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)
