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.