on-investment result for this Cisco Systems Covered Calls position was +1.0% absolute return-on-investment in 2 days (equivalent to a +174.1% annualized return-on-investment). 
 
 

Cisco Systems Inc. (CSCO) -- Covered Calls Position Closed Out

The original buy/write transaction was:
11/16/2022 Bought 400 Cisco shares @ $44.47
11/16/2022 Sold 4 Cisco 12/2/2022 $41.00 Call options @ $3.95 per share
Note: the Time Value (aka Extrinsic Value) in the Call options was $.48 per share = [$3.95 Call options premium - ($44.47 stock price - $41.00 strike price)]
11/18/2022 Closed out (i.e. unwound) this Cisco Covered Calls position by Selling-to-Close 400 CSCO shares at $47.63 and simultaneously Buying-to-Close 4 12/2/2022 $41.00 Calls at $6.71 per share.   

The overall performance result (including commissions) for this Cisco Covered Calls position was as follows:
Covered Calls Net Investment: $16,210.68
= ($44.47 - $3.95) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: -$1,109.36
= ($3.95 - $6.71) * 400 shares - $5.36 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$1,264.00
+($47.63 - $44.47) * 400 shares

Total Net Profit: +$154.64

= (-$1,109.36 options income +$0.00 dividend income +$1,264.00 capital appreciation)
 

Absolute Return-on-Investment: +1.0%

= +$154.64/$16,210.68

Annualized Return-on-Investment: +174.1%

= (+$154.64/$16,210.68) * (365/2 days)

Established Covered Call Positions in Mosaic Company and United Rentals Inc.

Today two Covered Call positions were established in Mosaic Company (ticker MOS) and United Rentals Inc.(URI) when the Covered Calls Advisor's buy/write limit orders were executed. For Mosaic, 400 shares were purchased at $49.22 and 4 December 16th, 2022 Call options were sold at $5.48 per share at the $45.00 strike price.   For United Rentals Inc., 100 shares were purchased at $344.18 and 1 December 16th, 2022 Call option was sold at $31.95 at the $320.00 strike price.  Both of these companies appeared today in my Large-Cap Value+Profitability+Growth stock screener.  Given the Covered Calls Advisor's current cautious outlook, moderately in-the-money Covered Calls positions were established for both companies. 

Mosaic goes ex-dividend at $.15 per share (1.2% annual dividend yield) on November 30th which is prior to the December 16th options expiration date, so the potential for capturing this dividend is included in the potential return-on-investment results detailed below.  As preferred, there is no intervening earnings report prior to the options expiration date.   As I also prefer, the Implied Volatility of the Mosaic Calls was 53.4 which is substantially above that of VIX which is currently 23.4.  This provides a very good options premium received (and therefore accompanied by an attractive potential annualized return-on-investment) from selling these Mosaic Call options.  

Mosaic's trailing twelve months earnings per share is $11.22 (a P/E ratio of only 4.4) which is less than one-half of its prior 10-year average P/E ratio.  Regarding its near-term future, Mosaic's FY2022 EPS are expected to increase further from the current TTM of $11.22 to $11.91.  This positive trend should continue to benefit the stock price.  In addition, Wall Street analysts' current average target price is $63.93 (+29.9% above today's purchase price).

The second Covered Call position is in United Rentals Inc.  The time value was $7.14 per share = [$320.00 strike price - ($344.81 stock purchase price - $31.95 Call option price)].   There is no earnings report prior to the December 16th options expiration date and United Rentals does not pay a dividend.  The Implied Volatility of the Call option was 42.7 and the Delta was 74.3 which approximates the probability of the Call option being in-the-money on the Dec. 16th options expiration date.  If URI closes in-the-money, then the maximum return-on-investment result would be achieved for this position.  

United Rental's valuation is attractive based on a trailing twelve months (through Q3 2022) P/E Ratio of 12.8 and this is expected to decline further to 10.7 when they announce their Q4 results on January 21st, 2023.  In addition, analysts' average target price is $379.80 which is +10.3% above today's stock purchase price.

As detailed below, the potential return-on-investment results for each of these Covered Call positions are: 

• For Mosaic Company: +2.9% absolute return (equivalent to +87.1% annualized return-on-investment for the next 12 days) if the stock is assigned early (last trading day prior to the November 30th ex-dividend date); OR (2) +3.2% absolute return (equivalent to +40.4% annualized return over the next 29 days) if the stock is assigned on the Dec. 16th options expiration date.

• For United Rentals Inc.: +2.3% absolute return (equivalent to +28.7% annualized return-on-investment for the next 29 days) if the stock is assigned on the December 16th, 2022 options expiration date. 

 

1.  Mosaic Company (MOS) -- New Covered Calls Position                                                         The buy/write transaction was:
11/18/2022 Bought 400 Mosaic Co. shares @ $49.22 each
11/18/2022 Sold 4 MOS 12/16/2022 $45.00 Call options @ $5.48 per share
11/30/2022 Upcoming quarterly ex-dividend of $.15 per share

Two possible overall performance results (including commissions) for this Mosaic Covered Calls position are as follows:
Covered Calls Net Investment: $17,498.68
= ($49.22 - $5.48) * 400 shares + $2.68 commission

Net Profit:
(a) Options Income: +$2,189.32
= ($5.48 * 400 shares) - $2.68 commission
(b) Dividend Income (If option exercised early on November 29th, 2022 the business day prior to the Nov. 30th ex-div date): +$0.00; or
(b) Dividend Income (If Mosaic shares assigned at December 16th, 2022 expiration): +$60.00
= ($.15 dividend per share x 400 shares)
(c) Capital Appreciation (If Mosaic assigned early): -$1,688.00
+($45.00 -$49.22) * 400 shares; or
(c) Capital Appreciation (If Mosaic shares assigned at $45.00 strike price at expiration): -$1,688.00
+($45.00 - $49.22) * 400 shares

1. Total Net Profit [If option exercised on November 29th (business day prior to the Nov. 30th, 2022 ex-dividend date)]: +$501.32

= (+$2,189.32 options income +$0.00 dividend income -$1,688.00 capital appreciation); or

2. Total Net Profit (If Mosaic shares assigned at $45.00 strike price at December 16th, 2022 expiration): +$561.32

= (+$2,189.32 options income +$60.00 dividend income -$1,688.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on business day prior to ex-dividend date): +2.9%

= +$501.32/$17,498.68

Annualized Return-on-Investment (If option exercised early): +87.1%

= (+$501.32/$17,498.68) * (365/12 days); or

2. Absolute Return-on-Investment (If Mosaic shares assigned at $45.00 at the Dec. 16th, 2022 expiration): +3.2%

= +$561.32/$17,498.68

Annualized Return-on-Investment (If 400 shares assigned at $45.00 at the Dec. 16th, 2022 options expiration): +40.4%

= (+$561.32/$17,498.68) * (365/29 days)

Either outcome provides a very good return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $45.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $43.59 ($49.22 -$5.48 -$.15) provides 11.4% 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, in this case eight of the nine criteria are achieved for this Mosaic Company Covered Calls position.

2.  United Rentals Inc.(URI) -- New Covered Call Position
The buy/write transaction was:
11/18/2022 Bought 100 United Rentals shares @ $344.81
11/18/2022 Sold 1 URI 12/16/2022 $320.00 Call options @ $31.95 per share

A possible overall performance result (including commissions) for this United Rentals Covered Call position is as follows:
Covered Call Net Investment: $31,286.67
= ($344.81 - $31.95) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$3,195.00
= ($31.95 * 100 shares)
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If URI shares assigned at $320.00 strike price at options expiration): -$2,481.00
+($320.00 - $344.81) * 100 shares

Total Net Profit (If United Rentals shares assigned at $320.00 strike price at the Dec. 16th, 2022 expiration): +$714.00

= (+$3,195.00 options income +$0.00 dividend income -$2,481.00 capital appreciation)
 

Absolute Return-on-Investment (If United Rentals shares assigned at $320.00 at the Dec. 16th, 2022 options expiration): +2.3%

= +$714.00/$31,286.67

Annualized Return-on-Investment (If URI shares assigned at $320.00 at the 12/16/2022 options expiration): +28.7%

= (+$714.00/$31,286.67) * (365/29 days)

Established Covered Calls Positions in Cisco Systems Inc. and Suncor Energy Inc.

This morning, two in-the-money Covered Calls positions were established in Cisco Systems Inc. (ticker symbol CSCO) and Suncor Energy Inc. (SU) when the Covered Calls Advisor's buy/write limit orders were executed. For Cisco Systems, 400 shares were purchased at $44.47 and 4 December 2nd, 2022 Call options were sold at $3.95 per share at the $41.00 strike price.   For Suncor Energy, 400 shares were purchased at $36.38 and 4 December 16th, 2022 Call options were sold at $3.12 at the $34.00 strike price.  Given the Covered Calls Advisor's current cautious outlook, moderately in-the-money Covered Calls positions were established for both companies. 

Cisco's quarterly earnings report was issued after the market close today. Normally, I avoid being invested during earnings reports, but when it was announced that Cisco CEO Chuck Robbins would be interviewed by Jim Cramer today on his Mad Money show, I decided to take advantage of the elevated Implied Volatility of 43.5. I have noticed that CEO's who agree to be interviewed by Cramer on the same day as their earnings typically do so only when they are going to be discussing a positive earnings report. Fortunately, that turned out to be true once again in this Cisco situation.  Because of the increased uncertainty of the potential stock reaction to today's earnings report, a deeper-than-normal Delta of 79.9 was chosen for this Covered Calls position.

The second position is in Suncor Energy Inc. Suncor is a $50 billion market cap Canada-based integrated energy company. I established a December 16th, 2022 at the $34.00 strike price Covered Calls net debit limit order. This limit order was executed a couple hours later (while I was exercising at the gym), so I don't know what the Implied Volatility or the Delta were at the moment when this order was executed. But the 400 SU shares were purchased at $36.38 per share and the four Dec. 16th, 2022 $34.00 Calls were sold at $3.12 per share, so the time value was $.74 per share = [$34.00 strike price - ($36.38 stock purchase price - $3.12 Call options price)]. 

Suncor appeared in my Energy Sector stock screener which identified on the top 7% of Energy companies. Their valuation is very attractive based on their trailing twelve months (through Q3 2022) P/E Ratio of 6.3 and this is expected to decline further to 5.3 when they announce their Q4 results on February 1st, 2023. Before market open this morning, Suncor announced their next quarterly dividend of $.39 per share (4.3% annual dividend yield) which goes ex-dividend on December 1st, 2022. Since this is prior to the Dec.16th options expiration date, the potential for capturing this dividend is included in the potential return-on-investment results below.

As detailed below, the potential return-on-investment results for each of these Covered Calls positions are: 

• For Cisco Systems Inc.: +1.2% absolute return (equivalent to +25.4% annualized return-on-investment for the next 17 days) if the stock is assigned on the December 2nd, 2022 options expiration date.

• For Suncor Energy Inc.: +2.2% absolute return (equivalent to +53.6% annualized return-on-investment for the next 15 days) if the stock is assigned early (last trading day prior to the December 1st ex-dividend date); OR (2) +3.4% absolute return (equivalent to +39.8% annualized return over the next 31 days) if the stock is assigned on the Dec. 16th options expiration date.

1.  Cisco Systems Inc. (CSCO) -- New Covered Calls Position

The buy/write transaction was:
11/16/2022 Bought 400 Cisco shares @ $44.47
11/16/2022 Sold 4 Cisco 12/2/2022 $41.00 Call options @ $3.95 per share
Note: the Time Value (aka Extrinsic Value) in the Call options was $.48 per share = [$3.95 Call options premium - ($44.47 stock price - $41.00 strike price)]

A possible overall performance result (including commissions) for this Cisco Covered Calls position is as follows:
Covered Calls Net Investment: $16,210.68
= ($44.47 - $3.95) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,580.00
= ($3.95 * 400 shares)
(b) Dividend Income (If Cisco stock assigned at the Dec. 2nd, 2022 options expiration): +$0.00

(c) Capital Appreciation (If CSCO shares assigned at $41.00 strike price at options expiration): -$1,388.00
+($41.00 - $44.47) * 400 shares

Total Net Profit (If Cisco shares assigned at $41.00 strike price at the Dec. 2nd, 2022 expiration): +$192.00

= (+$1,580.00 options income +$0.00 dividend income -$1,388.00 capital appreciation)
 

Absolute Return-on-Investment (If Cisco shares assigned at $41.00 at the Dec. 2nd, 2022 options expiration): +1.2%

= +$192.00/$16,210.68

Annualized Return-on-Investment (If Cisco shares assigned at $41.00 at 12/2/2022 expiration): +25.4%

= (+$192.00/$16,210.68)*(365/17 days)

2.  Suncor Energy Inc. (SU) -- New Covered Calls Position

The buy/write transaction was:
11/16/2022 Bought 400 Suncor Energy shares @ $36.38 each
11/16/2022 Sold 4 SU 12/16/2022 $34.00 Call options @ $3.12 per share
12/1/2022 Upcoming quarterly ex-dividend of $.39 per share

Two possible overall performance results (including commissions) for this Suncor Covered Calls position are as follows:
Covered Calls Net Investment: $13,306.68
= ($36.38 - $3.12) * 400 shares + $2.68 commission

Net Profit:
(a) Options Income: +$1,245.32
= ($3.12 * 400 shares) - $2.68 commission
(b) Dividend Income (If option exercised early on November 30th, 2022 the business day prior to the Dec. 1st ex-div date): +$0.00; or
(b) Dividend Income (If Suncor Energy shares assigned at December 16th, 2022 expiration): +$156.00
= ($.39 dividend per share x 400 shares)

(c) Capital Appreciation (If Suncor assigned early): -$952.00
+($34.00 -$36.38) * 400 shares; or
(c) Capital Appreciation (If Suncor Energy shares assigned at $34.00 strike price at expiration): -$952.00
+($34.00 - $36.38) * 400 shares

1. Total Net Profit [If option exercised on November 30th (business day prior to the Dec. 1st, 2022 ex-dividend date)]: +$293.32

= (+$1,245.32 options income +$0.00 dividend income -$952.00 capital appreciation); or

2. Total Net Profit (If SU shares assigned at $34.00 strike price at December 16th, 2022 expiration): +$449.32

= (+$1,245.32 options income +$156.00 dividend income -$952.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on business day prior to ex-dividend date): +2.2%

= +$293.32/$13,306.68

Annualized Return-on-Investment (If option exercised early): +53.6%

= (+$293.32/$13,306.68) * (365/15 days); or

2. Absolute Return-on-Investment (If Suncor shares assigned at $34.00 at the Dec. 16th, 2022 expiration): +3.4%

= +$449.32/$13,306.68

Annualized Return-on-Investment (If Suncor Energy shares assigned at $34.00 at the Dec. 16th, 2022 options expiration): +39.8%

= (+$449.32/$13,306.68) * (365/31 days)

Either outcome provides a very good return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $34.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $32.87 ($36.38 -$3.12 -$.39) provides 9.6% 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, in this case all nine criteria are achieved for this Suncor Energy Inc. Covered Calls position.

Covered Calls Position Established in Discover Financial Services

Early this afternoon a Covered Calls position was established in Discover Financial Services (ticker DFS) with a December 2nd, 2022 options expiration date. Two hundred shares of Discover were purchased at $104.18 and two Call options were sold at $4.80 per share at the $101.00 strike price.  This position is very similar to a Covered Calls position established in Discover last quarter (see here ).  The time value was $1.62 per share [$101.00 strike price - ($104.18 share price - $4.80 Call options premium)] when this buy/write limit order transaction was executed.  

Discover also has an upcoming ex-dividend date exactly one week from today at $.60 per share, so this is included in the potential return-on-investment results detailed below.  This Covered Calls position is consistent with my preference to establish Covered Calls in low-growth sectors (such as this one in the Financials sector) using my Dividend Capture Strategy.  With this strategy it is possible to achieve an attractive annualized return-on-investment result if either the position is assigned on the options expiration date or if it is assigned early (normally on the day prior to the ex-dividend date).  Also, because of the volatility immediately after quarterly earnings reports are released, it is preferred that there be no quarterly earnings report prior to the options expiration date, and this is true for this Discover Financial position since the next earnings report is not until January 18th, 2023.  The probability of assignment was 66.2% when this position was established.

Two potential return-on-investment results are as follows: (a) +1.6% absolute return-on-investment (equivalent to +84.6% annualized roi) for 7 days if this Covered Calls position is assigned early on November 21st, 2022 (the last business day prior to the Nov. 22nd ex-dividend date); OR  (b) +2.2% absolute return-on-investment (equivalent to +45.2% annualized roi) for 18 days if this Covered Calls position is in-the-money on the December 2nd, 2022 options expiration date.

Discover Financial Services (DFS) -- New Covered Calls Position Established
The buy/write transaction was as follows:
11/15/2022 Bought 200 shares of Discover Financial Services @ $104.18 per share 
11/15/2022 Sold 2 DFS Dec. 2nd, 2022 $101.00 Call options @ $4.80 per share.  The Implied Volatility of these Calls was 30.3 when this position was established.
11/22/2022 Ex-dividend of $.60 per share
 
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $19,877.34
= ($104.18 - $4.80) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$958.66
= ($4.80 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on the last business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If DFS shares assigned at the Dec. 2nd, 2022 expiration): +$120.00
= ($.60 dividend per share x 200 shares)
(c) Capital Appreciation (If Discover shares assigned early): -$636.00
+($101.00 strike price - $104.18 stock purchase cost) * 200 shares; or
(c) Capital Appreciation (If DFS shares assigned at $101.00 strike price at options expiration): -$636.00
+($101.00 - $104.18) * 200 shares

1. Total Net Profit [If option exercised on Nov. 21st, 2022 (the last business day prior to the November 22nd ex-dividend date)]: +$322.66

= (+$958.66 options income +$0.00 dividend income -$636.00 capital appreciation); or

2. Total Net Profit (If Discover Financial shares assigned at $101.00 strike price at the December 2nd, 2022 options expiration): +$442.66

= (+$958.66 +$120.00 -$636.00)

1. Absolute Return-on-Investment (If DFS options exercised early on the last business day prior to the ex-dividend date): +1.6%

= +$322.66/$19,877.34

Annualized Return-on-Investment (If DFS Call options exercised early on Nov. 21st): +84.6%

= (+$322.66/$19,877.34) * (365/7 days); or

2. Absolute Return-on-Investment (If DFS shares assigned at $101.00 at Dec. 2nd, 2022 options expiration date): +2.2%

= +$442.66/$19,877.34

Annualized Return-on-Investment (If DFS stock assigned at $101.00 at Dec. 2nd, 2022 options expiration date): +45.2%

= (+$442.66/$19,877.34) * (365/18 days)

Either outcome would provide a very good return-on-investment result.  These returns will be achieved as long as the stock is above the $101.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $98.78 ($104.18 -$4.80 -$.60) provides 5.2% downside protection below today's purchase price.

The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a dividend capture strategy.  The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved.  As shown in the table below, eight of the nine criteria are achieved for this Discover Financial Services Covered Calls position.

Early Assignment of Covered Call Position in Capital One Financial Corporation

Early this morning, the Covered Calls Advisor was notified by my broker (Schwab) that the one Capital One Financial Corporation (ticker COF) November 18th, 2022 $97.50 Call option was exercised yesterday. COF's quarterly ex-dividend of $.60 is today (November 10th) and the Call option owner exercised their option and thus bought the 100 Capital One shares at the $97.50 strike price in time to receive today's $.60 per share ex-dividend.

Some key results for this Capital One Financial Covered Call position were:
Capital One Covered Call Net Investment: $9,651.67
Net Profit Achieved: $98.33
Number of Days position was held : 3
Absolute Return-on-Investment: +1.0%
Annualized Return-on-Investment: +124.0%

Early Assignment of Covered Calls Position in IBM Corporation

Early this morning, the Covered Calls Advisor was notified by my broker (Schwab) that the two IBM Corporation (ticker IBM) November 18th, 2022 $131.00 Call options were exercised yesterday. IBM's quarterly ex-dividend of $1.65 is today (November 9th) and as with this IBM position, it is commonplace that early assignments normally occur on the last business day prior to the ex-dividend date (Nov. 8th in this case). As detailed below, IBM's stock has increased from its original purchase price six days ago of $134.23 to $140.04 at the market close yesterday.  The original $.74 per share time value when this Covered Calls position was established had declined at yesterday's market close to only $.085 per share (at the midpoint of its current $8.95/$9.30 Bid/Ask spread).  Note for your information: the calculation formula to obtain this $.085 time value at yesterday's closing price was equal to [$131.00 strike price + ($8.95+$9.30)/2 Call options' bid/ask midpoint price) - $140.04 closing price yesterday] which equals the $.085 per share remaining time value. 

When this Covered Calls position was originally established on November 3rd (you can read the original post here if you would like to), I stated that for the IBM Calls owner to be incentivized to exercise their Calls early, the "stock would have to move up in price by the last business day prior to the Nov. 9th ex-div date and by an amount that would cause the time value remaining in these Call options to decline from their $.74 value on November 3rd when this Covered Calls position was established to about $.20 or less".  So as expected -- since the current remaining time value was only $.085 (i.e. less than $.20) and with 9 days remaining until the November 18th options expiration date -- the owner of the Calls did choose to exercise their option and thus bought the 200 IBM shares at the $131.00 strike price just in time to obtain eligibility to receive today's $1.65 per share ex-dividend.  

As detailed below, this IBM Covered Calls position was closed out by early assignment with the following results: +0.6% absolute return-on-investment in 6 days which is equivalent to an annualized return-on-investment of +34.2%. 

IBM Corporation (IBM) -- IBM Covered Calls Position Closed by Early Assignment
The buy/write transaction was:
11/3/2022 Bought 200 IBM shares @ $134.23
11/3/2022 Sold 2 IBM 11/18/2022 $131.00 Call options @ $3.97
11/9/2022 IBM Call options owner exercised their options, so the Covered Calls position was closed out early. The 2 IBM Call options expired worthless and the 200 IBM shares were sold at the $131.00 strike price.

The overall performance results (including commissions) for this IBM Covered Calls position are as follows:
Covered Calls Net Investment: $26,053.34
= ($134.23 - $3.97) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$792.66
= ($3.97 * 200 shares) - $1.34 commission
(b) Dividend Income (Call options exercised early on Nov. 8th, the last business day prior to the November 9th ex-div date): +$0.00
(c) Capital Appreciation: -$646.00
+($131.00 strike price - $134.23 stock purchase price) * 200 shares

Total Net Profit (IBM Call options exercised early on the day prior to the Nov. 9th ex-dividend date]: +$146.66

= (+$792.66 options income +$0.00 dividend income -$646.00 capital appreciation)

 

Absolute Return-on-Investment: +0.6%

= +$146.66/$26,053.34

Annualized Return-on-Investment: +34.2%

= (+$146.66/$26,053.34) * (365/6 days)

Established New Positions in Capital One Financial Corporation and Global Payments Inc.

This morning, two new positions were established in the Covered Calls Advisor Portfolio. A Covered Call position in Capital One Financial (ticker COF) with the purchase of 100 shares at $102.32 and the simultaneous sale of one November 18th, 2022 $97.50 Call option at $5.81 per share. I intended to purchase 200 shares but I neglected to follow my normal process of double-checking my order before entering it, so my broker's default setting of 100 shares for Covered Calls was executed. The time value was $.49 per share = [$5.81 Call option premium - ($102.32 stock price - $97.50 strike price)]. There is an ex-dividend date this Thursday (November 10th) at $.60 per share (2.3% annualized dividend yield) which is prior to the November 18th options expiration date, so this dividend amount is included in the potential return-on-investment calculations below. The Implied Volatility of these Call options was 36.0 when this transaction was executed and the Delta was 76.9 which approximates a 76.9% probability of the Call option being in-the-money (an therefore assigned) at the options expiration date and there is no earnings report prior to the November 18th options expiration date. 

Also this morning, a short-term (12 days) 100% Cash-Secured Put options position was established in Global Payments Inc. (ticker GPN) at the November 18th, 2022 options expiration date and at the $90.00 strike price.  Two Puts were sold at $.85 per share when the stock price was approximately $95.96 (6.6% above the strike price).  The Implied Volatility of these Puts was 41.7 when this position was established.  Establishing positions where the Implied Volatility is greater than that of the S&P 500 Index (i.e. VIX), which is currently at 24.7, is strongly preferred by the Covered Calls Advisor.  This preference is the fifth of the twelve investing "edges" (see here) utilized that contributes to our achieving outperformance in comparison with that of the benchmark S&P 500 Index.

The probability that Global Payments stock is above the strike price on the November 18th options expiration date (in which case the Puts expire worthless and the maximum potential profit is achieved) was 81.6% when this position was established.  Just prior to establishing this position, a comparison was made to determine whether establishing a Covered Calls position or a Cash-Secured Puts position would be preferable.  For this Global Payments position, selling the Puts was preferable since it provided the potential for a slightly higher annualized-return-on-investment.  A key reason for this was because the Bid/Ask spread of $.80 for the Calls (and which had an Open Interest of only 3 contracts) was very large compared with that of the Puts whose Bid/Ask spread was only $.30 (and which had an Open Interest of 817 contracts).

Finally, as desired, the next quarterly earnings report for both positions occurs after their November 18th options expiration dates.

1. Capital One Financial Corporation (COF) -- New Covered Call Position

As detailed below, a potential return-on-investment result is +1.6% absolute return (equivalent to +49.9% annualized return for the next 12 days) if the stock price is in-the-money (i.e. above the $97.50 strike price) and therefore assigned on the November 18th, 2022 options expiration date.

The Buy/Write limit order transaction was as follows:
11/7/2022 Bought 100 shares of Capital One stock @ $102.32 per share 
11/7/2022 Sold 1 COF Nov. 18th, 2022 $97.50 Call options @ $5.81 per share

A possible overall performance result (including commissions) for this Capital One Covered Call position is as follows:
Covered Call Net Investment: $9,651.67
= ($102.32 - $5.81) * 100 shares + $.67 commission

Net Profit:
(a) Options Income: +$580.33
= ($5.81 * 100 shares) - $.67 commission
(b) Dividend Income: +$60.00 = $.60 per share X 100 shares

(c) Capital Appreciation (If 100 COF shares assigned at $97.50 strike price at expiration): -$482.00
+($97.50 - $102.32) * 100 shares

Total Net Profit (If 100 Capital One shares assigned at $97.50 strike price at expiration): +$158.33

= (+$580.33 options income +$60.00 dividend income -$478.66 capital appreciation)

 

Potential Absolute Return-on-Investment (If COF stock assigned at the options expiration date): +1.6%

= +$158.33/$9,651.67

Potential Annualized Return-on-Investment: +49.9%

= (+$158.33/$9,651.67) * (365/12 days)

2. Global Payments Inc. (GPN) -- New 100% Cash-Secured Puts Position

As detailed below for this Global Payments 100% Cash-Secured Puts position, there is potential for a +0.9% absolute return in 12 days (equivalent to a +28.8% annualized return-on-investment).

The transaction today was as follows:
11/7/2022  Sold 2 Global Payments Nov. 18th, 2022 $90.00 100% Cash-Secured Put options @ $.85 per share.

The Covered Calls Advisor does not use margin, so the detailed information on this position and the potential result detailed below reflect that this position was established using 100% cash securitization for the two Global Payments Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Net Investment: $17,831.34
= ($90.00 - $.85) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$168.66
= ($.85 * 200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Global Payments stock is above the $90.00 strike price at the Nov. 18th options expiration): +$0.00
= ($90.00 - $90.00) * 200 shares

Total Net Profit (If Global Payments stock price is out-of-the-money (above $90.00 strike price) at options expiration): +$168.66
= (+$168.66 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return-on-Investment: (If stock is above $90.00 strike price at the Nov. 18th, 2022 options expiration) : +0.9%
= +$168.66/$17,831.34
Annualized Return-on-Investment: +28.8%
= (+$158.66/$15,838.66) * (365/12 days)

The downside 'breakeven price' at expiration of $89.15 ($90.00 - $.85) is 7.1% below the current market price of $95.96.


Regards and Godspeed,
Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net

November 4th, 2022 Options Expiration Results

The Covered Calls Advisor Portfolio had two Covered Calls positions with November 4th, 2022 weekly options expirations with the following results:

1. Medtronic PLC (MDT) -- +1.5% absolute return (equivalent to +11.5% annualized return-on-investment) for the 46 days of this investment. The prior post detailing the history of this Medtronic position is here. 

2. Mosaic Company (MOS) -- +1.5% absolute return (equivalent to +35.9% annualized return-on-investment) for the 15 days of this investment. The post when this Mosaic Covered Calls position was originally established is here.  

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

I welcome your feedback on any topics related to the Covered Calls investing strategy.  My email address is shown below.

Best Wishes and Godspeed,

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net

Established Covered Calls Position in Exxon Mobil Corporation

A November 25th, 2022 Covered Calls buy/write limit order was placed in Exxon Mobil Corporation (ticker XOM) at a net debit limit price of $106.84 per share.  Two hundred shares were purchased at $112.53 and two 11/25/2022 Call options were sold at the $108.00 strike price for $5.69 per share.  The Implied Volatility of these Call options was 27.8 when this transaction was executed.  There is an upcoming quarterly ex-dividend of $.91 per share (3.2% annual dividend yield) on November 14th which is included in the potential return-on-investment calculations detailed below.  When this in-the-money Covered Calls position was established today it had a probability of assignment on the options expiration date of 72.7%.

As detailed below, two potential return-on-investment results are: 

•  +1.1% absolute return (equivalent to +39.4% annualized return for the next 10 days) if the stock is assigned early (business day prior to the November 14th, 2022 ex-dividend date); OR 

• +1.9% absolute return (equivalent to +32.0% annualized return over the next 22 days) if the stock is assigned on the November 25th, 2022 options expiration date.

These returns will be achieved as long as Exxon Mobil's stock price is above the $108.00 strike price at options expiration.  If the stock declines below the strike price, the breakeven price of $105.93 per share ($112.53 stock purchase price - $5.69 Call options selling price - $.91 ex-dividend amount) provides a 5.9% downside breakeven protection below today's stock purchase price.
 

Exxon Mobil Corporation (XOM) -- New Covered Calls Position

If the stock price increases to the point where the current time value (i.e. extrinsic value) of $1.16 remaining in the short Call options decays substantially (down to about $.15 or less) by November 13th, 2022 (the last business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 Exxon Mobil shares away to capture the November 14th dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be a desirable outcome since its +39.4% annualized return-on-investment (aroi) exceeds the +32.0% aroi that would be achieved if the assignment occurred instead on the November 25th options expiration date.

The simultaneous buy/write transaction was:
11/4/2022 Bought 200 Exxon Mobil shares @ $112.53
11/4/2022 Sold 2 Exxon Mobil November 25th, 2022 $108.00 Call options @ $5.69 per share
11/14/2022 Upcoming quarterly ex-dividend at $.91 per share

Two possible overall performance results (including commissions) for this Exxon Mobil Covered Calls position are as follows:
Net Investment: $21,369.34
= ($112.53 - $5.69) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,136.66
= ($5.69 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Friday, Nov. 11th, the business day prior to the November 14th ex-div date): +$0.00; or
(b) Dividend Income (If Exxon Mobil's shares assigned at the Nov. 25th, 2022 expiration): +$182.00
= ($.91 dividend per share x 200 shares)

(c) Capital Appreciation (If Exxon Mobil's stock assigned early): -$906.00
+($108.00 -$112.53) * 200 shares; or
(c) Capital Appreciation (If Exxon Mobil shares assigned at $108.00 strike price at options expiration): -$906.00
+($108.00 -$112.53) * 200 shares

1. Total Net Profit [If option exercised on the last business day prior to the November 14th ex-dividend date)]: +$230.66

= (+$1,136.66 options income +$0.00 dividend income -$906.00 capital appreciation); or

2. Total Net Profit (If Exxon Mobil stock assigned at $108.00 at the November 25th, 2022 expiration): +$412.66

= (+$1,136.66 options income +$182.00 dividend income -$906.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on business day prior to ex-dividend date): +1.1%

= +$230.66/$21,369.34

Annualized Return-on-Investment (If option exercised early): +39.4%

= (+$230.66/$21,369.34) * (365/10 days); or

2. Absolute Return-on-Investment (If Exxon Mobil stock assigned at $108.00 at Nov. 25th expiration date): +1.9%

= +$412.66/$21,369.34

Annualized Return-on-Investment (If Exxon Mobil shares assigned at $108.00 at the 11/25/2022 options expiration date): +32.0%

= (+$412.66/$21,369.34) *(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 nine criteria are achieved in this Exxon Mobil Corp. position.

Established Covered Calls Position in IBM Corporation

Today a Covered Calls position was established in IBM Corp. (ticker symbol IBM) when the Covered Calls Advisor's buy/write limit order was executed -- 200 shares were purchased at $134.23 and two November 18th, 2022 Call options were sold at $3.97 per share at the $131.00 strike price.  Therefore, a net debit price of $130.26 which is a time value of $.74 per share [$3.97 options price - ($134.23 stock price - $131.00 strike price)].  This is a moderately in-the-money position since its Delta was 72.2 when established. 

Two potential return-on-investment results for this position are highlighted below and includes the possibility of early assignment since a quarterly ex-dividend of $1.65 per share (4.9% annualized dividend yield) goes ex-dividend on November 9th (which is prior to the November 18th options expiration date).  The stock would have to move up in price by the last business day prior to the Nov. 9th ex-div date and by an amount that would cause the time value remaining in the option to decline from its $.74 value today to about $.20 or less.  If this occurs, the owner of the Call options might exercise their right to  purchase the stock at the $131.00 strike price, in which case the options would immediately expire worthless but the owner of the Calls would then own the stock and would capture the dividend.  This early assignment outcome would not be as desirable at a +34.2% annualized return-on-investment (aroi) as if the position would instead be in-the-money and therefore assigned at its November 18th options expiration date--which would achieve a +41.7% aroi.  But either result would be attractive since they both exceed my preferred minimum annualized return-on-investment criteria (see items #8 and #9 at the bottom of this post) when using the Dividend Capture Strategy.  Also as I prefer, there is no intervening quarterly earnings report since IBM's next quarterly earnings report on January 23rd, 2023 is after the November 18th options expiration date.
  

As detailed below, two potential return-on-investment results are: 

•  +0.6% absolute return (equivalent to +34.2% annualized return for the next 6 days) if the stock is assigned early (business day prior to the November 9th ex-dividend date); OR 

• +1.8% absolute return (equivalent to +41.7% annualized return over the next 16 days) if the stock is assigned on the November 18th, 2022 options expiration date.

IBM Corporation (IBM) -- New Covered Calls Position
The buy/write transaction was:
11/3/2022 Bought 200 IBM shares @ $134.23
11/3/2022 Sold 2 IBM 11/18/2022 $131.00 Call options @ $3.97
11/9/2022 Upcoming quarterly ex-dividend of $1.65 per share

Two possible overall performance results (including commissions) for this IBM Covered Calls position are as follows:
Covered Calls Net Investment: $26,053.34
= ($134.23 - $3.97) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$792.66
= ($3.97 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Nov. 8th, the last business day prior to the November 9th ex-div date): +$0.00; or
(b) Dividend Income (If IBM stock assigned at the Nov. 18th, 2022 options expiration date): +$330.00
= ($1.65 dividend per share x 200 shares)

(c) Capital Appreciation (If IBM Call options assigned early): -$646.00
+($131.00 strike price - $134.23 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $131.00 strike price at options expiration): -$646.00 +($131.00 - $134.23) * 200 shares

1. Total Net Profit [If option exercised early]: +$146.66

= (+$792.66 options income +$0.00 dividend income -$646.00 capital appreciation); or

2. Total Net Profit (If IBM shares assigned at $131.00 at the Nov. 18th expiration): +$476.66

= (+$792.66 options income +$330.00 dividend income -$646.00 capital appreciation)

1. Absolute Return-on-Investment [If option exercised early on Nov. 8th (business day prior to ex-dividend date)]: +0.6%

= +$146.66/$26,053.34

Annualized Return-on-Investment (If option exercised early): +34.2%

= (+$146.66/$26,053.34) * (365/6 days); or

2. Absolute Return-on-Investment (If IBM shares assigned at $131.00 at Nov. 18th, 2022 options expiration): +1.8%

= +$476.66/$26,053.34

Annualized Return-on-Investment (If IBM shares assigned at $131.00 at the Nov 18th options expiration): +41.7%

= (+$476.66/$26,053.34) * (365/16 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.  All nine criteria are achieved for this IBM Covered Calls position.