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.
