Established Three New Covered Calls Positions in Alcoa Corporation, Cisco Systems Inc., and Freeport-McMoRan Inc.

This morning, three Covered Call positions were established in Alcoa Corporation (ticker AA), Cisco Systems Inc. (CSCO), and Freeport-McMoRan Inc.(FCX) when the Covered Calls Advisor's buy/write limit orders for each position were executed.   For Alcoa, 400 shares were purchased at $45.94 and 4 January 13th, 2023 Call options were sold at $3.86 per share at the $43.00 strike price.   For Cisco Systems, 300 shares were purchased at $47.09 and 3 January 13th, 2023 Call options were sold at $1.40 at the $46.00 strike price.  For Freeport-McMoRan, 400 shares were purchased at $37.72 and 4 January 20th, 2023 Call options were sold at $2.96 per share at the $35.50 strike price.  Given the Covered Calls Advisor's current cautious outlook, moderately in-the-money Covered Calls positions were established for all three positions.  Two of the positions (Cisco Systems and Freeport-McMoRan) have intervening ex-dividend dates prior to their options expiration dates and both positions passed all nine criteria of my Dividend Capture Strategy.

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

• For Alcoa Corporation: +1.7% absolute return (equivalent to +42.4% annualized return-on-investment for the next 15 days) if the stock is in-the-money and therefore assigned on the January 13th, 2023 options expiration date.

• For Cisco Systems Inc.: +1.5% absolute return (equivalent to +36.4% annualized return over the next 15 days) if the stock is assigned on its January 13th options expiration date.

• For Freeport-McMoRan Inc.: +2.1% absolute return (equivalent to +59.2% annualized return-on-investment for the next 13 days) if the stock is assigned early (last trading day prior to the January 12th, 2023 ex-dividend date); OR (2) +2.5% absolute return (equivalent to +42.2% annualized return over the next 22 days) if the stock is assigned on its January 20th, 2023 options expiration date.

 

1.  Alcoa Corporation (AA) -- New Covered Calls Position              The simultaneous buy/write transaction was:
12/30/2022 Bought 400 Alcoa Corporation shares @ $45.94
12/30/2022 Sold 4 AA 1/13/2022 $43.00 Call options @ $3.86 per share. Note: the Implied Volatility of these Calls was 55.8 when this transaction was executed.

A potential overall performance result (including commissions) for this Alcoa Covered Calls position is as follows:
Covered Calls Net Investment: $16,834.68
= ($45.94 - $3.86) * 400 shares + $2.68 commission

Net Profit:
(a) Options Income: +$1,469.32
= ($3.68 * 400 shares) - $2.68 commission
(b) Dividend Income (If Alcoa shares assigned at January 13th, 2023 expiration): +$0.00
= ($0.00 dividend per share x 400 shares)
(c) Capital Appreciation (If Alcoa shares assigned at $43.00 strike price at expiration): -$1,176.00
+($43.00 - $45.94) * 400 shares

Total Net Profit (If Alcoa shares assigned at $43.00 strike price at the January 13th, 2023 expiration): +$293.32

= (+$1,469.32 options income +$0.00 dividend income -$1,176.00 capital appreciation)
 

Absolute Return-on-Investment (If shares assigned at $43.00 at the Jan. 13th, 2023 options expiration date): +1.7%

= +$293.32/$16,834.68

Annualized Return-on-Investment (If 400 Alcoa shares assigned at $43.00 at the Jan. 13th, 2023 options expiration): +42.4%

= (+$293.32/$16,834.68) * (365/15 days)

2.  Cisco Systems Inc. (CSCO) -- New Covered Calls Position
The simultaneous buy/write transaction was:

12/30/2022 Bought 300 Cisco Systems Inc. shares @ $47.09
12/30/2022 Sold 3 Cisco 1/13/2023 $46.00 Call options @ $1.40.  Note: the Implied Volatility of these Calls was 19.1 when this transaction was executed.
1/4/2023 Upcoming quarterly ex-dividend of $.38 per share

A possible overall performance result (including commissions) for this Cisco Systems Covered Calls position is as follows:
Covered Calls Net Investment: $13,709.01
= ($47.09 - $1.40) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$417.99
= ($1.40 * 300 shares) - $2.01 commission
(b) Dividend Income (If Cisco stock assigned at Jan. 13th, 2023 options expiration): +$114.00
= ($.38 dividend per share x 300 shares)

(c) Capital Appreciation (If 300 CSCO shares assigned at $46.00 strike price at options expiration): -$327.00
+($46.00 - $47.09) * 300 shares

Total Net Profit (If Cisco shares assigned at $46.00 at the Jan. 13th, 2023 expiration): +$204.99

= (+$417.99 options income +$114.00 dividend income -$327.00 capital appreciation)
 

Absolute Return-on-Investment (If Cisco Systems shares assigned at $46.00 at the Jan. 13th, 2023 options expiration): +1.5%

= +$204.99/$13,709.01

Annualized Return-on-Investment (If Cisco shares assigned at $46.00 at 1/13/2023 options expiration): +36.4%

= (+$204.99/$13,709.01) * (365/15 days) 

 

3.  Freeport-McMoRan Inc. (FCX) -- New Covered Calls Position The buy/write transaction was:
12/30/2022 Bought 400 Freeport-McMoRan shares @ $37.72 each
12/30/2022 Sold 4 FCX 1/20/2023 $35.50 Call options @ $2.96 per share
1/12/2023 Upcoming quarterly ex-dividend of $.15 per share

Two possible overall performance results (including commissions) for this Freeport Covered Calls position are as follows:
Covered Calls Net Investment: $13,906.68
= ($37.72 - $2.96) * 400 shares + $2.68 commission

Net Profit:
(a) Options Income: +$1,181.32
= ($2.96 * 400 shares) - $2.68 commission
(b) Dividend Income (If option exercised early on January 11th, 2023 the last business day prior to the January 12th ex-div date): +$0.00; or
(b) Dividend Income (If Freeport shares assigned at January 20th, 2023 expiration): +$60.00
= ($.15 dividend per share x 400 shares)
(c) Capital Appreciation (If Freeport shares assigned early): -$888.00
+($35.50 - $37.72) * 400 shares; or
(c) Capital Appreciation (If Freeport-McMoRan shares assigned at $35.50 strike price at expiration): -$888.00
+($35.50 - $37.72) * 400 shares

1. Total Net Profit [If option exercised on Jan.11th (business day prior to the Jan. 12th, 2023 ex-dividend date)]: +$293.32

= (+$1,181.32 options income +$0.00 dividend income -$888.00 capital appreciation); or

2. Total Net Profit (If Freeport shares assigned at $35.50 strike price at the Jan. 20th, 2023 expiration): +$353.32

= (+$1,181.32 options income +$60.00 dividend income -$888.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on business day prior to ex-dividend date): +2.1%

= +$293.32/$13,906.68

Annualized Return-on-Investment (If option exercised early): +59.2%

= (+$293.32/$13,906.68) * (365/13 days); or

2. Absolute Return-on-Investment (If Freeport shares assigned at $35.50 at the January 20th, 2023 expiration): +2.5%

= +$353.32/$13,906.68

Annualized Return-on-Investment (If 400 FCX shares assigned at $35.50 at the Jan. 20th, 2023 options expiration): +42.2%

= (+$353.32/$13,906.68) * (365/22 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 $35.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price at options expiration of $34.61 ($37.72 -$2.96 -$.15) provides 8.2% downside protection below today's $37.72 stock purchase price.