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
