Established Covered Calls in Qualcomm Inc.

With less than 30 minutes before market closing today, 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 at $.75 per share (2.4% annualized dividend yield at the current stock price) tomorrow, 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.

As detailed below, a potential return-on-investment results for this Qualcomm Covered Calls position is +1.4% absolute return (equivalent to +45.2% annualized return for the next 11 days) if the stock is in-the-money and therefore assigned on its March 10th, 2022 options expiration date. 

Qualcomm Inc.(QCOM) -- New Covered Calls Position
The simultaneous buy/write transactions was as follows:
2/28/2023 Bought 200 shares of Qualcomm stock @ $124.05 per share 
2/28/2023 Sold 2 Qualcomm March 10th, 2023 $120.00 Call options @ $4.93 per share
3/1/2023 Upcoming ex-dividend at $.75 per share

The overall performance results (including commissions) would be as follows:
Covered Calls Net Investment: $23,825.34
= ($124.05 - $4.93) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$984.66
= ($4.93 * 200 shares) - $1.34 commission
(b) Dividend Income: $150.00
= $.75 dividend per share x 200 shares
(c) Capital Appreciation (If Qualcomm stock is above $120.00 strike price and therefore assigned at the March 10th expiration): -$810.00
= ($120.00 - $124.05) * 200 shares

Potential Net Profit (If QCOM price is above $120.00 strike price at the March 10th options expiration): +$324.66
= (+$984.66 options income +$150.00 dividend income - $810.00 capital appreciation)

Absolute Return-on-Investment (If QCOM price is above $120.00 strike price at the 3/10/2023 options expiration): +1.4%
= +$324.66/$23,825.34
Equivalent Annualized Return-on-Investment: +45.2%
= (+$324.66/$23,825.34) * (365/11 days)

Covered Calls Established in Uber Technologies Inc.

At 3:51pm Eastern Time this afternoon, my Covered Calls net debit limit order was executed and 500 shares of Uber Technologies Inc.(ticker symbol UBER) stock was purchased at $33.31 and 5 March 17th, 2023 $31.00 Call options were simultaneously sold at $2.85 per share -- a net debit of $30.46 per share -- so the potential time value profit if the stock is in-the-money at expiration is $.54 per share [$2.85 Call options premium - ($33.31 stock purchase price - $31.00 strike price)]. This is the second Uber Covered Calls position now in the Covered Calls Advisor Portfolio. The other position is also with 500 shares and is at the $32.00 strike price and its expiration date is this Friday. For today's new position, the approximate probability that this position will be in-the-money and therefore assigned on the options expiration date is 76.1%.

As described previously, Uber has a bright future as the pre-eminent rideshare company in North America (58% of revenue) and also a substantial worldwide presence  in over 70 countries with good ongoing growth prospects under the strong leadership of CEO Dara Khosrowshahi. Uber's primary rideshare competitor in the U.S. is Lyft, but Uber dominates with about three times the ridesharing market share of Lyft, and unlike Lyft it also has a strong food delivery business (and a fledgling freight management business), so its current market capitalization is about ten times greater than Lyft's.

In addition to the explanation above for my bullishness on Uber, other reasons I remain confident in their potential are: (1) Their recent quarterly earnings report was outstanding.  Their earnings per share inflected to profitability on sales that increased by +48.3% above the same quarter last year; (2) Gasoline is a significant cost to Uber drivers, and the spot price of WTI Oil is now in the $70s versus in the $90s at this time last year; (3) Major airlines are reporting continued substantial consumer demand at >30% above last year's level, and Uber obtains a significant portion of their rideshare revenue at airports; and (4) The current average target price of the 44 Wall Street analysts that cover Uber is $47.48 per share (+42.5% above today's purchase price).    
 

As detailed below, a potential outcome for this Uber Technologies investment is +1.8% absolute return-on-investment for the next 18 days (equivalent to +35.5% annualized-return-on-investment) if the stock closes above the $31.00 strike price on the March 17th, 2023 options expiration date.

Uber Technologies Inc. (UBER) -- New Covered Calls Position

The net debit buy/write limit order was executed as follows:
2/28/2023 Bought 500 shares of Uber Technologies Inc. stock @ $33.31 per share 
2/28/2023 Sold 5 Uber March 17th, 2023 $31.00 Call options @ $2.85 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of the Calls was 48.5 when this position was established -- a very attractive level given there is no earnings report prior to the options expiration date.

A possible overall performance result (including commissions) if this position is assigned on its March 17th expiration date is follows:
Covered Calls Net Investment: $15,233.35
= ($33.31 - $2.85) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$1,421.65
= ($2.85 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Uber stock is above the $31.00 strike price at the March 17th expiration): -$1,155.00
= ($31.00 -$33.31) * 500 shares

Potential Total Net Profit (If assigned at expiration): +$266.65
= (+$1,421.65 options income +$0.00 dividend income -$1,155.00 capital appreciation)

Absolute Return-on-Investment: +1.8%
= +$266.65/$15,233.35
Equivalent Annualized-Return-on-Investment: +35.5%
= (+$266.65/$15,233.35) * (365/18 days)

The downside 'breakeven price' at expiration is at $30.46 ($33.31 - $2.85), which is 8.6% below the current market price of $33.31.  

Early Assignment of Covered Call Position in Union Pacific Corporation

Early this morning, I was notified by my broker that the one Union Pacific Corporation (ticker UNP) March 3rd, 2023 $187.50 Call option was exercised yesterday.  Union Pacific stock has increased from its purchase price of $193.73 this past Tuesday to $194.02 at the market close yesterday.  The original $1.06 time value in the Call when the position was established had declined on yesterday's market close to $0.08 at the buy/write midpoint price and the Delta was 92.5, so I was not surprised that (with seven calendar days remaining until the options expiration date), the owner of this UNP Call exercised their option to buy the 100 shares at the $187.50 strike price in order to receive Monday's $1.30 per share ex-dividend.  I am satisfied with this early assignment despite losing the opportunity to capture the $1.30 ex-dividend since the +51.5% annualized-return-on-investment (aroi) achieved by early assignment is greater than the +41.9% aroi that would have been achieved if this position was instead assigned on its March 3rd, 2023 options expiration date.       

The post when this Union Pacific Covered Call position was originally established is here.  As detailed below, the return-on-investment result for this UNP Covered Call position was +0.6% absolute return in 4 days (equivalent to a +51.5% annualized return-on-investment)

Union Pacific Corporation (UNP) -- Covered Call Position Closed Out by Early Assignment

The buy/write transaction was:
2/21/2023 Bought 100 Union Pacific Corp. shares @ $193.73
2/21/2023 Sold 1 Union Pacific 3/3/2023 $187.50 Call option @ $7.29 per share
Note: the Implied Volatility of the Call options was 24.0 when this buy/write transaction was executed.
2/24/2023 Union Pacific Call option owner exercised their Call option, so the Covered Call position was closed out early. The UNP Call option expired worthless and the 100 Union Pacific shares were sold at the $187.50 strike price.

The overall performance results (including commissions) for this Covered Call position are as follows:
Covered Call Net Investment: $18,644.67
= ($193.73 - $7.29) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$728.33
= ($7.29 * 100 shares) - $.67 commission
(b) Dividend Income (UNP Call option exercised early on Feb. 24th, the last business day prior to Monday's February 27th ex-div date): +$0.00
(c) Capital Appreciation (UNP Call option is assigned early on Feb. 24th): -$623.00
+($187.50 strike price - $193.73 stock purchase price) * 100 shares

 

Total Net Profit: +$105.33

= (+$728.33 options income +$0.00 dividend income -$623.00 capital appreciation)

 

Absolute Return-on-Investment: +0.6%

= +$105.33/$18,644.67

Annualized Return-on-Investment: +51.5%

= (+$105.33/$18,644.67) * (365/4 days)

Covered Calls Established in Bank of America Corporation

Early this afternoon, a Covered Calls position was established in Bank of America Corp. (ticker BAC) with the purchase of 500 shares at $28.11 per share and five June 9th, 2023 Call options were sold for $1.40 per share at the $27.00 strike price.  This position replaces another Financial Sector position in Discover Financial Services that was called away by early assignment early this morning.  This Bank of America transaction occurred via a simultaneous buy/write transaction at my net debit limit order of $26.71 per share.  The corresponding time value (aka extrinsic value) in the Call options was $.29 per share = [$1.40 Call options premium received - ($28.11 stock purchase price - $27.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at approximately 72.9 when this buy/write transaction was executed, which approximates the probability of assignment on the June 9th, 2023 options expiration date. 

Bank of America goes ex-dividend at $.22 per share (3.1% annualized dividend yield at the current stock price) on June 1st, 2023 which is prior to the June 9th options expiration date, so this dividend is included in the potential return-on-investment results shown below.  This 3.1% annual dividend yield exceeds the current 1.55% annual dividend yield of the S&P 500 Index (i.e. SPY).  Also shown below, all nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and (as preferred by the Covered Calls Advisor) the next quarterly earnings report on July 18th, 2023 is after the June 9th options expiration date.  Wall Street analyts' current target price is $36.40 which is +29.5% above today's stock purchase price.

Most companies in the Financial Sector provide only modest growth prospects, but they often provide good annual dividend yields.  Consequently, the Covered Calls Advisor targets opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions.  This new June 9th, 2023 Bank of America Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of six megacap U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Wells Fargo) for each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup, Morgan Stanley, and/or Wells Fargo for Feb, May, Aug, and Nov options expirations; and
Bank of America and/or Goldman Sachs for Mar, Jun, Sep, and Dec options expirations). 

The goal of these monthly Covered Calls in these banks is to both provide an opportunity to either: (1) potentially capture the quarterly dividend payment and if the stock price remains above the strike price at options expiration, the maximum possible return-on-investment result on the options expiration date for the position would be achieved; or (2) have the stock assigned early on the day prior to the ex-dividend date in which case the Covered Calls Advisor is usually very pleased since the Dividend Capture Strategy criteria are designed such that most often the annualized return-on-investment for early assignment is greater than that would be achieved if the stock was instead assigned on the options expiration date (which is the case for this BofA position).  So far, applying this approach has provided attractive annualized return results -- significantly better than would be achieved if Covered Calls positions for these bank stocks were held in the Covered Calls Advisor Portfolio in the other two non-dividend paying months each quarter.  

Two potential return-on-investment results for this Bank of America Covered Calls position are: (a) +1.1% absolute return-on-investment (equivalent to +55.4% annualized return-on-investment for the next 7 days) in the event that the stock is assigned early [i.e. on May 31st which is the last trading day prior to the June 1st ex-dividend date]; OR (b) +1.9% absolute return-on-investment (equivalent to +40.5% annualized return-on-investment over the next 17 days) if the stock is assigned on the June 9th, 2023 options expiration date. 

Bank of America Corporation (BAC) -- New Covered Calls Position

The buy/write transaction was as follows:
5/24/2023 Bought 500 shares of Bank of America Corp. stock @ $28.11 per share 
5/24/2023 Sold 5 BAC June 9th, 2023 $27.00 Call options @ $1.40 per share
Note: The Implied Volatility of these Calls was 31.0 when this position was established.
6/1/2023 Upcoming ex-dividend of $.22 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $13,358.35
= ($28.11 - $1.40) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$696.65
= ($1.40 * 500 shares) - $3.35 commission
(b) Dividend Income (If BAC shares assigned on 5/31/2023, the last business day prior to the 6/1/2023 ex-dividend date): = +$0.00; or
(b) Dividend Income (If BAC shares assigned at the 6/9/2023 options expiration): +$110.00
= $.22 per share x 500 shares
(c) Capital Appreciation (If BAC shares assigned early on 5/31/2023): -$555.00
= ($27.00 - $28.11) * 500 shares; or
(c) Capital Appreciation (If shares above $27.00 strike price at the June 9th options expiration): -$555.00
= ($27.00 -$28.11) * 500 shares

1. Potential Net Profit (If Bank of America shares assigned on 5/31/2023, the day prior to the June 1st ex-dividend date): +$141.96
= (+$696.65 options income +$0.00 dividend income - $555.00 capital appreciation)
2. Potential Net Profit (If BAC price is above the $27.00 strike price at the June 9th options expiration): +$251.96
= (+$696.65 options income +$110.00 dividend income - $555.00 capital appreciation)

1. Absolute Return (If BAC shares assigned on 5/31/2023, the day prior to the June 1st ex-dividend date): +1.1%
= +$141.96/$13,358.35
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +55.4%
= (+$141.96/$13,358.35) * (365/7 days)

2. Absolute Return (If BAC price is above $27.00 strike price at the June 9th options expiration): +1.9%
= +$251.96/$13,358.35
Equivalent Annualized Return (If assigned on the 6/1/2023 options expiration date): +40.5%
= (+$251.96/$13,358.35) * (365/17 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 Bank of America Covered Calls position.

Established Covered Calls in United Airlines Holdings Inc.

This morning, a short-term Covered Calls position was established by buying 500 shares of United Airlines Holdings Inc.(ticker symbol UAL) stock at $48.36 and simultaneously selling 5 March 3rd, 2023 $47.00 Call options at $2.11 per share -- a net debit of $46.25 per share -- so the time value was $.75 per share [$2.11 Call options premium - ($48.36 stock purchase price - $47.00 strike price)].  The approximate probability that this position will be in-the-money and therefore assigned on the options expiration date is 67.0%.

UAL's recent 4th quarter earnings report was outstanding in both revenues and earnings per share and yet the stock has declined since then despite the fact that their valuation is now very attractive based on their projected continuing earnings growth this year that would give them a FY2023 P/E Ratio of only 5.8 based on today's stock purchase price. I was further encouraged to establish this position when: (1) Scott Kirby, United's impressive CEO, was on CNBC earlier this week and stated that January and February bookings have been stellar; and (2) UAL is benefiting further since jet fuel, which is a substantial cost to airlines, is at a 20%+ lower cost than it was this time last year. Finally, the seventeen analysts that cover United Airlines agree with me that the stock is currently undervalued. Their average target price is $57.63 (+19.2%) above today's purchase price.    
 

As detailed below, a potential outcome for this United Airlines investment is +1.6% absolute return-on-investment for the next 10 days (equivalent to +58.7% annualized-return-on-investment) if the stock closes above the $47.00 strike price on the March 3rd, 2023 options expiration date.

United Airlines Holdings Inc. (UAL) -- New Covered Calls Position

The net debit buy/write limit order was executed as follows:
2/22/2023 Bought 500 shares of United Airlines stock @ $48.36 per share 
2/22/2023 Sold 5 UAL March 3rd, 2023 $47.00 Call options @ $2.11 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of the Calls was 39.3 when this position was established.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Net Investment: $23,128.35
= ($48.36 - $2.11) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$1,051.65
= ($2.11 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UAL stock is above the $47.00 strike price at the March 3rd expiration): -$680.00
= ($47.00 -$48.36) * 500 shares

Potential Total Net Profit (If assigned at expiration): +$371.65
= (+$1,051.65 options income +$0.00 dividend income -$680.00 capital appreciation)

Absolute Return-on-Investment: +1.6%
= +$371.65/$23,128.35
Equivalent Annualized-Return-on-Investment: +58.7%
= (+$371.65/$23,128.35) * (365/10 days)

Established Covered Call in Union Pacific Corporation

With less than 5 minutes in today's trading, a Covered Call position was established in the Union Pacific Corporation (ticker symbol UNP) at a net debit buy/write limit order of $186.44 per share.  One hundred shares were purchased at $193.73 and one March 3rd, 2023 Call option was sold at $7.29 per share at the $187.50 strike price.  This strike price is 3.3% in-the-money which is consistent with my guideline when establishing Covered Calls when my Overall Market Meter indicator is Slightly Bearish, which is to sell at strike prices between 2.0% and 5.0% in-the-money. This buy/write transaction occurred at a Delta of 77.3 which approximates the probability of 77.3% that the Call option will be in-the-money and therefore assigned on the options expiration date.   

The potential time value profit is $1.06 per share [$7.29 Call option premium - ($193.73 stock purchase price - $187.50 strike price)].  In addition to this $1.06 per share time value profit potential, there is an upcoming quarterly ex-dividend of $1.30 per share (annual dividend yield of 2.7%) on next Monday (February 27th, 2023) which is included in the potential return-on-investment results detailed below.

Two potential return-on-investment results are: 

•  +0.6% absolute return (equivalent to +51.5% annualized return for the next 4 days) if the stock is assigned early this Friday, February 24th which is the last business day prior to Monday's February 27th, 2023 ex-dividend date); OR 

• +1.3% absolute return (equivalent to +41.9% annualized return over the next 11 days) if the stock is assigned on the March 3rd, 2023 options expiration date.

Union Pacific Corporation (UNP) -- New Covered Call Position

The buy/write transaction was:
2/21/2023 Bought 100 Union Pacific Corp. shares @ $193.73
2/21/2023 Sold 1 Union Pacific 3/3/2023 $187.50 Call option @ $7.29 per share
Note: the Implied Volatility of the Call options was 24.0 when this buy/write transaction was executed.
2/27/2023 Upcoming quarterly ex-dividend of $1.30 per share

Two possible overall performance results (including commissions) for this Covered Call position are as follows:
Covered Call Net Investment: $18,644.67
= ($193.73 - $7.29) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$728.33
= ($7.29 * 100 shares) - $.67 commission
(b) Dividend Income (If option exercised early on Feb. 24th, the last business day prior to Monday's February 27th ex-div date): +$0.00; or
(b) Dividend Income (If Union Pacific stock assigned at the March 3rd, 2023 expiration): $130.00
= ($1.30 dividend per share x 100 shares)
(c) Capital Appreciation (If UNP Call option is assigned early on Feb. 24th): -$623.00
+($187.50 strike price - $193.73 stock price) * 100 shares; or
(c) Capital Appreciation (If shares assigned at $187.50 strike price at the March 3rd options expiration): -$623.00
+($187.50 - $193.73) * 100 shares

1. Total Net Profit [If option exercised early this Friday (February 24th)]: +$105.33

= (+$728.33 options income +$0.00 dividend income -$623.00 capital appreciation); or

2. Total Net Profit (If stock shares assigned at $187.50 strike price at the March 3rd, 2023 expiration): +$235.33

= (+$728.33 options income +$130.00 dividend income -$623.00 capital appreciation)

1. Absolute Return-on-Investment (If the Call option is exercised early on Feb 24th): +0.6%

= +$105.33/$18,644.67

Annualized Return-on-Investment: +51.5%

= (+$105.33/$18,644.6) * (365/4 days); or

2. Absolute Return-on-Investment (If Union Pacific shares assigned at $187.50 at the March 3rd, 2023 options expiration date): +1.3%

= +$235.33/$18,644.67

Annualized Return-on-Investment (If UNP shares assigned at the 3/3/2023 options expiration date): +41.9%

= (+$235.33/$18,644.67) * (365/11 days)

Covered Calls Established in Uber Technologies Inc.

This morning, a short-term Covered Calls position was established by buying 500 shares of Uber Technologies Inc.(ticker symbol UBER) stock at $33.86 and simultaneously selling 5 March 3rd, 2023 $32.00 Call options at $2.31 per share -- a net debit of $31.55 per share -- so the time value was $.45 per share [$2.31 Call options premium - ($33.86 stock purchase price - $32.00 strike price)].  The approximate probability that this position will be in-the-money and therefore assigned on the options expiration date is 76.2%.

A prior Covered Calls position in Uber was assigned on the monthly options expiration date last Friday, so this new position re-establishes a similar position for the next two weeks.  Uber has a bright future as the pre-eminent rideshare company in North America (58% of revenue) and also a substantial worldwide presence  in over 70 countries with good ongoing growth prospects under the strong leadership of CEO Dara Khosrowshahi. Uber's primary rideshare competitor in the U.S. is Lyft, but Uber dominates with about three times the ridesharing market share of Lyft, and unlike Lyft it also has a strong food delivery business (and a fledgling freight management business), so its current market capitalization is ten times greater than Lyft's.

In addition to the explanation above for my bullishness on Uber, other reasons I remain confident in their potential are: (1) Their recent quarterly earnings report was outstanding.  Their earnings per share inflected to profitability on sales that increased by +48.3% above the same quarter last year; (2) Gasoline is a significant cost to Uber drivers, and the spot price of WTI Oil is now in the $70s versus in the $90s at this time last year; (3) Major airlines are reporting continued substantial consumer demand at >30% above last year's level, and Uber obtains a significant portion of their rideshare revenue at airports; and (4) The current average target price of the 44 Wall Street analysts that cover Uber is $47.48 per share (+40.2% above today's purchase price).    
 

As detailed below, a potential outcome for this Uber Technologies investment is +1.4% absolute return-on-investment for the next 11 days (equivalent to +46.6% annualized-return-on-investment) if the stock closes above the $32.00 strike price on the March 3rd, 2023 options expiration date.

Uber Technologies Inc. (UBER) -- New Covered Calls Position

The net debit buy/write limit order was executed as follows:
2/21/2023 Bought 500 shares of Uber Technologies Inc. stock @ $33.86 per share 
2/21/2023 Sold 5 Uber March 3rd, 2023 $32.00 Call options @ $2.31 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of the Calls was 35.3 when this position was established.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Net Investment: $15,778.35
= ($33.86 - $2.31) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$1,151.65
= ($2.31 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Uber stock is above the $32.00 strike price at the March 3rd expiration): -$930.00
= ($32.00 -$33.86) * 500 shares

Potential Total Net Profit (If assigned at expiration): +$221.65
= (+$1,151.65 options income +$0.00 dividend income -$930.00 capital appreciation)

Absolute Return-on-Investment: +1.4%
= +$221.65/$15,778.35
Equivalent Annualized-Return-on-Investment: +46.6%
= (+$221.65/$15,778.35) * (365/11 days)

The downside 'breakeven price' at expiration is at $31.55 ($33.86 - $2.31), which is 6.8% below the current market price of $33.86.  

Monthly Options Expiration Results through February 17th, 2023

Each month on the day after the monthly options expiration date, this summary report provides the results of 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 January 20th, 2023 options expiration through yesterday's February 17th, 2023 monthly options expiration date.  

During this past month, the Covered Calls Advisor Portfolio held a total of thirteen Covered Calls positions.  Twelve positions were closed out at a profit, no positions were closed out at a loss, and one position remains open since it was out-of-the-money at the market close yesterday (i.e. on the monthly options expiration date). 

The specific results for each position are summarized as follows: 

• Four Covered Calls positions expired in-the-money (stock price above the strike price) at yesterday's (February 17th, 2023) monthly options expiration date with the following results: 

1. Archer-Daniels-Midland (ADM) -- +1.4% absolute return in 18 days (equivalent to a +28.3% annualized return-on-investment). 
   
2. Fastenal Company (FAST) -- +2.0% absolute return in 24 days (equivalent to a +30.6% annualized return-on-investment).
   
3. Charles Schwab Corp. (SCHW) -- +1.3% absolute return in 16 days (equivalent to a +30.0% annualized return-on-investment). 
   
4. Uber Technologies Inc. (UBER) -- +4.6% absolute return in 11 days (equivalent to a +152.0% annualized return-on-investment).

• Three Covered Calls positions expired in-the-money during the past month on their weekly options expiration dates and were therefore assigned at their strike prices with the following results:

1. D.R. Horton Company (DHI) -- +1.1% absolute return in 10 days (equivalent to a +38.4% annualized return-on-investment).
2. iShares China Large-Cap ETF (FXI) -- +1.3% absolute return in 17 days (equivalent to a +27.8% annualized return-on-investment). 
3. Lowe's Companies Inc. (LOW) -- +1.5% absolute return in 18 days (equivalent to a +29.8% annualized return-on-investment).

• Three Covered Calls positions were closed out by early assignment on the last business day prior to their ex-dividend date with the following results:

1. Exxon Mobil Corporation (XOM) -- +1.1% absolute return in 7 days (equivalent to a +59.3% annualized return-on-investment).
   
2. Marathon Petroleum Corp. (MPC) -- +1.1% absolute return in 7 days (equivalent to a +57.0% annualized return-on-investment).
   
3. Morgan Stanley (MS) -- +1.1% absolute return in 8 days (equivalent to a +49.9% annualized return-on-investment).
   

• Two Covered Calls positions were closed early based on my decision at that time to close out (i.e. unwind) the positions with the following results:

1. CVS Health Corp. (CVS) -- +2.0% absolute return in 20 days (equivalent to a +37.0% annualized return-on-investment).
2. Murphy Oil Corp. (MUR) -- This Covered Calls position was out-of-the-money (i.e. below the $40.00 strike price) during yesterday's monthly options expiration date.  With about one hour remaining until market close yesterday, a decision was made to unwind (i.e. close out) this position at a net credit of $39.48 per share.  The modestly profitable result was +0.6% absolute return in 19 days (equivalent to a +12.1% annualized return-on-investment).

• One Covered Calls positions in iShares China Large-Cap ETF expired out-of-the-money on yesterday's February 17th, 2023 options expiration date.  FXI closed at $29.53 and the strike price was $30.00.  These 1,000 FXI shares remain in the Covered Calls Advisor Portfolio and are currently held at a small unrealized loss.  Early next week, a decision will be made to either sell these shares or , most likely, to continue this Covered Calls positions by selling future Call options against the shares currently held.

During the past year (last 12 months) 110 of 124 positions (88.7%) 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 +16.4% during the past year and the average holding period for these 124 closed positions was 22.3 days.  In comparison, the benchmark S&P 500 returned -5.2% during the same prior one-year period.   

This Covered Calls Advisor blog is freely available to anyone interested in learning about implementing a successful 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 the Covered Calls investing strategy. 

Best Wishes and Godspeed,

Jeff Partlow
Covered Calls Advisor
partlow@cox.net

Covered Calls Established in Applied Materials Inc.

A short-term Covered Calls position was established this afternoon in Applied Materials Inc. (ticker AMAT) with a March 3rd, 2023 options expiration date.   A buy/write transaction entered at a net debit of $107.72 was executed by purchasing 200 shares of AMAT at $113.86 and simultaneously selling two March 3rd, 2023 Call options at the $109.00 strike price at $6.14 per share. The potential time value profit when this Covered Calls position was established was $1.28 per share = [$6.14 Call options price - ($113.86 stock price - $109.00 strike price)].  Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Calls position was established.  The Delta was 74.2 which approximates a probability of 74.2% that the Call options will be in-the-money and therefore the stock assigned (i.e. sold) on the options expiration date. The Implied Volatility of these Calls was 33.8 when this transaction was executed. 

The Q4 2022 earnings were reported after market close yesterday.  The revenue was better than for the same quarter last year by 10% and $2.03 per share earnings were 17.5% above the average analysts' estimates.  The current P/E ratio is 14.8 and the average analysts' target price of $124.36 is +9.2% above today's purchase price.  Four investment companies that have modified their target price for AMAT since last evening's earnings report all increased their target prices.  

In addition to the $1.28 potential time value profit described above, there is an upcoming ex-dividend next week on February 22nd of $.26 per share (0.9% annual dividend yield) which is included in the potential return-on-investment results detailed below.

Two potential return-on-investment results are: 

•  +1.2% absolute return (equivalent to +86.3% annualized return for the next 5 days) if the stock is assigned early (on the last business day prior to the February 22nd, 2023 ex-dividend date); OR 

• +1.4% absolute return (equivalent to +34.7% annualized return over the next 15 days) if the stock is assigned on the March 3rd, 2023 options expiration date.

Applied Materials Inc. -- New Covered Calls Position Established

The net debit buy/write limit order was transacted as follows:
2/17/2023 Bought 200 AMAT shares @ $113.86
2/17/2023 Sold 2 AMAT March 3rd, 2023 $109.00 Call options @ $6.14 per share.
Note: as is often the case, these Call options were transacted slightly below the midpoint of the $6.10/$6.20 bid/ask spread.
2/22/2023 Upcoming AMAT ex-dividend of $.26 per share.

Two possible overall performance results (including commissions) for this Covered Calls position are as follows:
Covered Calls Net Investment: $21,545.34
= ($113.86 - $6.14) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,226.66
= ($6.14 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Feb. 21st, the last business day prior to the February 22nd ex-div date): +$0.00; or
(b) Dividend Income (If AMAT stock assigned at the March 3rd, 2023 expiration): $52.00
= ($.26 dividend per share x 200 shares)
(c) Capital Appreciation (If Applied Materials Call options assigned early on Feb. 21st): -$972.00
+($109.00 strike price - $113.86 stock price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $109.00 strike price at the March 3rd options expiration): -$972.00
+($109.00 - $113.86) * 200 shares

1. Total Net Profit [If option exercised early on the last business day prior to the Feb. 22nd ex-dividend date)]: +$254.66

= (+$1,226.66 options income +$0.00 dividend income -$972.00 capital appreciation); or

2. Total Net Profit (If stock shares assigned at $109.00 strike price at the March 3rd, 2023 expiration): +$306.66

= (+$1,266.66 options income +$52.00 dividend income -$972.00 capital appreciation)

1. Absolute Return-on-Investment (If the Call option is exercised early on Feb 21st): +1.2%

= +$254.66/$21,545.34

Annualized Return-on-Investment: +86.3%

= (+$254.66/$21,545.34) * (365/5 days); or

2. Absolute Return-on-Investment (If Applied Materials shares assigned at $109.00 at the March 3rd, 2023 options expiration date): +1.4%

= +$306.66/$21,545.34

Annualized Return-on-Investment (If AMAT shares assigned at the 3/2/2023 expiration date): +34.7%

= (+$306.66/$21,545.34) * (365/15 days)

Either outcome provides a good return-on-investment result for this Applied Materials investment.  These returns will be achieved as long as the stock is above the $109.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $107.46 ($113.86 -$6.14 -$.26) provides a 5.6% 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 must be 'YES' prior to establishing a position.  As shown below with this Applied Materials position, all nine criteria were met.

Established Covered Calls in Discover Financial Services

Today a Covered Calls position was established in Discover Financial Services (ticker DFS) with a March 3rd, 2023 options expiration date. Two hundred shares of Discover were purchased at $113.00 and two Call options were sold at $3.98 per share at the $110.00 strike price.  The time value was $.98 per share [$110.00 strike price - ($113.00 share price - $3.98 Call options premium)] when this buy/write net debit limit order transaction was executed.  

Discover also has an upcoming ex-dividend date next Wednesday (6 days from today) at $.62 per share (2.2% annual dividend yield), 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 April 26th, 2023.  The approximate probability of assignment was 69.8% when this position was established.

Two potential return-on-investment results are as follows: (a) +0.9% absolute return-on-investment (equivalent to +54.3% annualized roi) for 6 days if this Covered Calls position is assigned early on February 21st, 2022 (the last business day prior to the Feb. 22nd ex-dividend date); OR  (b) +1.5% absolute return-on-investment (equivalent to +33.3% annualized roi) for 16 days if this Covered Calls position is in-the-money on the March 3rd, 2023 weekly options expiration date.

Discover Financial Services (DFS) -- New Covered Calls Position Established
The simultaneous buy/write transaction was as follows:
2/16/2023 Bought 200 shares of Discover Financial Services @ $113.00 per share; and 
2/16/2023 Sold 2 DFS March 3rd, 2023 $110.00 Call options @ $3.98 per share.  The Implied Volatility of these Calls was 22.3 when this position was established.
2/22/2022 Ex-dividend of $.62 per share
 
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $21,805.34
= ($113.00 - $3.98) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$794.66
= ($3.98 * 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 March 3rd, 2023 expiration): +$124.00
= ($.62 dividend per share x 200 shares)
(c) Capital Appreciation (If Discover shares assigned early): -$600.00
+($110.00 strike price - $113.00 stock purchase cost) * 200 shares; or
(c) Capital Appreciation (If DFS shares assigned at $110.00 strike price at options expiration): -$600.00
+($110.00 - $113.00) * 200 shares

1. Total Net Profit [If option exercised on Feb. 21st, 2023 (the last business day prior to the March 3rd ex-dividend date)]: +$194.66

= (+$794.66 options income +$0.00 dividend income -$600.00 capital appreciation); or

2. Total Net Profit (If Discover Financial shares assigned at $110.00 strike price at the March 3rd, 2023 options expiration): +$318.66

= (+$794.66 +$124.00 -$600.00)

1. Absolute Return-on-Investment (If DFS options exercised early on the last business day prior to the ex-dividend date): +0.9%

= +$194.66/$21,805.34

Annualized Return-on-Investment (If DFS Call options exercised early on Feb. 21st): +54.3%

= (+$194.66/$21,805.34) * (365/6 days); or

2. Absolute Return-on-Investment (If DFS shares assigned at $113.00 at March 3rd, 2023 options expiration date): +1.5%

= +$318.66/$21,805.34

Annualized Return-on-Investment (If DFS stock assigned at $110.00 at March 3rd, 2023 options expiration date): +33.3%

= (+$318.66/$21,805.34) * (365/16 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 $110.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $108.40 ($113.00 -$3.98 -$.62) provides 4.1% 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, all nine criteria are achieved for this Discover Financial Services Covered Calls position.

Early Assignment of Covered Call Position in Marathon Petroleum Corporation

Early this morning, the Covered Calls Advisor was notified by my broker that the one Marathon Petroleum Corporation (ticker MPC) February 24th, 2023 $116.00 Call option was exercised yesterday.  Marathon Petroleum stock has increased from its purchase price of $121.29 last Wednesday to $127.89 at the market close yesterday.  The original $1.26 time value in the Call when the position was established had declined on yesterday's market close to $0.00, so I was not surprised that (with ten calendar days remaining until the options expiration date), the owner of these MPC Calls exercised their option to buy the 100 shares at the $116.00 strike price in order to receive today's $.75 per share ex-dividend.  I am pleased for this early assignment despite losing the opportunity to capture the $.75 ex-dividend since the +57.0% annualized-return-on-investment (aroi) achieved by early assignment is greater than the +37.5% aroi that would have been achieved if this position was instead assigned on its February 24th options expiration date.       

The post when this Marathon Petroleum Covered Call position was originally established is here.  As detailed below, the return-on-investment result for this MPC Covered Calls position was +1.1% absolute return in 7 days (equivalent to a +57.0% annualized return-on-investment)

Marathon Petroleum Corp. (MPC) -- Covered Call Position Closed Out by Early Assignment

The buy/write transaction was:
2/8/2023 Bought 100 Marathon Petroleum Corp. shares @ $121.29
2/8/2023 Sold 1 MPC 2/24/2023 $116.00 Call option @ $6.55 per share
Note: the Implied Volatility of the Call options was 31.6 when this buy/write transaction was executed.  As preferred, this exceeds the Implied Volatility of a comparable Delta for a S&P 500 (i.e. SPY) Covered Calls position (whose Implied Volatility is currently 23.2).
2/14/2023 Marathon Petroleum Call option owner exercised their Call option, so the Covered Call position was closed out early. The MPC Call option expired worthless and the 100 Marathon Petroleum shares were sold at the $116.00 strike price.

The overall performance results (including commissions) for this Covered Call position were as follows:
Covered Call Net Investment: $11,474.67
= ($121.29 - $6.55) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$654.33
= ($6.55 * 100 shares) - $.67 commission
(b) Dividend Income (MPC Call option exercised early on Feb. 14th, the last business day prior to the February 15th ex-div date): +$0.00
(c) Capital Appreciation: -$529.00
+($116.00 strike price - $121.29 stock price) * 100 shares

Total Net Profit: +$125.33

= (+$654.33 options income +$0.00 dividend income -$529.00 capital appreciation)

 

Absolute Return-on-Investment: +1.1%

= +$125.33/$11,474.67

Annualized Return-on-Investment: +57.0%

= (+$125.33/$11,474.67) * (365/7 days)

February 10th, 2023 Options Expiration Results

There was one Covered Calls position in the Covered Calls Advisor Portfolio with a February 10th, 2023 weekly options expiration date.  This position in D.R. Horton Company (ticker DHI) was closed out yesterday since its stock price of $98.59 at the market close yesterday was in-the-money, so the two $93.00 Call options expired worthless and the 200 shares owned were assigned (i.e. sold) at their $93.00 strike price. As detailed below, the result achieved was a +1.1% absolute return-on-investment (equivalent to a +38.4% annualized return-on-investment) for the 10 days holding period).  

D.R. Horton Company (DHI) -- Covered Calls Position Closed Out by Assignment on Its Options Expiration Date
The Buy/Write transaction was as follows:
2/1/2023 Bought 200 shares of D.R. Horton Co. stock @ $96.84 per share 
2/1/2023 Sold 2 D.R. Horton February 10th, 2023 $93.00 Call options @ $4.56 per share
2/6/2023 Ex-dividend of $.25 per share
2/10/2023 Two D.R. Horton $93.00 Calls expired in-the-money so the 200 DHI shares were sold at the $93.00 strike price to close out this Covered Calls position. 

The overall performance results (including commissions) were as follows:
Covered Calls Position Net Investment: $18,457.34
= ($96.84 - $4.56) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$912.00
= ($4.56 * 200 shares)
(b) Dividend Income (DHI stock assigned at the Feb. 10th, 2023 expiration): $50.00
= ($.25 dividend per share x 200 shares)
(c) Capital Appreciation (200 DHI shares assigned at $93.00 strike price at the Feb.10th options expiration date): -$768.00
+($93.00 - $96.84) * 200 shares

Total Net Profit: +$194.00

= (+$912.00 options income +$50.00 dividend income -$768.00 capital appreciation)
 

Absolute Return-on-Investment: +1.1%

= +$194.00/$18,457.34

Annualized Return-on-Investment: +38.4%

= (+$194.00/$18,457.34) * (365/10 days)

Early Assignment of Covered Calls Position in Exxon Mobil Corporation

Early this morning, the Covered Calls Advisor was notified by my broker that the two Exxon Mobil Corporation (ticker XOM) February 24th, 2023 $108.00 Call options were exercised yesterday.  Exxon Mobil stock has increased from its purchase price of $111.85 last Monday to $119.17 at the market close yesterday.  The original $1.20 time value in the Calls when the position was established had declined on yesterday's market close to $0.08 at the Call options Bid/Ask midpoint, so I was not surprised that (with two weeks remaining until the options expiration date), the owner of these XOM Calls exercised their option to buy the 200 shares at the $108.00 strike price in order to receive Monday's $.91 per share ex-dividend.  I am pleased for this early assignment despite losing the opportunity to capture the $.91 ex-dividend since the +59.3% annualized-return-on-investment (aroi) achieved by early assignment is greater than the +37.8% aroi that would have been achieved if this position was instead assigned on its February 24th options expiration date.   

The post when this Exxon Mobil Covered Calls position was originally established is here.  As detailed below, the return-on-investment result for this Exxon Mobil Covered Calls position was +1.1% absolute return in 7 days (equivalent to a +59.3% annualized return-on-investment).  

 

Exxon Mobil Corporation (XOM) -- Covered Calls Position Closed Out by Early Assignment

The simultaneous buy/write transaction was:
2/6/2023 Bought 200 Exxon Mobil shares @ $111.85
2/6/2023 Sold 2 Exxon Mobil February 24th, 2023 $108.00 Call options @ $5.05 per share
2/10/2023 Exxon Mobil Call options owner exercised their two Call options, so the Covered Calls position was closed out early. The two XOM Call options expired worthless and the 200 Exxon shares were sold at the $108.00 strike price.

The overall performance results (including commissions) for this Exxon Mobil Corporation Covered Calls position are as follows:
Buy/Write Purchase Net Investment: $21,361.34
= ($111.85 - $5.05) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,008.66
= ($5.05 * 200 shares) - $1.34 commission
(b) Dividend Income (Call options exercised early on Friday, Feb. 10th, the last business day prior to the February 13th ex-div date): +$0.00

(c) Capital Appreciation (Early assignment): -$770.00
+($108.00 -$111.85) * 200 shares

Total Net Profit: +$238.66

= (+$1,008.66 options income +$0.00 dividend income -$770.00 capital appreciation)

 

Absolute Return-on-Investment: +1.1%

= +$238.66/$21,361.34

Annualized Return-on-Investment: +59.3%

= (+$238.66/$21,361.34) * (365/7 days)

Established Covered Call in Marathon Petroleum Corporation

Today a Covered Call position was established in the Marathon Petroleum Corporation (ticker symbol MPC) at a net debit buy/write limit order of $114.74.  One hundred shares were purchased at $121.29 and one February 24th, 2023 Call option was sold at $6.55 per share at the $116.00 strike price.  I decided to establish a relatively small 100 shares position since there were already two other Energy Sector positions (Exxon Mobil and Murphy Oil) in the Covered Calls Advisor Portfolio.  This strike price is 3.9% in-the-money is consistent with my guideline when establishing Covered Calls when my Overall Market Meter indicator is Slightly Bearish, which is to sell at strike prices between 2.0% and 5.0% in-the-money. This buy/write transaction occurred at a Delta of 74.3 which approximates the probability of 74.3% that the Call option will be in-the-money and therefore assigned on the options expiration date.   

The potential time value profit is $1.26 per share [$6.55 Call option premium - ($121.29 stock purchase price - $116.00 strike price)].  In addition to this $1.26 per share time value profit potential, there is an upcoming quarterly ex-dividend income potential per share of $.75 (annual dividend yield of 2.5%) on February 15th, 2023.  The $.75 dividend is a large 29.3% increase above the quarterly dividend level during the same quarter last year.  A Board of Directors that raises their dividend is showing confidence that the company's business outlook is strong. 

The two potential return-on-investment results detailed below are: (1) the possibility of early assignment since the Feb. 15th ex-dividend is prior to the February 24th, 2023 options expiration date; and (2) the possibility that this Covered Call position is in-the-money (and therefore assigned) on the options expiration date. The $.75 dividend is a large 29.3% increase above the quarterly dividend level during the same quarter last year.  A Board of Directors that raises their dividend is showing confidence that the company's business outlook is strong.  

Marathon Petroleum Corp.'s Q4 2022 earnings report eight days ago included a +12.7% revenue increase compared with the same quarter last year and an extraordinary increase in earnings per share from $1.30 last year to $6.65 this year.  Their full fiscal year 2022 EPS was $26.56, so at today's stock purchase price of $121.29, the FY2022 P/E Ratio is only 4.6 which is a substantially better valuation than its prior 5-year average of 9.8.  It appeared in both my Energy Sector and my Acquirers' Multiple stock screeners.  Also, according to Reuters Research, eleven of sixteen analysts covering Marathon Petroleum rate it as either a Buy or Outperform, five rate it as a Hold, and none rate it as either Underperform or Sell, and their average price target is $143.21 (+18.1% above today's purchase price).     

Marathon is among the largest of U.S.-based refiners.  In addition to its attractive current valuation relative to its history, it has tremendous cash flow.  Its current free cash flow yield of 22.3% is more than double its prior 5-year average.  Historically, crack spreads have fluctuated substantially which resulted in dramatic swings in refiners' profit margins.  But the current crack spread is likely to be more sustainable going forward since (1) there is now a more persistent competitive advantage in comparison to European refiners; and (2) there are no new refineries planned, so the current refined energy products supply/demand imbalance (i.e. stagnant supply but continued slow growth in demand) is also likely to persist for several more years.

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

•  +1.1% absolute return (equivalent to +57.0% annualized return for the next 7 days) if the stock is assigned early (on the last business day prior to the February 15th, 2023 ex-dividend date); OR 

• +1.7% absolute return (equivalent to +37.5% annualized return over the next 17 days) if the stock is assigned on the February 24th options expiration date.

Marathon Petroleum Corp. (MPC) -- New Covered Call Position

The buy/write transaction was:
2/8/2023 Bought 100 Marathon Petroleum Corp. shares @ $121.29
2/8/2023 Sold 1 MPC 2/24/2023 $116.00 Call option @ $6.55 per share
Note: the Implied Volatility of the Call options was 31.6 when this buy/write transaction was executed.  As preferred, this exceeds the Implied Volatility of a comparable Delta for a S&P 500 (i.e. SPY) Covered Calls position (whose Implied Volatility is currently 23.2).
2/15/2023 Upcoming quarterly ex-dividend of $.75 per share

Two possible overall performance results (including commissions) for this Covered Calls position are as follows:
Covered Call Net Investment: $11,474.67
= ($121.29 - $6.55) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$654.33
= ($6.55 * 100 shares) - $.67 commission
(b) Dividend Income (If option exercised early on Feb. 14th, the last business day prior to the February 15th ex-div date): +$0.00; or
(b) Dividend Income (If MPC stock assigned at the Feb. 24th, 2023 expiration): $75.00
= ($.75 dividend per share x 100 shares)
(c) Capital Appreciation (If Marathon Petroleum Call option is assigned early on Feb. 14th): -$529.00
+($116.00 strike price - $121.29 stock price) * 100 shares; or
(c) Capital Appreciation (If shares assigned at $116.00 strike price at the Feb. 24th options expiration): -$529.00
+($116.00 - $121.29) * 100 shares

1. Total Net Profit [If option exercised early on the last business day prior to the Feb. 15th ex-dividend date)]: +$125.33

= (+$654.33 options income +$0.00 dividend income -$529.00 capital appreciation); or

2. Total Net Profit (If stock shares assigned at $116.00 strike price at the Feb. 24th, 2023 expiration): +$200.33

= (+$654.33 options income +$75.00 dividend income -$529.00 capital appreciation)

1. Absolute Return-on-Investment (If the Call option is exercised early on Feb 14th): +1.1%

= +$125.33/$11,474.67

Annualized Return-on-Investment: +57.0%

= (+$125.33/$11,474.67) * (365/7 days); or

2. Absolute Return-on-Investment (If Marathon Petroleum Corp. shares assigned at $116.00 at the Feb. 24th, 2023 options expiration date): +1.7%

= +$200.33/$11,474.67

Annualized Return-on-Investment (If MPC shares assigned at the 2/24/2023 expiration date): +37.5%

= (+$200.33/$11,474.67) * (365/17 days)

Either outcome provides a good return-on-investment result for this Marathon Petroleum investment.  These returns will be achieved as long as the stock is above the $116.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $113.99 ($121.29 -$6.55 -$.75) provides a large 6.0% 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 must be 'YES' prior to establishing a position.  As shown below with this Marathon Petroleum Corp. position, all nine criteria were met.

Covered Calls Established in Uber Technologies Inc.

At 9:50am this morning, a short-term Covered Calls position was established by buying 500 shares of Uber Technologies Inc.(ticker symbol UBER) stock at $33.74 and simultaneously selling 5 February 17th, 2023 $32.50 Call options at $2.67 per share -- a net debit of $31.07 per share -- so the time value was $1.43 per share [$2.67 Call options premium - ($33.74 stock purchase price - $32.50 strike price)].

I normally avoid establishing positions in companies with earnings reports prior to the options expiration date, but I allow myself to have no more than one such small, speculative position at any given time. Uber is now that speculative position for me since its quarterly earnings are tomorrow morning and it is a company that has yet to achieve full year profitability. The Implied Volatility of these Call options was very high at 86.7 when this position was established, so there is likely to be substantial price volatility after their earnings report tomorrow.  Nevertheless, I am confident that Uber has a bright future as the pre-eminent rideshare company in North America (58% of revenue) and also a substantial worldwide presence  in over 70 countries with good ongoing growth prospects under the strong leadership of CEO Dara Khosrowshahi. Uber's primary rideshare competitor in the U.S. is Lyft, but Uber dominates with about three times the ridesharing market share of Lyft, and unlike Lyft it also has a strong food delivery business (and a fledgling freight managment business), so its current market capitalization is ten times greater than Lyft's.

Two reasons I was emboldened to establish this risky Covered Calls position in Uber before its earnings was: (1) three major airlines' recent earnings reports averaged +38.5% higher revenue than for the same quarter last year, and Uber achieves a substantial portion of their ridesharing revenue at airports; and (2) analysts' estimates for Uber's compounded annual revenue growth rate is 16.6% for the next 3 to 5 years. In addition, the current average target price of 44 Wall Street analysts that cover Uber is $45.85 per share (+35.9% above today's purchase price).  Finally, I often watch Halftime Report on CNBC where they have asked several panelists to make their top 3 stock picks for 2023. I decided to do the same and one of my three picks was Uber.

As detailed below, a potential outcome for this Uber Technologies investment is +4.6% absolute return-on-investment for the next 11 days (equivalent to +152.0% annualized-return-on-investment) if the stock closes above the $32.50 strike price on the February 17th, 2023 options expiration date.

Uber Technologies Inc. (UBER) -- New Covered Calls Position

The net debit buy/write limit order was executed as follows:
2/7/2023 Bought 500 shares of Uber Technologies Inc. stock @ $33.74 per share 
2/7/2023 Sold 5 Uber February 17th, 2023 $32.50 Call options @ $2.67 per share
Note: this was a simultaneous Buy/Write transaction

A possible overall performance result (including commissions) would be as follows:
Covered Calls Net Investment: $15,538.35
= ($33.74 - $2.67) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$1,331.65
= ($2.67 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Uber stock is above the $32.50 strike price at the Feb. 17th expiration): -$620.00
= ($32.50 -$33.74) * 500 shares

Potential Total Net Profit (If assigned at expiration): +$711.65
= (+$1,331.65 options income +$0.00 dividend income -$620.00 capital appreciation)

Absolute Return-on-Investment: +4.6%
= +$711.65/$15,538.35
Equivalent Annualized-Return-on-Investment: +152.0%
= (+$711.65/$15,538.35) * (365/11 days)

The downside 'breakeven price' at expiration is at $31.07 ($33.74 - $2.67), which is 7.9% below the current market price of $33.74. 

Established Covered Calls Position in Exxon Mobil Corporation

Early in this morning's trading, I entered a Covered Calls simultaneous buy/write net debit limit order in Exxon Mobil Corporation (ticker XOM) for the February 24th, 2023 expiration and at the $108.00 strike price and at a net debit limit price of $106.80 per share.  About 15 minutes later, the order was executed and 200 shares were purchased at $111.85 and two 2/24/2023 Call options were sold at the $108.00 strike price for $5.05 per share.  So, the potential time value profit from the Call options is $1.20 per share [$108.00 strike price - ($111.85 stock purchase price - $5.05 Call options price)], and the Implied Volatility of these Call options was 27.4 when this transaction was executed.  

In addition to the potential time value profit of $1.20 per share, there is an upcoming quarterly ex-dividend of $.91 per share (3.3% annual dividend yield) on February 13th which is included in the potential return-on-investment calculations detailed below.  When this in-the-money Covered Calls position was established this morning it had a probability of assignment on the options expiration date of 71.0%. 

Exxon Mobil Corp. meets all five criteria I am currently using for a company to be considered as a candidate for investment.

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

•  +1.1% absolute return (equivalent to +59.3% annualized return for the next 7 days) if the stock is assigned early (the last business day prior to the Feb. 13th, 2023 ex-dividend date); OR 

• +2.0% absolute return (equivalent to +37.8% annualized return over the next 19 days) if the stock is assigned on the February 24th, 2023 options expiration date.

These returns will be achieved as long as Exxon Mobil's stock price is above the $108.00 strike price when assigned.  If the stock declines below the strike price, the breakeven price of $105.89 per share ($111.85 stock purchase price - $5.05 Call options selling price - $.91 ex-dividend amount) provides a 5.3% downside breakeven protection if assigned on the options expiration date.
 

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 $1.20 remaining in the short Call options decays substantially (down to approximately $.15 or less) before market close this Friday, February 10th, 2023 (the last business day prior to next Monday's 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 dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be a desirable outcome since its +59.3% annualized-return-on-investment (aroi) exceeds the +37.8% aroi that would be achieved if the assignment occurred instead on the February 24th options expiration date.

The simultaneous buy/write transaction was:
2/6/2023 Bought 200 Exxon Mobil shares @ $111.85
2/6/2023 Sold 2 Exxon Mobil February 24th, 2023 $108.00 Call options @ $5.05 per share
2/13/2023 Upcoming Exxon quarterly ex-dividend at $.91 per share

Two possible overall performance results (including commissions) for this Exxon Mobil Covered Calls position are as follows:
Covered Calls Net Investment: $21,361.34
= ($111.85 - $5.05) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,008.66
= ($5.05 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Friday, Feb. 10th, the last business day prior to the February 13th ex-div date): +$0.00; or
(b) Dividend Income (If Exxon Mobil's shares assigned at the February 24th, 2023 options expiration date): +$182.00
= ($.91 dividend per share x 200 shares)

(c) Capital Appreciation (If Exxon Mobil's stock assigned early): -$770.00
+($108.00 -$111.85) * 200 shares; or
(c) Capital Appreciation (If Exxon Mobil shares assigned at $108.00 strike price at options expiration): -$770.00
+($108.00 -$111.85) * 200 shares

1. Total Net Profit (If option exercised early): +$238.66

= (+$1,008.66 options income +$0.00 dividend income -$770.00 capital appreciation); or

2. Total Net Profit (If Exxon Mobil stock assigned at $108.00 at the Feb. 24th, 2023 expiration): +$420.66

= (+$1,008.66 options income +$182.00 dividend income -$770.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on the last business day prior to the 2/13/2023 ex-dividend date): +1.1%

= +$238.66/$21,361.34

Annualized Return-on-Investment (If option exercised early): +59.3%

= (+$238.66/$21,361.34) * (365/7 days); or

2. Absolute Return-on-Investment (If Exxon Mobil stock assigned at $108.00 at the Feb. 24th options expiration date): +2.0%

= +$420.66/$21,361.34

Annualized Return-on-Investment (If Exxon Mobil shares assigned at $108.00 at the 2/24/2023 options expiration date): +37.8%

= (+$420.66/$21,361.34) *(365/19 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 Exxon Mobil Corp. position.

February 3rd, 2023 Options Expiration Results

The Covered Calls Advisor Portfolio had two Covered Calls positions with February 3rd, 2023 weekly options expirations.  Both positions closed at options expiration with the equity prices in-the-money, so the Calls expired and the Covered Calls were closed out as both equities were sold at their respective strike prices and with the following results:

1. iShares China Large-Cap ETF (FXI) -- +1.3% absolute return (equivalent to +27.8% annualized return-on-investment) for the 17 days of this investment.  The original blog post when this position was established is here. 

2. Lowe's Companies Inc. (LOW) -- +1.5% absolute return (equivalent to +29.8% annualized return-on-investment) for the 18 days of this investment.  The original blog post when this position was established is here

I welcome your feedback on any topics related to the Covered Calls investing strategy.  My email address is partlow@cox.net.

Best Wishes and Godspeed,

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net

Established Covered Calls Position in iShares China Large-Cap ETF

A Covered Calls position was established this afternoon in iShares China Large-Cap ETF (ticker FXI) with a February 17th, 2023 options expiration date.   One thousand shares of iShares China Large-Cap ETF were purchased at $31.10 and ten February 17th, 2023 Call options were sold at the $30.00 strike price at $1.52 per share--a net debit transaction of $29.58 per share which provides a $.42 per share time value profit potential.  Covered Calls and Cash-Secured Puts are normally synthetically equivalent positions when transacted at the same time and at the same strike price and expiration date.  The Covered Calls position was selected since the $.42 time value in the Covered Calls was significantly greater than the $.34 time value in the comparable Puts.

The Implied Volatility of these Calls was 33.9 and the Delta was 70.0 when this transaction was executed.  A moderately in-the-money strike price was selected given my current Slightly Bearish Overall Market Meter and its accompanying guideline that Covered Call positions be established at between 2% and 5% in-the-money and with short-term (i.e. one month or less) option expiration dates.  This position qualifies in both regards since the $30.00 strike price is 3.7% in-the-money and the 15 days to the options expiration date is within the preferred one-month maximum.

I concur with many economists and Wall Street analysts who expect China's stock market to outperform so-called "developed" markets this year.  China's central economic policy is loosening while major developed markets like the U.S., Europe, and Japan are tightening.  Furthermore, the apparent (though slow) re-opening from China's Covid lockdown policy will further benefit their economy.  Also importantly, FXI's market valuation metrics are very attractive with a current P/E of 8.6 and a P/Book of 1.1 when compared to an S&P 500 P/E of 19.1 and P/Book of 3.9.  It seems very likely that Emerging Markets (including China specifically) have a good chance of outperforming U.S. market benchmarks this year.  From a technical perspective, the 2-day Relative Strength Index, RSI(2) was substantially oversold at 13.4 when this position was established. 

Fortunately, the Implied Volatility of  FXI options are significantly higher than those of a common U.S. market benchmark like the S&P 500 (i.e. SPY).  For example, the 2/17/2023 $30.00 Calls I sold today had an Implied Volatility of 33.9 while at the same time the Implied Volatility of comparable SPY Calls was only 21.2 -- so FXI provides a significantly higher potential annualized-return-on-investment than that of SPY.  In addition, FXI options are very liquid (even in weekly options) so it is likely I will continue to often establish approximately bi-weekly Covered Calls in FXI in upcoming weeks this year.  Finally, the fact that investing in China-based companies improves the diversification of the Covered Calls Advisor Portfolio appeals to me.  In short, it serves as a counterbalance to my normal home country bias.  

As detailed below, a potential return-on-investment result is +1.4% absolute return (equivalent to +34.0% annualized return for the next 15 days) if the iShares China Large-Cap ETF share price is in-the-money (i.e. above the $30.00 strike price) and therefore assigned on the February 17th, 2023 options expiration date.

 
iShares China Large-Cap ETF (FXI) -- New Covered Calls Position 
The Buy/Write transaction was as follows:
2/3/2023 Bought 1,000 shares of iShares China Large-Cap ETF @ $31.10 per share 
2/3/2023 Sold 10 FXI Feb 17th, 2023 $30.00 Call options @ $1.52 per share

A possible overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position is as follows:
FXI Covered Calls Net Investment: $29,586.70
= ($31.10 - $1.52) * 1,000 shares + $6.70 commission

Net Profit:
(a) Options Income: +$1,513.30
= ($1.52 * 1,000 shares) - $6.70 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 1,000 iShares China Large-Cap ETF shares assigned at $30.00 strike price at expiration): -$1,100.00
+($30.00 - $31.10) * 1,000 shares

Total Net Profit Potential (If 1,000 iShares China Large-Cap ETF shares assigned at $30.00 strike price at expiration): +$413.30
= (+$1,513.30 options income +$0.00 dividend income -$1,100.00 capital appreciation)

Absolute Return-on-Investment Potential: +1.4%
= +$413.30/$29,586.70
Annualized Return-on-Investment Potential: +34.0%
= (+$413.30/$29,586.70) * (365/15 days)

Established Covered Calls in Charles Schwab Corporation

Today a Covered Calls position was established in the Charles Schwab Corporation (ticker symbol SCHW) at a net debit limit order of $73.28.  Two hundred shares were purchased at $76.98 and 2 February 17th, 2023 Call options were sold at $3.70 per share at the $74.00 strike price.  This strike price is 4.0% in-the-money which is consistent with my guideline when establishing Covered Calls when my Overall Market Meter indicator is Slightly Bearish is to sell at strike prices between 2.0% and 5.0% in-the-money. This buy/write transaction occurred at a Delta of 73.8 which approximates the probability that the Call options will be in-the-money and therefore assigned on the options expiration date.     

The potential time value profit is $.72 per share [$3.70 Call options premium - ($76.98 stock purchase price - $74.00 strike price)].  In addition to this $.72 time value profit potential, there is an upcoming quarterly ex-dividend income potential per share of $.25 (annual dividend yield of 1.3%) on February 9th, 2023.  So, the two potential return-on-investment results detailed below are: (1) the possibility of early assignment since the Feb. 9th ex-dividend is prior to the February 17th, 2023 options expiration date; and (2) the possibility that this Covered Calls position is in-the-money (and therefore assigned) on the options expiration date. The $.25 dividend is a 25% increase above the quarterly dividend level during the same quarter last year. 

Schwab's Q4 2022 earnings report two weeks ago included +16.8% revenue and +24.4% earnings per share increases compared with the same quarter last year.  Their full fiscal year 2022 EPS was $3.93, so at today's stock purchase price of $76.98, the FY2022 P/E Ratio is 19.6 and analysts' estimates for FY2023 are for a continuing increase in earnings such that their P/E Ratio would decrease to 17.8. Also, Wall Street analysts' average target price is $92.83 (+20.6% above today's purchase price). 

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

•  +1.0% absolute return (equivalent to +50.8% annualized return for the next 7 days) if the stock is assigned early (on the last business day prior to the February 9th, 2023 ex-dividend date); OR 

• +1.3% absolute return (equivalent to +30.0% annualized return over the next 16 days) if the stock is assigned on the February 17th options expiration date.

Charles Schwab Corporation (SCHW) -- New Covered Calls Position

The buy/write transaction was:
2/2/2023 Bought 200 Charles Schwab shares @ $76.98
2/2/2023 Sold 2 SCHW 2/17/2023 $74.00 Call options @ $3.70 per share
Note: the Implied Volatility of the Call options was 28.3 when this buy/write transaction was executed.  As preferred, this exceeds the Implied Volatility of a comparable Delta for a SPY Covered Calls position (whose IV is currently 21.8).
2/9/2023 Upcoming quarterly ex-dividend of $.25 per share

Two possible overall performance results (including commissions) for this Covered Calls position are as follows:
Covered Calls Net Investment: $14,657.34
= ($76.98 - $3.70) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$738.66
= ($3.70 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Feb. 8th, the last business day prior to the February 9th ex-div date): +$0.00; or
(b) Dividend Income (If Schwab stock assigned at the Feb. 17th, 2023 expiration): $50.00
= ($.25 dividend per share x 200 shares)
(c) Capital Appreciation (If Schwab Call options assigned early on Feb. 8th): -$596.00
+($74.00 strike price - $76.98 stock price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $74.00 strike price at the Feb.17th options expiration): -$596.00
+($74.00 - $76.98) * 200 shares

1. Total Net Profit [If option exercised early on the last business day prior to the Feb. 9th ex-dividend date)]: +$142.66

= (+$738.66 options income +$0.00 dividend income -$596.00 capital appreciation); or

2. Total Net Profit (If stock shares assigned at $74.00 strike price at the Feb. 17th, 2023 expiration): +$192.66

= (+$730.66 options income +$50.00 dividend income -$596.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised early on Feb 8th): +1.0%

= +$142.66/$14,657.34

Annualized Return-on-Investment: +50.8%

= (+$142.66/$14,657.34) * (365/7 days); or

2. Absolute Return-on-Investment (If Charles Schwab shares assigned at $74.00 at the Feb. 17th, 2023 options expiration date): +1.3%

= +$192.66/$14,657.34

Annualized Return-on-Investment (If shares assigned at the 2/17/2023 expiration date): +30.0%

= (+$192.66/$14,657.34) * (365/16 days)

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position.  As shown below with this Charles Schwab Corp. position, all nine criteria were met.