Tuesday, January 3, 2023

Closed Out Covered Calls Position in Medtronic PLC

At last Friday's options expiration, two December 30th, 2022 Covered Calls in Medtronic PLC (ticker MDT) expired out-of-the-money with the stock price below the $78.00 strike price, so the Calls expired and the 200 Medtronic shares remained in the Covered Calls Advisor Portfolio. I decided to close out this position this morning when Medtronic's stock was at $78.03 (above last Friday's $77.72 closing price).    

As detailed below, the return-on-investment results for this Medtronic PLC position was: +1.7% absolute return in 21 days (equivalent to a +29.9% annualized return-on-investment)This Covered Calls position demonstrates the benefit of selling moderately in-the-money Covered Calls in bearish markets using the Dividend Capture Strategy.  This Medtronic stock price declined by 2.3% since its original purchase price 3 weeks ago, however a satisfactory profit of +1.7% absolute return-on-investment (equivalent to a +29.9% annualized return-on-investment) in 21 days was achieved with this in-the-money Medtronic Covered Calls position.

Medtronic PLC (MDT) -- Covered Calls Position Closed Out
The buy/write transaction was:
12/13/2022 Bought 200 Medtronic PLC shares @ $79.84
12/13/2022 Sold 2 MDT 12/30/2022 $78.00 Call options @ $2.46
Note 1: the Implied Volatility of the Calls was 20.6 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.62 per share = [$2.46 Call options premium - ($79.84 stock price - $78.00 strike price)]
12/20/2022 Quarterly ex-dividend of $.68 per share
12/30/2022 Two MDT $78.00 Call options expired out-of-the-money and 200 shares remain in the Covered Calls Advisor Portfolio
1/03/2023 Sold 200 Medtronic shares @ $78.03 per share to close out this Covered Calls position.

The overall performance results (including commissions) for this Medtronic Covered Calls position are as follows:
Covered Calls Net Investment: $15,477.34
= ($79.84 - $2.46) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$492.00
= ($2.46 * 200 shares)
(b) Dividend Income: +$136.00
= ($.68 dividend per share x 200 shares)
(c) Capital Appreciation (MDT shares sold at $78.03 per share on Jan. 3rd, 2023): -$362.00
+($78.03 - $79.84) * 200 shares

Total Net Profit: +$266.00
= (+$492.00 options income +$136.00 dividend income -$362.00 capital appreciation)
 
Absolute Return-on-Investment: +1.7%
= +$266.00/$15,477.34
Annualized Return-on-Investment: +29.9%
= (+$266.00/$15,477.34) * (365/21 days)