Early Assignment of Covered Calls Position in U.S. Bancorp

Early this morning, the Covered Calls Advisor was notified by my broker that the four U.S. Bancorp (ticker USB) April 6th, 2023 $33.00 Call options were exercised yesterday.  U.S. Bancorp stock has increased from its purchase price of $34.65 on March 16th to $35.74 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 $0.46 at the Call options Bid/Ask midpoint, so I was somewhat surprised that, with only one week until the 4/6/2023 options expiration date, the owner of these USB Calls exercised their option to buy the 400 shares at the $33.00 strike price in order to receive today's $.48 per share ex-dividend.  I am pleased for this early assignment despite losing the opportunity to capture the dividend since the +97.8% annualized-return-on-investment (aroi) achieved by early assignment is greater than the +87.3% aroi that would be achieved if this position remained in-the-money for another week and was therefore assigned instead on its April 6th options expiration date.   

The post when this U.S. Bancorp Covered Calls position was originally established is here.  As detailed below, the return-on-investment result for this U.S. Bancorp Covered Calls position was +3.8% absolute return in 14 days (equivalent to a +97.8% annualized return-on-investment).  

U.S. Bancorp (USB) -- Covered Calls Position Closed Out by Early Assignment
The simultaneous buy/write transaction was:
3/16/2023 Bought 400 U.S. Bancorp shares @ $34.65
3/16/2023 Sold 4 USB April 6th, 2023 $33.00 Call options @ $2.85 per share.  The Implied Volatility of these Calls was very high at 56.5 and the Delta was 64.4 when this position was established.
3/30/2023 U.S. Bancorp Call options owner exercised their four Call options, so the Covered Calls position was closed out early. The four USB Call options expired worthless and the 400 U.S. Bancorp shares were sold at the $33.00 strike price.

The overall performance results (including commissions) for this U.S. Bancorp Covered Calls position are as follows:
Buy/Write Purchase Net Investment: $12,722.68
= ($34.65 - $2.85) * 200 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,137.32
= ($2.85 * 400 shares) - $2.68 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (Early assignment): -$660.00
+($33.00 -$34.65) * 400 shares

Total Net Profit: +$477.32

= (+$1,1137.32 options income +$0.00 dividend income - $660.00 capital appreciation)

 

Absolute Return-on-Investment: +3.8%

= +$477.32/$12,722.68

Annualized Return-on-Investment: +97.8%

= (+$477.32/$12,722.68) * (365/7 days)

Continuation of Bank of America Corporation Covered Calls

The Covered Calls Advisor Portfolio has a Covered Calls position in Bank of America Corporation (ticker BAC) which expired out-of-the-money at last Friday's options expiration.  This morning shortly after market open, this position was continued by rolling out to the April 14th, 2023 weekly options expiration at the $29.00 strike price by selling-to-open five Calls at $.62 per share when the price of BAC was $28.16.  The Implied Volatility of the Call options was 37.4 when this transaction was executed.  

The April 14th expiration date was selected since Bank of America has its upcoming Q1 2024 earnings report on April 18th, and I prefer avoiding the stock price volatility that occurs on days whenever companies report their quarterly earnings.  Fortunately, Bank of America has very liquid options on all weekly options dates with reasonably tight bid/ask spreads, which made the selection of the April 14th weekly expiration feasible.  

The rollout strike price selected was higher than today's current stock price but much lower than its prior $30.50 strike price.  The stock prices in all banks have suffered from the recent banking crisis and Bank of America is no exception, so this ongoing position is not an effort to repair this position back to profitability, but instead to simply reduce the annualized-return-on-investment losses.

The transactions history of this Bank of America Covered Calls position so far is detailed below along with two potential return-on-investment results:

Bank of America Corporation (BAC) -- Continuation of Covered Calls Position
The original buy/write transaction was as follows:
2/23/2023 Bought 500 shares of Bank of America Corp. stock @ $33.96 per share 
2/23/2023 Sold 5 BAC March 10th, 2023 $33.00 Call options @ $1.20 per share
Note: The Implied Volatility of these Calls was 22.8 when this position was established.
3/2/2023 Ex-dividend of $.22 per share
3/10/2023 5 BAC Call options expired out-of-the-money and 500 shares remain in the Covered Calls Advisor Portfolio
3/14/2023 Continued BAC Covered Calls position by selling 5 March 24th, 2023 $30.50 Call options @ $.87 per share when the stock price was $30.02.
3/24/2023 5 BAC Call options expired out-of-the-money and 500 shares remain in the Covered Calls Advisor Portfolio
3/27/2023 Continued BAC Covered Calls position by selling 5 April 14th, 2023 $29.00 Call options @ $.62 per share when the stock price was $28.16. 

Two possible overall performance results (including commissions) for this Bank of America Corp. Covered Calls position are as follows:
Original Net Investment: $17,568.35
= ($36.80 - $1.67) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$1,334.95
= ($1.20 + $.87 + $.62) * 500 shares - $10.05 commissions
(b) Dividend Income: +$110.00 = $.22/share x 500 shares
(c) Capital Appreciation (If 500 BAC shares unchanged at current $28.16 price at the 4/14/2023 expiration): -$2,900.00
+($28.16 current stock price - $33.96 original stock purchase price) * 500 shares
(c) Capital Appreciation (If 500 BAC shares assigned at $29.00 strike price at expiration): -$2,480.00
+($29.00 strike price - $33.96 original stock purchase price) * 500 shares

1. Potential Total Net Profit (If 500 Bank of America price unchanged at $28.16 at the 4/14/2023 options expiration): -$1,455.05
= (+$1,334.95 options income +$110.00 dividend income -$2,900.00 capital appreciation)
2. Potential Total Net Profit (If 500 Bank of America shares assigned at $29.00 strike price at the 4/14/2023 expiration): -$1,035.05
= (+$1,334.95 options income +$110.00 dividend income -$2,480.00 capital appreciation)

1. Absolute Return-on-Investment (If stock price unchanged at $28.16 at expiration): -8.3%
= -$1,455.05/$17,568.35
Annualized Return-on-Investment: -59.3%
= (-$1,455.05/$17,568.35) * (365/51 days)
2. Absolute Return-on-Investment (If BAC shares assigned at $29.00 at the 4/14/2023 expiration date): -5.9%
= -$1,035.05/$17,568.35
Annualized Return-on-Investment: -42.2%
= (-$1,035.05/$17,568.35) * (365/51 days)

March 24th, 2023 Options Expiration Results

The Covered Calls Advisor Portfolio had three Covered Calls positions with March 24th, 2023 weekly options expirations.  Two positions (Taiwan Semiconductor Manufacturing Ltd. and Qualcomm Inc. closed in-the-money so their Calls expired and their shares were called away (i.e. sold) at their respective strike prices.  The third position in Bank of America Corporation closed out-of-the-money so the Calls expired and the 500 BAC shares remain in the Covered Calls Advisor Portfolio.  A summary of the results for each position are as follows:

1. Taiwan Semiconductor Manufacturing Ltd. (TSM) -- +1.7% absolute return (equivalent to +38.1% annualized return-on-investment) for the 16 days of this investment.  The Covered Calls position was assigned at the $85.00 strike price on its 3/24/2023 options expiration date since the stock closed in-the-money at $92.79 per share.  The post detailing this Taiwan Semi Covered Calls position is here. 

2. Qualcomm Inc. (QCOM) -- +2.1% absolute return (equivalent to +31.7% annualized return-on-investment) for the 24 days of this investment.  The Covered Calls position was assigned at the $118.00 strike price on its 3/24/2023 options expiration date since the stock closed in-the-money at $124.76 per share.  The prior post detailing the history of this Qualcomm Covered Calls position is here.  

3. Bank of America Corporation (BAC) -- Bank of America stock price declined sharply along with that of all banking companies primarily because of the recent bank failure crisis.  So, this Covered Calls position closed deeply out-of-the-money since the strike price was $30.50 and the stock closed at $27.21.  The five 3/24/2023 BAC Calls expired and 500 shares now remain in the Covered Calls Advisor Portfolio.  Early next week a decision will be made to either close out the position by selling the shares at a loss or continuing this Covered Calls position and attempting to repair it back towards breakeven by selling five BAC Calls against the 500 Bank of America shares owned.  Whatever decision is made, the transaction history to date will be detailed in a post on this Covered Calls Advisor blog site. 

I welcome your feedback on any topics related to the Covered Calls investing strategy.  My email address is shown below.

Best Wishes and Godspeed,

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net

Established Covered Calls Position in Valero Energy Corporation

An April 6th, 2023 Covered Calls buy/write limit order was placed in Valero Energy Corporation (ticker VLO) at a net debit limit price of $120.96 per share.  Two hundred shares were purchased at $129.66 and two 4/6/2023 Call options were simultaneously sold at the $123.00 strike price for $8.70 per share.  The Implied Volatility of these Call options was 47.2 when this transaction was executed which, as preferred by the Covered Calls Advisor, is well above the current 22.2 of the S&P 500 Volatility Index (VIX).  When this in-the-money Covered Calls position was established today it had a probability of assignment on the options expiration date of 72.2%. 

Valero is a large, high quality oil refiner with 15 refineries located primarily in the U.S. but also in Canada and the United Kingdom.  All refiners are benefiting now from tight refining capacity relative to demand, a situation unlikely to change significantly in the near-term future.   

Valero meets the primary criteria currently preferred for new positions established by the Covered Calls Advisor:

As detailed below, the potential return-on-investment results if the stock price remains above the $123.00 strike price on the April 6th, 2023 options expiration date is +1.7% absolute return-on-investment (equivalent to a +43.8% annualized return-on-investment for the next 14 days).

If the Valero stock declines below the strike price, the breakeven price of $120.96 per share ($129.66 stock purchase price - $8.70 Call options selling price) provides a substantial 6.7% downside breakeven protection below today's stock purchase price.
 

Valero Energy Corporation (VLO) -- New Covered Calls Position

The simultaneous buy/write transaction was:
3/24/2023 Bought 200 Valero shares @ $129.66
3/24/2023 Sold 2 Valero April 6th, 2023 $123.00 Call options @ $8.70 per share

Two possible overall performance results (including commissions) for this Valero Energy Covered Calls position are as follows:
Net Investment: $24,193.34
= ($129.66 - $8.70) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,738.66
= ($8.70 *200 shares) - $1.34 commission
(b) Dividend Income: +$0.00

(c) Capital Appreciation (If Valero shares assigned at $123.00 strike price at options expiration): -$1,332.00
+($123.00-$129.66) * 200 shares

 

Total Net Profit (If Valero stock assigned at $123.00 at the April 6th, 2023 expiration): +$406.66

= (+$1,738.66 options income +$0.00 dividend income -$1,332.00 capital appreciation)
 

Absolute Return-on-Investment (If Valero stock assigned at $123.00 at the April 6th options expiration date): +1.7%

= +$406.66/$24,193.34

Annualized Return-on-Investment (If Valero shares assigned at $123.00 at the 4/6/2023 options expiration date): +43.8%

= (+$406.66/$24,193.34) * (365/14 days)

Continuation of Covered Calls Position in iShares China Large-Cap ETF

The Covered Calls Advisor Portfolio has a Covered Calls position in iShares China Large-Cap ETF (ticker FXI)  that expired out-of-the-money on its Friday April 21st, 2023 options expiration date.  This morning, when the FXI price was $28.43, I decided to continue this Covered Calls position by rolling-out to the $29.00 strike price at the May 19th, 2023 monthly options expiration date by selling ten Call options at $.47 per share against the 1,000 FXI shares owned.   

As detailed below, two potential return-on-investment results are: (1) +1.8% absolute return-on-investment (equivalent to +6.1% annualized return-on-investment for the 106 days holding period) if the iShares China Large-Cap ETF price is unchanged at today's $28.43 price on the May 19th, 2023 expiration date; and (2) +3.7% absolute return-on-investment (equivalent to +12.7% annualized return-on-investment for the 106 days holding period) if it is in-the-money (i.e. above the $29.00 strike price) on the May 19th, 2023 options expiration date.

iShares China Large-Cap ETF (FXI) -- Covered Calls Position Continued by Rollout

The original 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
2/17/2023 Ten FXI Call options expired out-of-the-money and 1,000 shares remain in the Covered Calls Advisor Portfolio
3/2/2023 Continued iShares China Large-Cap ETF Covered Calls position by selling ten March 17th, 2023 $30.00 Call options @ $.59 per share.  The stock price was $29.50 when this transaction occurred.
3/17/2023 Ten FXI Call options expired out-of-the-money and 1,000 shares remain in the Covered Calls Advisor Portfolio
3/23/2023 Continued iShares China Large-Cap ETF Covered Calls position by selling ten April 21st, 2023 $30.00 Call options @ $.64 per share.  The stock price was $29.08 when this transaction was made.
4/21/2023 Ten FXI Call options expired out-of-the-money and 1,000 shares remain in the Covered Calls Advisor Portfolio
5/1/2023 Continued iShares China Large-Cap ETF Covered Calls position by selling ten May 19th, 2023 $29.00 Call options @ $.47 per share.  The stock price was $28.43 when this transaction was made. 

Two possible overall performance results (including commissions) for this iShares China Large-Cap ETF Covered Calls position are 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: +$3,193.32
= ($1.52 + $.59 + $.64 + $.47) * 1,000 shares - $26.80 commissions
(b) Distribution Income: +$0.00
(c) Capital Appreciation (If the iShares China Large-Cap ETF price is unchanged at today's $28.43 price on the May 19th, 2023 expiration date): -$2,670.00
+($28.43 current stock price - $31.10 stock purchase price) * 1,000 shares; OR
(c) Capital Appreciation (If iShares China Large-Cap ETF shares are assigned at the $29.00 strike price at the 5/19/2023 options expiration date): -$2,100.00
+($29.00 options strike price - $31.10 stock purchase price) * 1,000 shares

1. Total Net Profit (If the iShares China Large-Cap ETF price is unchanged at today's $28.43 price on the May 19th, 2023 expiration date): +$523.32

= (+$3,193.32 options income +$0.00 distribution income -$2,670.00 capital appreciation); OR

2. Total Net Profit (If iShares China Large-Cap ETF shares are assigned at the $29.00 strike price at the 5/19/2023 options expiration date): +$1,093.32

= (+$3,193.32 options income +$0.00 distribution income -$2,100.00 capital appreciation)

 

1. Absolute Return-on-Investment (If the iShares China Large-Cap ETF price is unchanged at today's $28.43 price on the 5/19/2023 expiration date): +1.8%

= +$523.32/$29,586.70

Annualized Return-on-Investment (If stock price unchanged at $29.08 at expiration): +6.1%

= (+$523.32/$29,586.70) * (365/106 days); OR

2. Absolute Return-on-Investment (If iShares China Large-Cap ETF shares are assigned at the $29.00 strike price at the 5/19/2023 options expiration date): +3.7%

= +$1,093.32/$29,586.70

Annualized Return-on-Investment (If iShares China Large-Cap ETF shares are assigned at the $29.00 strike price at the May 19th options expiration date): +12.7%
= (+$1,093.32/$29,586.70) * (365/78 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 $31.63 and 5 April 6th, 2023 $30.00 Call options were simultaneously sold at $2.21 per share -- a net debit of $29.42 per share -- so the potential time value profit if the stock is in-the-money and therefore closed out by assignment at expiration is $.58 per share [$2.21 Call options premium - ($31.63 stock purchase price - $30.00 strike price)].  I often enter my net debit Covered Calls limit orders at a price well below the current price, so they often do not decline to my price and therefore are not executed and are cancelled at that day's market close.  But in this case, with the swift market decline late in the trading day today and a similar rate of decline in Uber stock, my net debit limit order price did get executed at my $29.42 per share price.  This is a repeat of two similar Uber Covered Calls positions which were successfully assigned at their respective March 2023 options expirations in the Covered Calls Advisor Portfolio.  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 71.7%.

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 most 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 low $70s versus in the low $90s at this time last year; (3) Major airlines are reporting continued substantial consumer demand 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 $47.60 per share (+50.5% above today's purchase price).    
 

As detailed below, a potential outcome for this Uber Technologies investment is +1.9% absolute return-on-investment for the next 16 days (equivalent to +44.4% annualized-return-on-investment) if the stock closes above the $30.00 strike price on the April 6th, 2023 options expiration date.

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

The net debit buy/write limit order was executed as follows:
3/22/2023 Bought 500 shares of Uber Technologies Inc. stock @ $31.63 per share 
3/22/2023 Sold 5 Uber April 6th, 2023 $30.00 Call options @ $2.21 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of the Calls was 47.2 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 April 6th expiration date is follows:
Covered Calls Net Investment: $14,713.35
= ($31.63 - $2.21) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$1,101.65
= ($2.21 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Uber stock is above the $30.00 strike price at the April 6th expiration): -$815.00
= ($30.00 -$31.63) * 500 shares

Potential Total Net Profit (If assigned at expiration): +$286.65
= (+$1,101.65 options income +$0.00 dividend income -$815.00 capital appreciation)

Potential Absolute Return-on-Investment: +1.9%
= +$286.65/$14,713.35
Potential Equivalent Annualized-Return-on-Investment: +44.4%
= (+$286.65/$14,713.35) * (365/16 days)

The downside 'breakeven price' at expiration is at $29.42 ($31.63 - $2.21), which is 7.0% below the current market price of $31.63.  

Rolled Out The Cigna Group Covered Call Position

The Covered Calls Advisor Portfolio has a Covered Call position in The Cigna Group (ticker CI)  that expired out-of-the-money last Friday at its March 17th, 2023 options expiration date.  Cigna shares closed at $269.45 then and the strike price was $280.00.  I decided to continue this Covered Calls position today by rolling down-and-out to the $277.50 strike price at the March 31st, 2023 expiration date by selling one Call option at $4.10 per share against the 100 Cigna shares owned.  The stock price had risen to $276.68 today when this Cigna Call option sale was transacted.   

As detailed below, two potential return-on-investment results are: (1) +1.5% absolute return (equivalent to +18.2% annualized return-on-investment for the 31 days holding period) if Cigna's price is unchanged at today's $276.68 price on the March 31st, 2023 expiration date; and (2) +1.8% absolute return (equivalent to +21.7% annualized return-on-investment for the 31 days holding period) if it is in-the-money (i.e. above the $277.50 strike price) on the March 31st options expiration date.

The Cigna Corporation (CI) -- Covered Call Position Continued by Rollout
The original buy/write transaction was as follows:
3/1/2023 Bought 100 Cigna Corp. shares @ $289.40
3/1/2023 Sold 1 Cigna 3/17/2023 $280.00 Call option @ $11.70
3/7/2023 Quarterly ex-dividend of $1.23 per share
3/17/2023 One Cigna Call option expired out-of-the-money and 100 shares remain in the Covered Calls Advisor Portfolio
3/21/2023 Continued Cigna Covered Call position by selling one March 31st, 2023 $27.50 Call option @ $4.10 per share.  The stock price was $276.68 when this transaction was made. 

Two possible overall performance results (including commissions) for this Cigna Covered Call position are as follows:
Covered Call Cost Basis: $27,770.67
= ($289.40 - $11.70) * 100 shares + $.67 commissions

Net Profit Components:
(a) Options Income: +$1,578.66
= ($11.70 + $4.10) * 100 shares - $1.34 commissions
(b) Dividend Income: +$123.00
= ($1.23 dividend per share x 100 shares)
(c) Capital Appreciation (If CI stock price unchanged at $276.68 on the March 31st options expiration date): -$1,272.00
+($276.68 - $289.40) * 100 shares; or
(c) Capital Appreciation (If Cigna shares assigned at $277.50 strike price at options expiration): -$1,190.00
+($277.50 - $289.40) * 100 shares

1. Total Net Profit [If stock price unchanged at $276.68 and Covered Call position unwound (i.e.closed out)on the March 31st, 2023 options expiration date): +$429.66

= (+$1,578.66 options income +$123.00 dividend income - $1,272.00 capital appreciation); or

2. Total Net Profit (If Cigna shares assigned at $277.50 strike price at the March 31st, 2023 expiration): +$511.66

= (+$1,578.66 + $123.00 - $1,190.00)

1. Absolute Return-on-Investment [If Cigna Call options exercised on final business day prior to ex-dividend date]: +1.5%

= +$429.66/$27,770.67

Annualized Return-on-Investment (If options exercised early): +18.2%

= (+$429.66/$27,770.67) * (365/31 days); or

2. Absolute Return-on-Investment (If Cigna shares assigned at $277.50 strike price on the March 31st, 2023 expiration): +1.8%

= +$511.66/$27,770.67

Annualized Return-on-Investment (If Cigna stock assigned at $277.50 at the March 31st, 2023 expiration): +21.7%

= (+$511.66/$27,770.67) *(365/31 days)

Monthly Options Expiration Results through March 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 February 17th, 2023 options expiration through yesterday's March 17th, 2023 monthly options expiration date.  

During this past month, the Covered Calls Advisor Portfolio held a total of nine Covered Calls positions.  Seven positions were closed out at a profit, no positions were closed out at a loss, and two positions closed 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: 

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

1. Home Depot Inc. (HD) -- +1.4% absolute return in 17 days (equivalent to a +29.6% annualized return-on-investment). 
   
2. Uber Technologies Inc. (UBER) -- +1.8% absolute return in 18 days (equivalent to a +35.5% annualized return-on-investment).
   

• Four 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. Applied Materials Inc. (AMAT) -- +1.4% absolute return in 15 days (equivalent to a +34.7% annualized return-on-investment).
2. Discover Financial Services (DFS) -- +1.5% absolute return in 16 days (equivalent to a +33.3% annualized return-on-investment). 
3. Uber Technologies Inc. (UBER) -- +1.8% absolute return in 18 days (equivalent to a +35.5% annualized return-on-investment). 
4. United Airlines Inc. (UAL) -- +1.6% absolute return in 10 days (equivalent to a +58.7% annualized return-on-investment).
   

• One Covered Calls position was closed out by early assignment on the last business day prior to its ex-dividend date with the following results:

1. Union Pacific Corporation (UNP) -- +0.6% absolute return in 4 days (equivalent to a +51.5% annualized return-on-investment). 

• Two Covered Calls positions expired out-of-the-money (stock prices below their respective strike prices) yesterday (March 17th, 2023) on the monthly options expiration date with the following results: 

1. The Cigna Group (CI) -- The stock closed yesterday at $269.45 and the strike price was $280.00 so the 100 Cigna shares currently remain in the Covered Calls Advisor Portfolio.
2. iShares China Large-Cap ETF (FXI) -- The FXI shares closed yesterday at $27.61, well below the $30.00 strike price, so the 1,000 FXI shares currently remain in the Covered Calls Advisor Portfolio. 
   Early next week for both of these positions, decisions will be made to either sell these shares or to continue these Covered Calls positions by selling future Call options against the long shares currently held.

During the past year (last 12 months) 101 of 114 positions (88.6%) 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 +17.9% during the past year and the average holding period for these 114 closed positions was 21.7 days.  In comparison, the benchmark S&P 500 returned -10.8% during the same prior one-year period.   

This Covered Calls Advisor blog is 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 U.S. Bancorp

An April 6th, 2023 Covered Calls buy/write limit order was executed this morning in U.S. Bancorp (ticker USB) at a net debit price of $31.80 per share.  Four hundred shares were purchased at $34.65 and four April 6th, 2023 $33.00 strike price Call options were sold at $2.85 per share.  The corresponding extrinsic value (i.e. time value) was $1.20 per share [$2.85 Call options premium - ($34.65 stock purchase price - $33.00 strike price)].   There is an intervening ex-dividend prior to the options expiration date on March 30th) at $.48 per share (a 5.5% annual dividend yield) which is included in the potential return-on-investment results shown below.  

U.S. Bancorp is the fifth largest bank in the U.S. by total assets and its 25% price decline during this past week seems overdone given its size and quality.  Since the bank failure crisis of the past few days and the dramatic decline in all bank stock prices, today it seems that prices are beginning to stabilize somewhat but the Implied Volatility of their Call options remains very elevated.  For example, the Implied Volatility of the U.S. Bancorp Calls sold this morning was very high at 56.5 when this position was established, so the two potential annualized return-on-investment results as shown below for this Covered Calls position are also very high.       

Some key numbers for this U.S. Bancorp Covered Calls position are:
Covered Calls Net Investment: $12,722.68
= ($34.65 - $2.85) x 400 shares - $2.68 commissions 

1. If Assigned Early on the Day Prior to the Ex-Dividend Date:
Total Potential Profit: $477.32
= $1.20 time value x 400 shares - $2.68 commissions
Days Until the March 30th, 2023 Ex-Dividend Date: 14
Absolute Return-on-Investment: +3.8%
= $477.32 time value profit /$12,772.68 net investment
Annualized Return-on-Investment if Assigned Early: +97.8%
= ($477.32/$12,772.68) x (365/14 days)

2. If Assigned on the April 6th, 2023 Options Expiration Date:
Dividend Income: $192.00
= $.48 per share x 400 shares
Total Potential Profit:  $669.32
= $477.32 time value profit + $192.00 dividend income
Days Until the April 6th, 2023 Options Expiration: 22
Absolute Return-on-Investment if Assigned at Expiration: +5.3%
= $669.32 total profit potential /$12,772.68 net investment
=Annualized Return-on-Investment if Assigned at Expiration: +87.3%
= ($669.32 total profit /$12,772.68) x (365/22 days)

Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net

 

Continuation of Bank of America and Qualcomm Covered Calls

The Covered Calls Advisor Portfolio has Covered Calls positions in Bank of America Corporation (ticker BAC)  and Qualcomm Inc. (QCOM) both of which expired out-of-the-money at last Friday's options expiration.  Both positions are now at unrealized losses and since I remain bullish on both companies, I decided to continue both positions in an effort to begin to repair them back toward breakeven in the case of Bank of America and to profitability in the case of Qualcomm. 

Shortly after market open this morning, the Bank of America Covered Calls position was continued by rolling out to the March 24th, 2023 $30.50 strike price by selling-to-open five Calls at $.87 per share when the price of BAC was $30.02.  The Qualcomm Covered Calls position was continued by rolling out to the March 24th, 2023 $118.00 strike price by selling-to-open two Calls at $2.87 per share when the price of Qualcomm stock was $116.90.   Both rollout strike prices selected were higher than today's current stock price but lower than their original strike prices.  Since both companies have liquid weekly options with reasonably tight bid/ask spreads, continuing these Covered Calls positions by rolling out at approximately two week intervals (as is being done with today's rollouts) is a viable approach.  The transactions history of both positions so far is detailed below along with two potential return-on-investment results for each position as follows:

 

1. Bank of America Corporation (BAC) -- Continuation of Covered Calls Position
The original buy/write transaction was as follows:
2/23/2023 Bought 500 shares of Bank of America Corp. stock @ $33.96 per share 
8/23/2023 Sold 5 BAC March 10th, 2023 $33.00 Call options @ $1.20 per share
Note: The Implied Volatility of these Calls was 22.8 when this position was established.
3/2/2023 Ex-dividend of $.22 per share
3/10/2023 5 BAC Call options expired out-of-the-money and 500 shares remain in the Covered Calls Advisor Portfolio
3/14/2023 Continued BAC Covered Calls position by selling 5 March 24th, 2023 $30.50 Call options @ $.87 per share when the stock price was $30.02. 

Two possible overall performance results (including commissions) for this Bank of America Corp. Covered Calls position are as follows:
Original Net Investment: $17,568.35
= ($36.80 - $1.67) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$1,028.30
= ($1.20 + $.87) * 500 shares - $6.70 commissions
(b) Dividend Income: +$110.00 = $.22/share x 500 shares
(c) Capital Appreciation (If 500 BAC shares unchanged at current $30.02 price at the 3/24/2023 expiration): -$1,965.00
+($30.02 current stock price - $33.96 original stock purchase price) * 500 shares
(c) Capital Appreciation (If 500 BAC shares assigned at $30.50 strike price at expiration): -$1,730.00
+($30.50 strike price - $33.96 original stock purchase price) * 500 shares

1. Potential Total Net Profit (If 500 Bank of America price unchanged at $30.02 at the 3/24/2023 options expiration): -$826.70
= (+$1,028.30 options income +$110.00 dividend income -$1,965.00 capital appreciation)
2. Potential Total Net Profit (If 500 Bank of America shares assigned at $30.50 strike price at the 3/24/2023 expiration): -$591.70
= (+$1,028.30 options income +$110.00 dividend income -$1,730.00 capital appreciation)

1. Absolute Return-on-Investment (If stock price at $30.02 at expiration): -4.7%
= -$826.70/$17,568.35
Annualized Return-on-Investment: -59.2%
= (-$826.70/$17,568.35) * (365/29 days)
2. Absolute Return-on-Investment (If BAC shares assigned at $30.50 at the 3/24/2023 expiration date): -3.4%
= -$591.70/$17,568.35
Annualized Return-on-Investment: -42.4%
= (-$591.70/$17,568.35) * (365/29 days)

 

2. Qualcomm Inc.(QCOM) -- Continuation of 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
3/10/2023 Two QCOM Call options expired out-of-the-money and 200 shares remain in the Covered Calls Advisor Portfolio
3/14/2023 Continued Qualcomm Covered Calls position by selling 2 March 24th, 2023 $118.00 Call options @ $2.87 per share when the stock price was $116.90. 

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: +$1,557.32
= ($4.93 + $2.87) * 200 shares - $2.68 commission
(b) Dividend Income: $150.00
= $.75 dividend per share x 200 shares
(c) Capital Appreciation (If Qualcomm stock is unchanged at $116.90 at the March 24th, 2023 options expiration): -$1,430.00
= ($116.90 - $124.05) * 200 shares
(c) Capital Appreciation (If Qualcomm stock is above $118.00 strike price and therefore assigned at the March 24th expiration): -$1,210.00
= ($118.00 - $124.05) * 200 shares

1. Potential Total Net Profit (If QCOM price is unchanged at $116.90 at the March 24th, 2023 options expiration): +$277.32
= (+$1,557.32 options income +$150.00 dividend income - $1,430.00 capital appreciation)
2. Potential Total Net Profit (If QCOM price is above $120.00 strike price at the March 24th options expiration): +$497.32
= (+$1,557.32 options income +$150.00 dividend income - $1,210.00 capital appreciation)

1. Absolute Return-on-Investment (If QCOM price is unchanged at $116.90 at the March 24th, 2023 options expiration): +1.2%
= +$277.32/$23,825.34
Equivalent Annualized Return-on-Investment: +17.7%
= (+$277.32/$23,825.34) * (365/24 days)
2. Absolute Return-on-Investment (If QCOM price is above $118.00 strike price at the 3/24/2023 options expiration): +2.1%
= +$497.32/$23,825.34
Equivalent Annualized Return-on-Investment: +31.7%
= (+$497.32/$23,825.34) * (365/24 days)

Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net

 

March 10th, 2023 Options Expiration Results

The Covered Calls Advisor Portfolio had two Covered Calls positions with March 10th, 2023 weekly options expiration dates.  Both positions (Bank of America Corporation and Qualcomm Inc.) closed out-of-the-money as follows:

1. Bank of America Corporation (BAC) -- The five hundred shares closed out-of-the-money with the $30.27 stock price below the $33.00 strike price at expiration.  So, the Call options expired and the 500 BAC shares remain in the Covered Calls Advisor Portfolio. 

2. Qualcomm Inc. (QCOM) -- The two hundred shares closed out-of-the-money with the $115.19 stock price below the $120.00 strike price at expiration.  So, the Call options expired and the 200 QCOM shares remain in the Covered Calls Advisor Portfolio. 

A decision will be made early next week to either close out these positions by selling the shares or to continue the Covered Calls position(s) by selling future Call options against the shares currently held. 

Please email me at the address shown below if you would like my feedback on any questions you might have related to the Covered Calls investing strategy.

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net

Covered Calls Established in Energy Select Sector SPDR Fund ETF

A Covered Calls position was established in the Energy Select Sector SPDR Fund ETF (ticker XLE), with a March 31st, 2023 quarterly options expiration date. Two hundred shares of the Energy Select Sector SPDR Fund were purchased at $83.25 and two Call options were sold at $4.27 per share at the $80.00 strike price.  The Implied Volatility of these Calls was 30.1 when this position was transacted which, as preferred by the Covered Calls Advisor, is above that of the S&P 500 Volatility Index (i.e. VIX) which is currently at 26.5.

The time value was $1.02 per share [$80.00 strike price - ($83.25 share price - $4.27 options premium)] when this buy/write limit order at $78.98 per share was executed.  XLE also goes ex-distribution on Monday, March 20th, 2023.  The exact amount of this XLE distribution is not pre-announced, but based on prior quarterly distributions, I estimate in the return-on-investment calculations detailed below that it will be approximately $.82 per share.  Note: Actual distribution was $.7953.   

I like to use my Dividend Capture Strategy for positions in low-growth Sectors (like the Energy Sector).  Since I did not already have a position in the Energy Sector and today XLE provided an attractive set-up for utilizing this strategy, I decided to establish this Covered Calls position in the Covered Calls Advisor Portfolio.  Given my current Slightly Bearish Overall Market Meter rating, the current Covered Calls strategy is to establish positions between 2.0% and 5.0% in-the-money.  The Delta was 70.7 when this position was established, which is a good approximation of the probability that XLE will close in-the-money (and therefore be assigned at the strike price) on the March 31st, 2023 options expiration date.  This corresponds to a 4.1% [($83.25 stock purchase price - $80.00 strike price)/$80.00 strike price] in-the-money position which is within the desired current 2.0% to 5.0% in-the-money range.

As detailed below, a potential return-on-investment result is +1.3% absolute return (equivalent to +46.8% annualized return for the next 10 days) if the stock is assigned early on March 17th (the last business day prior to the March 20th ex-distribution date); OR +2.3% absolute return (equivalent to +38.5% annualized return over the next 22 days) if the stock is assigned on the March 31st, 2023 options expiration date.

Energy Select Sector SPDR Fund ETF (XLE) -- New Covered Calls Position
The buy/write transaction today was as follows:
3/10/2023 Bought 200 Energy Select Sector SPDR Fund ETF shares @ $83.25 per share
3/10/2023 Sold 2 XLE 3/31/2023 $80.00 Call options @ $4.27 per share
3/20/2023 Upcoming quarterly ex-distribution estimated at $.82 per share. Actual was $.7953 which is now reflected in the potential roi results shown below.

Two possible overall performance results (including commissions) for this Energy Select Sector SPDR Fund ETF Covered Call position are as follows:
Covered Calls Net Investment: $15,797.34
= ($83.25 - $4.27) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$852.66
= ($4.27 * 200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on the business day prior to the March 20th ex-div date): +$0.00; or
(b) Dividend Income (If XLE shares assigned at the March 31st, 2023 options expiration): +$159.06
= ($.7953 distribution per share x 200 shares)
(c) Capital Appreciation (If XLE shares assigned early on March 31st): -$650.00
+($80.00 - $83.25) * 200 shares ;or
(c) Capital Appreciation (If shares assigned at $80.00 strike price at options expiration): -$650.00
+($80.00 - $83.25) * 200 shares

1. Total Net Profit [If options exercised on March 17th (last business day prior to the March 20th ex-distribution date)]: +$202.66

= (+$852.66 options income +$0.00 distribution income - $650.00 capital appreciation); or

2. Total Net Profit (If XLE shares assigned at $80.00 strike price at the 3/31/2023 expiration): +$361.72

= (+$852.66 options income + $159.06 dividend income - $650.00 capital appreciation)

1. Absolute Return-on-Investment [If XLE Call options exercised on final business day prior to ex-distribution date]: +1.3%

= +$202.66/$15,797.34

Annualized Return-on-Investment (If options exercised early): +46.8%

= (+$202.66/$15,797.34) * (365/10 days); or

2. Absolute Return-on-Investment (If XLE shares assigned at $80.00 strike price on the 3/31/2023 expiration date): +2.3%

= +$361.72/$15,797.34

Annualized Return-on-Investment (If XLE shares assigned at $80.00 at the March 31st, 2023 expiration date): +38.0%

= (+$361.72/$15,797.34) * (365/22 days)

These returns will be achieved as long as the XLE price is above the $80.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $78.16 ($83.25 -$4.27 -$.82) provides 6.1% downside protection below today's XLE 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 met for this Energy Select Sector SPDR Fund ETF Covered Calls position.

Covered Calls Established in Taiwan Semiconductor Manufacturing Co. Ltd.

During the final hour of trading today, a Covered Calls position was established in Taiwan Semiconductor Manufacturing Co. Ltd. (ticker TSM) with a March 24th, 2023 options expiration date.   A buy/write transaction entered at a net debit of $84.04 was executed by purchasing 200 shares of TSM at $89.01 and simultaneously selling two March 24th, 2023 Call options at the $85.00 strike price at $4.97 per share. The potential time value profit when this Covered Calls position was established was $.96 per share = [$4.97 Call options price - ($89.01 stock price - $85.00 strike price)].  Given the Covered Calls Advisor's current cautious outlook, a moderately in-the-money Covered Calls position was established.  The Delta was 74.9 which approximates a probability of 74.9% 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 33.7 when this transaction was executed. In addition to the $.96 potential time value profit described above, there is an upcoming ex-dividend one week from today on March 16th of $.4488 per share (2.0% annual dividend yield) which is included in the two potential return-on-investment results shown below: 

•  +1.1% absolute return (equivalent to +59.1% annualized return for the next 7 days) if the stock is assigned early (on the last business day prior to the March 16th, 2023 ex-dividend date); OR 

• +1.7% absolute return (equivalent to +38.1% annualized return over the next 16 days) if the stock is assigned on the March 24th, 2023 options expiration date.

Taiwan Semiconductor Manufacturing Co. Ltd. -- New Covered Calls Position Established

The net debit buy/write limit order was transacted as follows:
3/9/2023 Bought 200 Taiwan Semi shares @ $89.01
3/9/2023 Sold 2 TSM March 24th, 2023 $85.00 Call options @ $4.97 per share.
Note: as is often the case, these Call options were transacted below the $5.00 midpoint of the $4.95/$5.05 bid/ask spread.
3/16/2023 Upcoming Taiwan Semiconductor ex-dividend of $.4488 per share.

Two possible overall performance results (including commissions) for this Covered Calls position are as follows:
Covered Calls Net Investment: $16,809.34
= ($89.01 - $4.97) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$992.66
= ($4.97 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on March 15th, the last business day prior to the March 16th ex-div date): +$0.00; or
(b) Dividend Income (If TSM stock assigned at the March 24th, 2023 expiration): $89.76
= ($.4488 dividend per share x 200 shares)
(c) Capital Appreciation (If Taiwan Semiconductor Call options assigned early on March 24th): -$802.00
+($85.00 strike price - $89.01 stock price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $85.00 strike price at the March 24th options expiration): -$802.00
+($85.00 strike price - $89.01) * 200 shares

1. Total Net Profit [If option exercised early on the last business day prior to the March 16th ex-dividend date)]: +$190.66

= (+$992.66 options income +$0.00 dividend income -$802.00 capital appreciation); or

2. Total Net Profit (If stock shares assigned at $85.00 strike price at the March 24th, 2023 expiration): +$280.42

= (+$992.66 options income +$89.76 dividend income -$802.00 capital appreciation)

1. Absolute Return-on-Investment (If the Call option is exercised early on March 16th): +1.1%

= +$190.66/$16,809.34

Annualized Return-on-Investment: +59.1%

= (+$190.66/$16,809.34) * (365/7 days); or

2. Absolute Return-on-Investment (If Taiwan Semi shares assigned at the $85.00 strike and at the March 24th, 2023 options expiration date): +1.7%

= +$280.42/$16,809.34

Annualized Return-on-Investment (If TSM shares assigned at the 3/24/2023 expiration date): +38.1%

= (+$280.42/$16,809.34) * (365/16 days)

Either outcome provides a good return-on-investment result for this Taiwan Semiconductor Manufacturing Co. Ltd. investment.  These returns will be achieved as long as the stock is above the $85.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $83.5912 ($89.01 -$4.97 -$.4488) provides a 6.1% downside protection below today's stock 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 Taiwan Semiconductor position, all nine criteria were met.

Covered Call Established in SPDR S&P 500 ETF

Today a Covered Call position was established in the SPDR S&P 500 ETF (ticker symbol SPY) when the Covered Calls Advisor's buy/write net debit limit order of $382.16 was executed at 1:41PM Eastern Time.  One hundred shares were purchased at $396.65 and one March 31st, 2023 Call option was sold at $14.49 per share at the $386.00 strike price.  The corresponding extrinsic value (i.e. time value) was $3.84 per share [$14.49 Call option premium - ($396.65 stock purchase price - $386.00 strike price)].  The $3.84 time value per share will be profit if the stock remains above the $386.00 strike price and is therefore assigned on the March 31st options expiration date.

There is also an intervening quarterly ex-distribution date on 3/17/2023.  The amount of the distribution is not pre-announced so I have included my best guesstimate of $1.45 per share in the two potential return-on-investment results provided below. Note: the actual amount was $1.5062.

Given the Covered Calls Advisor's current "Slightly Bearish" Overall Market Meter sentiment, a moderately in-the-money Covered Calls position was established -- the Delta was 69.9, which closely approximates the probability that the Call option will be in-the-money on the options expiration date.  

Some key numbers for this SPDR S&P 500 ETF Covered Call position are:
SPY Covered Call Net Investment: $38,216.67
= ($396.65 - $14.49) x 100 shares + $.67 commission

1. If Assigned Early on the Day Before the March 17th Ex-Distribution Date:
Time Value Profit: $383.33 = $3.84 time value profit per share x 100 shares - $.67 commission
Days Until the March 17th, 2023 Options Expiration: 9

Absolute Return-on-Investment if Assigned Early (on day prior to ex-distribution date): +1.0%
= ($383.33 profit/$38,216.67 net investment)
Annualized Return-on-Investment (If Assigned Early): +40.7%
= ($383.33 profit/$38,216.67 net investment) x (365 days/9 days) 

2. If Assigned on the March 31st, 2023 Options Expiration Date:
Time Value Profit: $383.33 = $3.84 time value x 100 shares - $.67 commission
Distribution Income if Assigned on the Options Expiration Date: $150.62 = $1.5062 per share x 100 shares
Total Potential Profit: $533.95 = $383.33 time value profit + $150.62 distribution income
Days Until the March 31st, 2023 Options Expiration: 24

Absolute Return-on-Investment (If Assigned at the 3/31/2023 Expiration): +1.4%
= $533.95/$38,216.67
Annualized Return-on-Investment (If Assigned at the March 31st Expiration): +21.2%
=($533.95/$38,216.67) x (365 days/24 days)

Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net

Overall Market Meter Remains at Slightly Bearish

Today, the Covered Calls Advisor evaluated the current values for each of the seven factors used to determine the "Overall Market Meter" rating.  The prior rating done two months ago was Slightly Bearish and today's rating remains at Slightly Bearish.  Of the seven factors used in the analysis, they can be categorized as macroeconomic, momentum, value, and growth metrics as follows:
- macroeconomic (the first two indicators in the chart below),
- momentum (next two indicators in the chart),
- value (next two indicators), and
- growth (the last indicator).

The current Market Meter average of 1.86 (see blue line at the bottom of the chart above) is in the Slightly Bearish range (Note: the Slightly Bearish range is from 1.50 to 2.50).  This 1.86 total is slightly higher than the 1.57 of the prior analysis done two months ago.  

So what is our current Covered Calls investing strategy?  Based on the Covered Calls Advisor's "Slightly Bearish" Overall Market Meter (see right sidebar on this blog's homepage here), the corresponding strategy is to "on-average establish Covered Call positions that are between 2% and 5% in-the-money and with short-term (i.e. one month or less) option expiration dates".    

The Federal Reserve's policy of Quantitative Easing (i.e. QE) during recent years provided a consistent tailwind to the stock market's performance.  Since the Fed has now reversed policies to: (1) regular increases in the Federal Funds rate to try to eventually return the rate of inflation back to their 2% target has now begun to have some affect.  As expected, this is also now beginning a noticeable deceleration in corporate earnings growth rates compared with their growth rates of the prior two years; and (2) Quantitative Tightening which will likely have the effect of being a headwind (the opposite effect that the QE tailwind was) for the stock market.  In addition to "don't fight the Fed" and the current "Slightly Bearish" Overall Market Meter sentiment, a third fundamental factor of concern is the current ten consecutive monthly declines in the U.S. Leading Economic Indicators (LEI) Index.  Based on the extent of this decline, the Conference Board is now expecting a recession to occur in 2023.  So, these 3 fundamental stock market headwinds most likely portend a difficult stock market investing environment in the months ahead this year.  So going forward, I plan to continue with my "Slightly Bearish" guideline to "on-average establish Covered Call positions that are between 2% and 5% in-the-money and with short-term (i.e. one month or less) options expiration dates".  

Finally, I normally update my Overall Market Meter quarterly, but my current sense is that every two months would be preferable this year, so I am marking my calendar to conduct the next Overall Market Meter update in early May 2023. 

Best Regards to All,
Jeff Partlow (Covered Calls Advisor)
partlow@cox.net

March 3rd, 2023 Options Expiration Results

The Covered Calls Advisor Portfolio had four Covered Calls positions with March 3rd, 2023 weekly options expirations.  Two positions (Applied Materials and Discover Financial Services) used my Dividend Capture Strategy (explained in detail here) and the other two positions (Uber Technologies Inc. and United Airlines Holdings Inc.) were basic in-the-money Covered Calls positions.  All four positions closed at options expiration with the equity prices in-the-money, so the Calls expired and the Covered Calls were closed out as the stocks were sold at their respective strike prices.  The cash obtained from closing these positions will be used to establish new positions in the next few trading days.  The return-on-investment results for each of these four positions were as follows:

1. Applied Materials Inc. (AMAT) -- +1.4% absolute return (equivalent to +34.7% annualized return-on-investment) for the 15 days of this investment.  The original blog post when this position was established is here. 

2. Discover Financial Services (DFS) -- +1.5% absolute return (equivalent to +33.3% annualized return-on-investment) for the 16 days of this investment.  The original blog post when this position was established is here.

3. Uber Technologies Inc. (UBER) -- +1.4% absolute return (equivalent to +46.6% annualized return-on-investment) for the 11 days of this investment.  The original blog post when this position was established is here. 

4. United Airlines Holdings Inc. (UAL) -- +1.6% absolute return (equivalent to +58.7% annualized return-on-investment) for the 10 days of this investment.  The original blog post when this position was established is here.

I welcome your questions on anything related to the Covered Calls investing strategy.  I will reply to your emails addressed to me at partlow@cox.net.

Best Wishes and Godspeed,

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net

Rolled Out the iShares China Large-Cap ETF Covered Calls Position

The Covered Calls Advisor Portfolio has a Covered Calls position in iShares China Large-Cap ETF (ticker FXI)  that expired out-of-the-money at its February 17th, 2023 options expiration date.  iShares China Large-Cap ETF closed at $29.53 then and the strike price was $30.00.  I decided to continue this Covered Calls position today by rolling-out to the same $30.00 strike price at the March 17th, 2023 expiration date by selling ten Call options at $.59 per share against the 1,000 FXI shares owned when the stock price today was $29.50.   

As detailed below, two potential return-on-investment results are: (1) +1.7% absolute return (equivalent to +14.2% annualized return for the 43 days holding period) if the iShares China Large-Cap ETF price is unchanged at today's $29.50 price on the March 17th, 2023 expiration date; and (2) +3.4% absolute return (equivalent to +28.6% annualized return for the 43 days holding period) if it is in-the-money (i.e. above the $30.00 strike price) on the March 17th expiration date.

iShares China Large-Cap ETF (FXI) -- Covered Calls Position Continued by Rollout

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
2/17/2023 Ten FXI Call options expired out-of-the-money and 1,000 shares remain in the Covered Calls Advisor Portfolio
3/2/2023 Continued iShares China Large-Cap ETF Covered Calls position by selling ten March 17th, 2023 $30.00 Call options @ $.59 per share.  The stock price was $29.50 when this transaction was made.

Two possible overall performance results (including commissions) for this iShares China Large-Cap ETF Covered Calls position are 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: +$2,096.60
= ($1.52 + $.59) * 1,000 shares - $13.40 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If the iShares China Large-Cap ETF price is unchanged at today's $29.50 price on the March 17th, 2023 expiration date): -$1,600.00
+($29.50 current stock price - $31.10 stock purchase price) * 1,000 shares; OR
(c) Capital Appreciation (If iShares China Large-Cap ETF shares are assigned at the $30.00 strike price at the 3/17/2023 options expiration date): -$1,100.00
+($30.00 options strike price - $31.10 stock purchase price) * 1,000 shares

1. Total Net Profit (If the iShares China Large-Cap ETF price is unchanged at today's $29.50 price on the March 17th, 2023 expiration date): +$496.60

= (+$2,096.60 options income +$0.00 dividend income -$1,600 capital appreciation); OR

2. Total Net Profit (If iShares China Large-Cap ETF shares are assigned at the $30.00 strike price at the 3/17/2023 options expiration date): +$996.60

= (+$2,096.60 options income +$0.00 dividend income -$1,100.00 capital appreciation)

 

1. Absolute Return-on-Investment (If the iShares China Large-Cap ETF price is unchanged at today's $29.50 price on the 3/17/2023 expiration date): +1.7%

= +$496.60/$29,586.70

Annualized Return-on-Investment (If stock price unchanged at $29.50 at expiration): +14.2%

= (+$496.60/$29,586.70) * (365/43 days); OR

2. Absolute Return-on-Investment (If iShares China Large-Cap ETF shares are assigned at the $30.00 strike price at the 3/17/2023 options expiration date): +3.4%

= +$996.60/$29,586.70

Annualized Return-on-Investment (If iShares China Large-Cap ETF shares are assigned at the $30.00 strike price at the March 17th options expiration date): +28.6%
= (+$996.60/$29,586.70) * (365/43 days)

Established Covered Call Position in Home Depot Inc.

Today, a buy/write limit order in Home Depot Inc. (ticker HD) was executed at the Covered Calls Advisors' net debit price of $278.25 per share. One hundred shares were purchased at $291.33 and one March 17th, 2023 Call option was sold for $13.08 at the $280.00 strike price (coincidentally the same strike price as for the Cigna Covered Call position also established today).  Therefore, a potential time value profit of $1.75 per share = [$13.08 option premium - ($291.33 stock price - $280.00 strike price)] is possible if this Covered Calls position is closed out by assignment.  

This position uses my Dividend Capture Strategy since Home Depot has an upcoming quarterly ex-dividend of $2.09 per share on March 8th which is prior to the March 17th options expiration.  This is equivalent to an annualized dividend yield of 2.9% (at the $291.33 stock price) and an equivalent annualized dividend yield of 15.4% = [($2.09/$291.33) x (365/17 days to expiration)] for the 17 days duration of this position.  This dividend is included in the detailed return-on-investment calculations shown below.  Either an early assignment on the day prior to the ex-dividend date or on the March 17th options expiration date would be desirable to the Covered Calls Advisor given the potential annualized return-on-investment results for either outcome.

Home Depot's 2022 Q4 earnings were reported eight days ago.  They slightly exceeded total revenue compared with the same quarter in the prior year but missed analysts' estimate (but by only 0.4%) and regarding earnings per share, they achieved slight beats when compared against both last year and also analysts' estimate.  However, for this year they are raising employee salaries to retain their workforce even while envisioning a more cautious consumer which is likely to adversely effect their margins slightly.  This guidance spooked some investors and the stock has declined by 8.4% (equivalent to a huge $27.6 billion decline in market cap) since this earnings report.  This seems like an over-reaction to the downside, so I decided to establish this Home Depot Covered Call position today.  Also, although I normally depend almost exclusively on fundamental factors in deciding what stocks to purchase, a minor consideration is sometimes given to technical factors.  In that regard, the 2-day Relative Strength Index [i.e. RSI(2)] for Home Depot moved deep into short-term oversold territory at a very low reading of 7.6 today when this position was established. (Note: below 30 is normally considered as oversold and above 70 is considered overbought).

As shown on the table at the bottom of this post, all nine criteria of the  Dividend Capture Strategy are met with this position.  The Covered Calls Advisor's current Overall Market Meter outlook remains Slightly Bearish, so the appropriate Covered Calls strategy is to sell in-the-money strike prices.  The Delta for these Call options was 77.9 when this position was established which is a close approximation of 77.9% probability that the position will be in-the-money at market close on the options expiration date.  

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

•  +0.6% absolute return (equivalent to +32.7% annualized return for the next 7 days) if the stock is assigned early (business day prior to the March 8th ex-dividend date).
  

• +1.4% absolute return (equivalent to +29.6% annualized return over the next 17 days) if the stock is assigned on the March 17th, 2023 options expiration date.

Home Depot Inc. (HD) -- New Covered Call Position
The buy/write transaction was:
3/1/2023 Bought 100 Home Depot shares @ $291.33
3/1/2023 Sold 1 Home Depot 3/17/2023 $280.00 Call option @ $13.08
Note: Implied Volatility (IV) of the Call options was at 24.4 when this position was established.   
3/8/2023 Upcoming quarterly ex-dividend of $2.09 per share

Two possible overall performance results (including commissions) for this Home Depot Covered Call position are as follows:
Covered Calls Cost Basis: $27,825.67
= ($291.33 - $13.08) * 100 shares + $.67 commission

Net Profit Components:
(a) Option Income: +$1,307.33
= ($13.08 * 100 shares) - $.67 commission
(b) Dividend Income (If option exercised early on March 7th, 2023, the business day prior to the March 8th ex-div date): +$0.00; or
(b) Dividend Income (If Home Depot stock assigned at March 17th, 2023 options expiration): +$209.00
= ($2.09 dividend per share x 100 shares)

(c) Capital Appreciation (If Home Depot Call option assigned early): -$1,133.00
+($280.00 - $291.33) * 100 shares; or
(c) Capital Appreciation (If shares assigned at $280.00 strike price at options expiration): -$1,133.00
+($280.00 - $291.33) * 100 shares

1. Total Net Profit [If option exercised on March 7th (business day prior to the March 8th ex-dividend date)]: +$174.33

= (+$1,307.33 option income +$0.00 dividend income -$1,133.00 capital appreciation); or

2. Total Net Profit (If Home Depot shares assigned at $280.00 at March 17th, 2023 expiration): +$383.33

= (+$1,307.33 option income +$209.00 dividend income -$1,133.00 capital appreciation)

1. Absolute Return-on-Investment [If option exercised on business day prior to ex-dividend date]: +0.6%

= +$174.33/$27,825.67

Annualized Return-on-Investment (If option exercised early): +32.7%

= (+$174.33/$27,825.67) * (365/7 days); or

2. Absolute Return-on-Investment (If Home Depot shares assigned on March 17th options expiration date): +1.4%

= +$383.33/$27,825.67

Annualized Return-on-Investment (If Home Depot shares assigned at $280.00 at the March 17th, 2023 expiration): +29.6%

= (+$383.33/$27,825.67) * (365/17 days)

As shown in items 8 and 9 in the table below, either outcome provides a satisfactory return-on-investment result for this Home Depot investment.  These returns will be achieved as long as the stock is above the $280.00 strike price at assignment.  However, if the stock declines below the strike price, the breakeven price of $276.16 ($291.33 -$13.08 -$2.09) provides 5.2% downside protection below today's stock purchase price.

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 Home Depot Inc. Covered Call position.

Covered Call Position Established in The Cigna Group

Today a Covered Call position was established in The Cigna Group (ticker symbol CI) when one hundred Cigna shares were purchased at $289.40 and one March 17th, 2023 Call option was sold for $11.70 per share at the $280.00 strike price.  The  buy/write net debit limit order at $277.70 was executed, so the time value was $2.30 per share [$11.70 Call option premium - ($289.40 stock purchase price - $280.00 strike price)].  There is an upcoming quarterly ex-dividend of $1.23 (annual dividend yield of 1.7%) on March 7th, so potential return-on-investment results for this position, as detailed below, include the possibility of early assignment since the ex-dividend is prior to the March 17th, 2023 options expiration date.  

As preferred by the Covered Calls Advisor, Cigna's next quarterly earnings report on May 5th, 2023 will be after the March 17th options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Call position was established with a Delta of 72.9 and the Implied Volatility of the Call option was approximately 19.8 when the buy/write limit order was executed. Cigna is currently at an attractive valuation. It appears in three of my stock screeners: (1) Large-Cap Value+Profitability+Growth; (2) Acquirers' Multiple; and (3) Piotroski(All)--which means that it meets all nine Piotroski F-Score criteria.

As detailed below, a potential return-on-investment result is +0.8% absolute return (equivalent to +50.2% annualized return for the next 6 days) if the stock is assigned early on March 6th (the last business day prior to the March 7th ex-date); OR +1.3% absolute return (equivalent to +27.2% annualized return over the next 17 days) if the stock is assigned on the March 17th, 2023 options expiration date.

Cigna Corporation (CI) -- New Covered Calls Position
The buy/write transaction today was as follows:
3/1/2023 Bought 100 Cigna Corp. shares @ $289.40
3/1/2023 Sold 1 Cigna 3/17/2023 $280.00 Call option @ $11.70
3/7/2023 Upcoming quarterly ex-dividend of $1.23 per share

Two possible overall performance results (including commissions) for this Cigna Covered Call position are as follows:
Covered Call Cost Basis: $27,770.67
= ($289.40 - $11.70) * 100 shares + $.67 commissions

Net Profit Components:
(a) Options Income: +$1,169.33
= ($11.70 * 100 shares) - $.67 commissions
(b) Dividend Income (If option exercised early on the business day prior to the March 7th ex-div date): +$0.00; or
(b) Dividend Income (If Cigna shares assigned at March 17th, 2023 options expiration): +$123.00
= ($1.23 dividend per share x 100 shares)
(c) Capital Appreciation (If CI shares assigned early on March 6th): -$940.00
+($280.00 - $289.40) * 100 shares ;or
(c) Capital Appreciation (If Cigna shares assigned at $280.00 strike price at options expiration): -$940.00
+($280.00 - $289.40) * 100 shares

1. Total Net Profit [If options exercised on March 6th (business day prior to the March 7th ex-dividend date)]: +$229.33

= (+$1,169.33 options income +$0.00 dividend income - $940.00 capital appreciation); or

2. Total Net Profit (If Cigna shares assigned at $280.00 strike price at March 17th, 2023 expiration): +$352.33

= (+$1,169.33 + $123.00 - $940.00)

1. Absolute Return [If Cigna Call options exercised on final business day prior to ex-dividend date]: +0.8%

= +$229.33/$27,770.67

Annualized Return (If options exercised early): +50.2%

= (+$229.33/$27,770.67) * (365/6 days); or

2. Absolute Return (If Cigna shares assigned at $280.00 strike price on March 17th, 2023 expiration): +1.3%

= +$352.33/$27,770.67

Annualized Return (If Cigna stock assigned at $280.00 at the March 17th, 2023 expiration): +27.2%

= (+$352.33/$27,770.67) *(365/17 days)

These returns will be achieved as long as the stock is above the $280.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $276.47 ($289.40 -$11.70 -$1.23) provides 4.5% 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, eight of the nine criteria are met for this Cigna Corporation Covered Call position.