April 28th, 2023 Options Expiration Results

There was one Covered Calls position in the Covered Calls Advisor Portfolio with a February 28th, 2023 weekly options expiration date.  This position in CVS Health Corporation (ticker CVS) was closed out yesterday since its stock price of $73.31 at the market close yesterday was in-the-money; so the three 4/28/2023 $73.00 Call options expired worthless and the 300 shares owned were assigned (i.e. sold) at their $73.00 strike price.  

As detailed below, the result achieved was a +1.6% absolute return-on-investment (equivalent to a +34.3% annualized return-on-investment) for the 17 days holding period).  This result demonstrates that even with a moderate decline in a company's stock price (-2.0% in this case), a positive outcome (+1.6% in this case) can be achieved by establishing in-the-money Covered Calls for companies with their quarterly ex-dividend dates prior to the options expiration date.  The original post showing how the application of my Covered Calls Dividend Capture Strategy was utilized for this CVS position is shown here.

CVS Health Corp. (CVS) -- Covered Calls Position Closed Out by Assignment on 4/28/2023 Options Expiration Date
The original buy/write transaction was:
4/12/2023 Bought 300 CVS shares @ $74.83
4/12/2023 Sold 3 CVS 4/28/2023 $73.00 Call options @ $2.39
4/20/2023 Quarterly ex-dividend date at $.605 per share
4/28/2023 This CVS Covered Calls position was in-the-money on its expiration date, so the 3  Call options expired and the 300 CVS shares were sold at the $73.00 strike price.

The overall performance results (including commissions) for this CVS Health Covered Calls position are as follows:
CVS Covered Calls Net Investment: $21,734.01
= ($74.83 - $2.39) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$714.99
= ($2.39 * 300 shares) - $2.01 commission
(b) Dividend Income (CVS stock assigned at the April 28th, 2023 options expiration date): +$181.50
= ($.605 dividend per share x 300 shares)
(c) Capital Appreciation: -$549.00
= +($73.00 - $74.83) * 300 shares

Total Net Profit: +$347.49

= (+$714.99 options income +$181.50 dividend income -$549.00 capital appreciation)
 

Absolute Return-on-Investment: +1.6%

= +$347.49/$21,734.01

Annualized Return-on-Investment: +34.3%

= (+$347.49/$21,734.01) * (365/17 days)

Established Covered Call Position in United Rentals Inc.

A Covered Call position was established in United Rentals Inc.(URI) when the Covered Calls Advisor's buy/write limit order at a net debit limit price of $335.20 was executed. One hundred shares were purchased at $356.50 and 1 May 19th, 2023 Call option was sold at $21.30 at the $340.00 strike price.  The time value was $4.80 per share = [$340.00 strike price - ($356.50 stock purchase price - $21.30 Call option price)].   Given my current cautious stock market outlook, a moderately in-the-money Covered Call position was established with a Delta of 72.4 which approximates a 72.4% probability this position will be in-the-money and therefore assigned on the May 19th, 2023 options expiration date.

Yesterday, United Rentals announced an upcoming May 9th quarterly ex-dividend of $1.48 per share (1.7% annual dividend yield) which is prior to the May 19th options expiration date; so the potential for capturing this dividend is included in the potential return-on-investment results detailed below.  As preferred, there is no intervening earnings report prior to the options expiration date.   As I also prefer, the Implied Volatility of this United Rentals Call option was 32.6 when this position was established which is substantially above that of VIX which is currently only 16.0.  This high Implied Volatility provides a good options premium income (which is therefore also accompanied by an attractive potential annualized return-on-investment) from selling this URI Call option.  

United Rental's valuation is attractive based on a trailing twelve months (through Q1 2023) P/E Ratio of 10.2 (below their prior 5-year average of 12.0) and their upcoming full FY 2023 EPS are expected to increase by an additional 18.6%.  In addition, Wall Street analysts' current average target price is $443.56 (+24.4% above today's purchase price).

As detailed below, the potential return-on-investment results for this United Rentals Inc. Covered Call position is +1.4% absolute return (equivalent to +47.4% annualized return-on-investment for the next 11 days) if the stock is assigned early (last trading day prior to the May 9th ex-dividend date); OR (2) +1.9% absolute return (equivalent to +31.0% annualized return over the next 22 days) if the stock is assigned on the May 9th options expiration date.

United Rentals Inc.(URI) -- New Covered Call Position
The buy/write transaction was:
4/28/2023 Bought 100 United Rentals shares @ $356.50
4/28/2023 Sold 1 URI 5/19/2023 $340.00 Call option @ $21.30 per share.
5/9/2023 Upcoming quarterly ex-dividend of $1.48 per share

Two possible overall performance results (including commissions) for this United Rentals Covered Call position are as follows:
Covered Call Net Investment: $33,520.67
= ($356.50 - $21.30) * 100 shares + $.67 commission

Net Profit:
(a) Option Income: +$2,129.33
= ($21.30 * 100 shares) - $.67 commission
(b) Dividend Income (If option exercised early on May 8th, 2023 the business day prior to the May 9th ex-div date): +$0.00; or
(b) Dividend Income (If URI shares assigned at May 19th, 2023 expiration): +$148.00
= ($1.48 dividend per share x 100 shares)
(c) Capital Appreciation (If United Rentals assigned early): -$1,650.00
+($340.00 strike price -$356.50 stock purchase price) * 100 shares; or
(c) Capital Appreciation (If URI shares assigned at $340.00 strike price at expiration): -$1,650.00
+($340.00 - $356.50) * 100 shares

1. Total Net Profit [If option exercised early on the last business day prior to the May 9th, 2023 ex-dividend date)]: +$479.33

= (+$2,129.33 option income +$0.00 dividend income -$1,650.00 capital appreciation); or

2. Total Net Profit (If URI shares assigned at $340.00 strike price at May 19th, 2023 expiration): +$627.33

= (+$2,129.33 option income +$148.00 dividend income -$1,650.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on business day prior to ex-dividend date): +1.4%

= +$479.33/$33,520.67

Annualized Return-on-Investment (If option exercised early): +47.4%

= (+$479.33/$33,520.67) * (365/11 days); or

2. Absolute Return-on-Investment (If URI shares assigned at $340.00 at the May 19th, 2023 expiration): +1.9%

= +$627.33/$33,520.67

Annualized Return-on-Investment (If 100 shares assigned at $340.00 at the May 19th, 2023 options expiration): +31.0%

= (+$627.33/$33,520.67) * (365/22 days)

Either outcome provides a good return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $340.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $333.72 ($356.50 -$21.30 -$1.48) provides 6.4% 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 (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, in this case all nine criteria are achieved for this United Rentals Inc. Covered Call position.

Early Assignment of Covered Calls Position in Morgan Stanley

Early this morning, the Covered Calls Advisor was notified by my broker that the three Morgan Stanley (ticker MS) May 5th, 2023 $33.00 Call options were exercised yesterday.  Morgan Stanley stock has increased from its purchase price of $87.91 on April 25th to $89.485 at the market close yesterday.  

I was surprised that the owner of the Morgan Stanley Calls exercised their option to buy the 300 shares at the $85.00 strike price in order to receive today's $.775 per share ex-dividend since, with one week remaining until the May 5th expiration date, there was still $.795 per share time value remaining in the Call options.  By exercising early, the Call owner immediately lost this $.795 per share time value which I therefore immediately obtained as profit.  I am pleased for this early assignment despite losing the opportunity to capture the $.775 dividend since the +56.6% annualized-return-on-investment (aroi) achieved by early assignment is greater than the +45.8% aroi that would be achieved if this position had remained in-the-money for another week and would therefore be assigned instead on its May 5th options expiration date.   

The post when this Morgan Stanley Covered Calls position was originally established is here.  As detailed below, the return-on-investment result for this Morgan Stanley Covered Calls position was +0.5% absolute return in 3 days (equivalent to a +56.6% annualized return-on-investment).

Morgan Stanley (MS) -- New Covered Calls Position
The buy/write transaction was:
4/25/2023 Bought 300 Morgan Stanley shares @ $87.91
4/25/2023 Sold 3 Morgan Stanley 5/5/2023 $85.00 Call options @ $3.31 per share.
4/28/2023 All 3 Morgan Stanley Call options were exercised by their owner, so this MS Covered Calls position was closed out early. The three MS Call options expired worthless and the 300 Morgan Stanley shares were sold at the $85.00 strike price.

The overall performance results (including commissions) for this Morgan Stanley Covered Calls position were as follows:
Covered Calls Cost Basis: $25,382.01
= ($87.91 - $3.31) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$990.99
= ($3.31 * 300 shares) - $2.01 commission
(b) Dividend Income (Call options exercised early on Thursday, April 27th, the last business day prior to the April 28th ex-div date): +$0.00

(c) Capital Appreciation: -$873.00
+($85.00 options exercise price - $87.91 stock purchase price) * 300 shares

Total Net Profit: $117.99

= (+$990.99 options income +$0.00 dividend income -$873.00 capital appreciation)

 

Absolute Return-on-Investment: +0.5%

= +$117.99/$25,382.01

Annualized Return-on-Investment: +56.6%

= (+$117.99/$25,382.01) * (365/3 days)

Established Two Covered Calls Positions in Morgan Stanley and Uber Technologies Inc.

Today short-term Covered Calls positions were established in Morgan Stanley (ticker MS) and Uber Technologies Inc. (ticker UBER) when the Covered Calls Advisor's buy/write limit orders were executed.   For Morgan Stanley, 300 shares were purchased at $87.91 and 3 May 5th, 2023 Call options were sold at $3.31 per share at the $85.00 strike price.   For Uber Technologies Inc., 500 shares were purchased at $29.60 and 5 May 5th, 2023 Call options were sold at $2.09 at the $28.50 strike price.  Given the Covered Calls Advisor's current cautious outlook, moderately in-the-money Covered Calls positions were established for both companies. 

Morgan Stanley goes ex-dividend this Friday at $.775 per share (3.5% annual dividend yield) which is exactly one week prior to the May 5th options expiration date; so the potential for capturing this dividend is included in the potential return-on-investment results detailed below.  As preferred, the Implied Volatility of these Morgan Stanley Calls was 23.2 which is above that of VIX which is currently 19.6.    

The position in Uber Technologies is a continuation of a regular bi-weekly Covered Calls position.  This position is more risky than others since there is an intervening earnings report on May 2nd prior to the May 5th expiration date.  However, I am sufficiently confident that Uber will beat analysts' EPS estimates this quarter and that the very high 72.8 Implied Volatility in these options (which provides a very attractive Call options premium income) is worth the elevated risk associated with the uncertainty related to this upcoming earnings report.  The time value was $.99 per share = [$28.50 strike price - ($29.60 stock purchase price - $2.09 Call options price)] when this position was established.  

As detailed below, the potential return-on-investment results for these Covered Calls positions are: 

• For Morgan Stanley: +0.5% absolute return (equivalent to +56.6% annualized return-on-investment for the next 3 days) if the stock is assigned early (last trading day prior to the April 28th ex-dividend date); OR (2) +1.4% absolute return (equivalent to +45.8% annualized return over the next 11 days) if the stock is assigned on its May 5th options expiration date.

• For Uber Technologies Inc.: +3.6% absolute return (equivalent to +118.6% annualized return-on-investment for the next 11 days) if the stock is assigned on the May 5th, 2023 options expiration date.

1. Morgan Stanley (MS) -- New Covered Calls Position
The buy/write transaction was:
4/25/2023 Bought 300 Morgan Stanley shares @ $87.91
4/25/2023 Sold 3 Morgan Stanley 5/5/2023 $85.00 Call options @ $3.31 per share.
4/28/2023 Upcoming quarterly ex-dividend of $.775 per share

Two possible overall performance results (including commissions) for this Morgan Stanley Covered Calls position are as follows:
Covered Calls Cost Basis: $25,382.01
= ($87.91 - $3.31) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$990.99
= ($3.31 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on Thursday, April 27th, the last business day prior to the April 28th ex-div date): +$0.00; or
(b) Dividend Income (If Morgan Stanley stock assigned at the May 5th, 2023 expiration): $232.50         = ($.775 dividend per share x 300 shares)

(c) Capital Appreciation (If Morgan Stanley Call options assigned early on April 27th): -$873.00
+($85.00 - $87.91) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $85.00 strike price at the May 5th options expiration): -$873.00
+($85.00 - $87.91) * 300 shares

1. Total Net Profit [If option exercised early on the last business day prior to the April 28th ex-dividend date)]: +$117.99

= (+$990.99 options income +$0.00 dividend income -$873.00 capital appreciation); or

2. Total Net Profit (If Morgan Stanley shares assigned at $85.00 strike price at the May 5th, 2023 expiration): +$350.49

= (+$990.99 +$232.50 -$873.00)

1. Absolute Return-on-Investment (If option exercised early on April 27th): +0.5%

= +$117.99/$25,382.01

Annualized Return-on-Investment: +56.6%

= (+$117.99/$25,382.01) * (365/3 days); or

2. Absolute Return-on-Investment (If Morgan Stanley shares assigned at $85.00 at the May 5th, 2023 options expiration): +1.4%

= +$350.49/$25,382.01

Annualized Return-on-Investment (If Morgan Stanley shares assigned at the 5/5/2023 expiration): +45.8%

= (+$350.49/$25,382.01) * (365/11 days)

Either outcome would provide an attractive return-on-investment result for this Morgan Stanley 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 $83.825 ($87.91 -$3.31 -$.775) provides 4.6% 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 Morgan Stanley position, all nine criteria were met.

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

The net debit buy/write limit order was executed as follows:
4/25/2023 Bought 500 shares of Uber Technologies Inc. stock @ $29.60 per share 
4/25/2023 Sold 5 Uber May 5th, 2023 $28.50 Call options @ $2.09 per share

A possible overall performance result (including commissions) if this position is assigned on its May 5th options expiration date is follows:
Covered Calls Net Investment: $13,758.35
= ($29.60 - $2.09) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$1,041.65
= ($2.09 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Uber stock is above the $28.50 strike price and therefore assigned at the May 5th options expiration): -$550.00
= ($28.50 -$29.60) * 500 shares

Potential Total Net Profit (If assigned at expiration): +$491.65
= (+$1,041.65 options income +$0.00 dividend income -$550.00 capital appreciation)

Potential Absolute Return-on-Investment: +3.6%
= +$491.65/$13,758.35
Potential Equivalent Annualized-Return-on-Investment: +118.6%
= (+$491.65/$13,758.35) * (365/11 days)

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 April 21st, 2023 options expiration date.  Cigna shares closed at $252.12 then and the strike price was $270.00.  Since I remain bullish on Cigna's stock price and believe it has a good chance of reversing back to a positive trend, I decided to attempt to repair this current losing position back toward breakeven.  So, today I continued this Covered Call position by rolling down-and-out to the $265.00 strike price at the May 12th, 2023 expiration date by selling one Call option at $3.52 per share against the 100 Cigna shares owned.  The stock price had risen to $256.47 today when this Cigna Call option sale was transacted.   

As detailed below, two potential return-on-investment results are: (1) - 3.6% absolute return (equivalent to -17.8% annualized return-on-investment for the 73 days holding period) if Cigna's price is unchanged at today's $256.47 price on the May 12th, 2023 expiration date; and (2) -0.5% absolute return (equivalent to -2.5% annualized return-on-investment for the 73 days holding period) if it is in-the-money (i.e. above the $265.00 strike price) on the May 12th options expiration date.

Cigna's next quarterly earnings report before market open on May 5th is prior to the May 12th options expiration date.  Since I prefer not to hold positions in companies on their earnings reporting dates, I will make a decision whether or not to unwind (i.e. close out) this position prior to May 5th.   

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.
3/31/2023 One Cigna Call option expired out-of-the-money and 100 shares remain in the Covered Calls Advisor Portfolio
4/3/2023 Continued Cigna Covered Call position by selling one April 21st, 2023 $270.00 Call option @ $2.50 per share.  The stock price was $262.30 when this transaction was made and the Delta for this Call option was 29.9.
4/24/2023 Continued Cigna Covered Call position by selling one May 12th, 2023 $265.00 Call option @ $3.52 per share.  The stock price was $256.47 when this transaction was made and the Delta for this Call option was 43.2.

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: +$2,179.32
= ($11.70 + $4.10 + $2.50 + $3.52) * 100 shares - $2.68 commissions
(b) Dividend Income: +$123.00
= ($1.23 dividend per share x 100 shares)
(c) Capital Appreciation (If CI stock price unchanged at $256.47 on the May 12th options expiration date): -$3,293.00
+($256.47 - $289.40) * 100 shares; or
(c) Capital Appreciation (If Cigna shares assigned at $265.00 strike price at the 5/12/2023 options expiration): -$2,440.00
+($265.00 - $289.40) * 100 shares

1. Total Net Profit [If stock price unchanged at $256.47 and Covered Call position unwound (i.e.closed out) on the 5/12/2023 options expiration date): -$990.68

= (+$2,179.32 options income +$123.00 dividend income - $3,293.00 capital appreciation); or

2. Total Net Profit (If Cigna shares assigned at $265.00 strike price at the May 12th, 2023 expiration): -$137.68

= (+$2,179.32 + $123.00 - $2,440.00)

1. Absolute Return-on-Investment [If Cigna stock price unchanged at $256.47 on the 5/12/2023 options expiration date]: -3.6%

= -$990.68/$27,770.67

Annualized Return-on-Investment (If Cigna stock price unchanged at $256.47 on the 5/12/2023 options expiration date): -17.8%

= (-$990.68/$27,770.67) * (365/73 days); or

2. Absolute Return-on-Investment (If Cigna shares assigned at $265.00 strike price on the 5/12/2023  expiration): -0.5%

= -$137.68/$27,770.67

Annualized Return-on-Investment (If Cigna stock assigned at $265.00 at the 5/12/2023 expiration): -2.5%

= (-$137.68/$27,770.67) * (365/73 days)

Monthly Options Expiration Results through April 21st, 2023

Each month on the day after the monthly options expiration date, this summary report provides the results on 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 March 17th, 2023 options expiration through yesterday's April 21st, 2023 monthly options expiration date.  

During this past month, the Covered Calls Advisor Portfolio held a total of fourteen positions.  Ten positions were closed out at a profit, two were closed out at a loss, and two Covered Call positions had their options expire out-of-the-money and both these positions currently remain in the Covered Calls Advisor Portfolio at an unrealized loss.   

The specific results for each position are summarized as follows: 

• One Covered Calls position in Uber Technologies Inc. (UBER) expired in-the-money (stock price above the strike price) on its April 21st, 2023 monthly options expiration date and was therefore assigned with a +2.2% absolute return-on-investment in 19 days (equivalent to a +42.1% annualized return-on-investment).

• One 100% Cash-Secured Puts position in Harmony Biosciences Holdings, Inc. (HRMY) expired with the stock price above the strike price on its April 21st, 2023 monthly options expiration date with a +3.6% absolute return-on-investment in 19 days (equivalent to a +69.2% annualized return-on-investment).

• Eight Covered Calls positions expired in-the-money on their respective Weekly options expiration dates during the past month as follows:

1. Bank of America Corporation -- -5.9% absolute return-on-investment in 51 days (equivalent to a -42.2% annualized return-on-investment).
2. Energy Select Sector SPDR Fund ETF -- +2.3% absolute return-on-investment in 22 days (equivalent to a +38.5% annualized return-on-investment).
3. Qualcomm Inc. -- +2.1% absolute return-on-investment in 24 days (equivalent to a +31.7% annualized return-on-investment).
4. SPDR S&P 500 ETF -- +1.4% absolute return-on-investment in 24 days (equivalent to a +21.2% annualized return-on-investment).
5. Taiwan Semiconductor Manufacturing Co. Ltd. -- +1.7% absolute return-on-investment in 16 days (equivalent to a +38.1% annualized return-on-investment).
6. Uber Technologies Inc. -- +1.9% absolute return-on-investment in 16 days (equivalent to a +44.4% annualized return-on-investment).
7. U.S. Bancorp -- +3.8% absolute return-on-investment in 14 days (equivalent to a +97.8% annualized return-on-investment).
8. Valero Energy Corp. -- +1.7% absolute return-on-investment in 14 days (equivalent to a +43.8% annualized return-on-investment).

• One Covered Call position in Albemarle Corporation was closed out early yesterday based on my decision at the time with a -12.7% absolute return-on-investment in 19 days (equivalent to a -244.4% annualized return-on-investment).

• One Covered Call position in EOG Resources Inc. was closed out by early assignment on the day prior to its quarterly ex-dividend date with a +0.9% absolute return-on-investment in 8 days (equivalent to a +41.7% annualized return-on-investment).

• Two Covered Calls positions closed out-of-the-money on their monthly April 21st, 2023 options expiration dates, so the options expired and the equities now remain in the Covered Calls Advisor Portfolio.  These positions are 100 shares of Cigna Corporation and 1,000 shares in iShares Large-Cap China ETF.  Early next week, decisions will be made to either close out the positions by selling the shares or to continue the Covered Calls positions by selling future Call options against the shares currently held.  As always, the details of all transactions will be posted on this blog site on the same day the transactions occur.
  

During the past year (last 12 months) 103 of 118 positions (87.3%) in the Covered Calls Advisor Portfolio (CCAP) were closed out at a profit and 15 positions were closed out at a loss.  The Covered Calls Advisor Portfolio weighted average annualized-return-on-investment (aroi) was +12.0% during the past year and the average holding period for these 118 closed positions was 21.9 days.  In comparison, the benchmark S&P 500 returned -3.8% during the same prior one-year period.   

This Covered Calls Advisor blog homepage (see here) is available to all who are interested in learning about the Covered Calls investing strategy.  As always, I encourage you to email me at partlow@cox.net any time you would like my feedback on your comments or questions related to Covered Calls. 

Best Wishes,

Jeff Partlow
Covered Calls Advisor
partlow@cox.net

Closed Out Covered Call Position in Albemarle Corporation

Albemarle stock has declined sharply in price since this position was established.  The primary reason is that the spot price for lithium carbonate has declined by 37% during the last month alone.  To add insult to injury, today the Government of Chile announced that they are taking over ownership (privatizing) all lithium mines in their country.  Obviously, this announcement is tremendously detrimental to Albemarle's current large lithium mining operations in Chile.  So, I decided to immediately close out the Albemarle Covered Call position at a large loss as detailed below.

Albemarle Corporation (ALB) -- Covered Call Position Closed by Decision

The net debit buy/write limit order was executed as follows:
4/3/2023 Bought 100 shares of Albemarle Corporation stock @ $219.98 per share 
4/3/2023 Sold 1 ALB April 21st, 2023 $210.00 Call option @ $14.50 per share
Note: The Implied Volatility of the Call option was 43.2 when this position was established, an attractive level given the next earnings report in May is after the 4/21/2023 options expiration date.
4/21/2023 Unwound the ALB Covered Call position by simultaneously buying-to-close the Call option @ $.03 per share and selling-to-close the 100 Albemarle shares at $179.37.

The overall performance result (including commissions) for this Albemarle Corporation position is as follows:
Covered Call Net Investment: $20,548.67
= ($219.98 - $14.50) * 100 shares + $0.67 commission

Net Profit Components:
(a) Option Income: +$1,446.33
= ($14.50 - $.03) * 100 shares - $0.67 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Albemarle stock declined precipitously and the was sold today at $179.37 per share when this Covered Call position was closed out): -$4,061.00
= ($179.37 -$219.98) * 100 shares

Total Net Loss: -$2,614.67
= (+$1,446.33 option income +$0.00 dividend income -$4,061.00 capital appreciation)

Absolute Return-on-Investment: -12.7%
= -$2,614.67/$20,548.67
Equivalent Annualized-Return-on-Investment: -244.4%
= (-$2,614.67/$20,548.67) * (365/19 days)

April 14th, 2023 Options Expiration Results

The Covered Calls Advisor Portfolio had one Covered Calls position in Bank of America Corporation with an April 14th, 2023 weekly options expiration date.

Bank of America Corporation (BAC) -- Bank stocks have had a very difficult past few weeks leading up to and including the aftermath of the recent bank crisis.  At yesterday's options expiration date, I decided to allow my BAC Covered Calls position to be closed out by assignment since the $29.52 stock price was above yesterday's $29.00 strike price.  The detailed history of this losing position is provided below.  I could have continued to try to repair this losing position back toward profitability, but since I prefer to avoid holding stocks during quarterly earnings reports (and Bank of America's next report is upcoming this Tuesday), I decided to allow this position to be closed out at a loss.

Bank of America Corporation (BAC) -- Covered Calls Position Closed Out by Assignment
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.
04/14/2023 This BAC Covered Calls position was in-the-money on its 4/14/2023 expiration date, so the 5 Call options expired and the 500 BAC shares were sold at the $29.00 strike price.

The 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 (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

Total Net Profit: -$1,035.05
= (+$1,334.95 options income +$110.00 dividend income -$2,480.00 capital appreciation)

Absolute Return-on-Investment: -5.9%
= -$1,035.05/$17,568.35
Annualized Return-on-Investment: -42.2%
= (-$1,035.05/$17,568.35) * (365/51 days)

As always, 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

Early Assignment of Covered Calls Position in EOG Resources Inc.

Early this morning, the Covered Calls Advisor was notified by my broker that the two EOG Resources Inc. (ticker EOG) April 21st, 2023 $114.00 Call options were exercised yesterday.  EOG Resources stock has increased from its purchase price of $119.23 on April 5th to $122.31 at the market close yesterday.  The original $1.04 time value in the Calls when the position was established had declined at yesterday's market close to $0.14 per share at the Call options Bid/Ask midpoint, so I was not surprised that (with eight days remaining until the options expiration date), the owner of these EOG Calls exercised their option to buy the 200 shares at the $114.00 strike price in order to receive today's $.825 per share ex-dividend.  

I am pleased for this early assignment despite losing the opportunity to capture the $.825 ex-dividend since the +41.7% annualized-return-on-investment (aroi) achieved by early assignment is greater than the +35.3% aroi that would have been achieved 8 days from today if this position remained in-the-money and so was instead assigned on its April 21st options expiration date.   

The post when this EOG Resources Covered Calls position was originally established is here.  As detailed below, the return-on-investment result for this EOG Resources Covered Calls position was +0.9% absolute return in 8 days (equivalent to a +41.7% annualized return-on-investment).  

EOG Resources Inc. (EOG) -- Covered Calls Position Closed Out by Early Assignment
The simultaneous buy/write transaction was:
4/5/2023 Bought 200 EOG Resources Inc. shares @ $119.23
4/5/2023 Sold 2 EOG Resources April 21st, 2023 $114.00 Call options @ $6.27 per share
4/13/2023 EOG Resources Call options owner exercised their two Call options, so the Covered Calls position was closed out early. The two EOG Call options expired worthless and the 200 EOG Resources shares were sold at the $114.00 strike price.

The overall performance results (including commissions) for this EOG Resources Inc. Covered Calls position are as follows:
Buy/Write Purchase Net Investment: $22,593.34
= ($119.23 - $6.27) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,252.66
= ($6.27 * 200 shares) - $1.34 commission
(b) Dividend Income (Call options exercised early on Wednesday, April 12th, the last business day prior to today's April 13th ex-div date): +$0.00
(c) Capital Appreciation (Early assignment): -$1,046.00
+($114.00 -$119.23) * 200 shares

Total Net Profit: +$206.66

= (+$1,252.66 options income +$0.00 dividend income -$1,046.00 capital appreciation)

 

Absolute Return-on-Investment: +0.9%

= +$206.66/$22,593.34

Annualized Return-on-Investment: +41.7%

= (+$206.66/$22,593.34) * (365/8 days)

 

Established Covered Calls Position in CVS Health Corp.

This morning, I established a Covered Calls net debit limit order in CVS Health Corporation (ticker CVS) for 300 shares of the April 28th, 2023 $73.00s at $72.44 per share. The order was executed this afternoon at 3:50pm ET (only 10 minutes prior to market close) when the stock price had declined to $74.83 and the 3 Calls were sold for $2.39 per share. The $72.44 net debit had a $.56 per share time value when this order was transacted. This is a moderately in-the-money position since it was established at a price 2.5% above the $73.00 strike price.  The Delta was 70.0 when this Covered Calls position was established, which approximates the probability of 70.0% that the Call options will be in-the-money on the options expiration date. 

Two potential return-on-investment results for this position are highlighted below and includes the possibility of early assignment since a quarterly ex-dividend of $.605 per share (3.2% annualized dividend yield) goes ex-dividend in eight days (on April 20th), which is prior to the April 28th options expiration date.  The stock would have to move up in price by the last business day prior to the April 20th ex-div date and by an amount that would cause the time value remaining in the option to decline from its $.56 value today to about $.15 or less. Another positive feature of this position is that the next quarterly earnings report on May 3rd, 2023 is after the April 28th options expiration date.
  
CVS is rated, on average, as Outperform by the 26 Wall Street analysts that cover it and their average target price is $110.48 (+47.6% above today's purchase price).  CVS' valuation is attractive with its trailing-twelve-months P/E Ratio at only 8.6 and its planned future long-term EPS growth rate of "low double-digits" is higher than its current P/E Ratio.   

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

•  +0.8% absolute return-on-investment (equivalent to +34.8% annualized return-on-investment for the next 8 days) if the stock is assigned early (business day prior to the April 20th ex-dividend date); OR 

• +1.6% absolute return-on-investment (equivalent to +34.3% annualized return-on-investment over the next 17 days) if the stock is assigned on the April 28th, 2023 options expiration date.

CVS Health Corp. (CVS) -- New Covered Calls Position

The buy/write transaction was:
4/12/2023 Bought 300 CVS shares @ $74.83
4/12/2023 Sold 3 CVS 4/28/2023 $73.00 Call options @ $2.39
4/20/2023 Upcoming quarterly ex-dividend of $.605 per share

Two possible overall performance results (including commissions) for this CVS Health Covered Calls position are as follows:
CVS Covered Calls Net Investment: $21,734.01
= ($74.83 - $2.39) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$714.99
= ($2.39 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on April 19th, the last business day prior to the 4/20/2023 ex-div date): +$0.00; or
(b) Dividend Income (If CVS stock assigned at the April 28th, 2023 options expiration date): +$181.50
= ($.605 dividend per share x 300 shares)

(c) Capital Appreciation (If CVS Call options assigned early): -$549.00
= +($73.00 strike price - $74.83 stock purchase price) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $73.00 strike price at the 4/28/2023 options expiration): -$549.00
= +($73.00 - $74.83) * 300 shares

1. Potential Total Net Profit [If option exercised early]: +$165.99

= (+$714.99 options income +$0.00 dividend income -$549.00 capital appreciation); or

2. Potential Total Net Profit (If CVS shares assigned at $73.00 at the Apr. 28th, 2023 expiration date): +$347.49

= (+$714.99 options income +$181.50 dividend income -$549.00 capital appreciation)

1. Absolute Return-on-Investment [If option exercised early on April 19th (business day prior to ex-dividend date)]: +0.8%

= +$165.99/$21,734.01

Annualized Return-on-Investment (If option exercised early): +34.8%

= (+$165.99/$21,734.01) * (365/8 days); or

2. Absolute Return-on-Investment (If CVS shares assigned at $73.00 at the April 28th, 2023 options expiration date): +1.6%

= +$347.49/$21,734.01

Annualized Return-on-Investment (If CVS shares assigned at $73.00 at the 4/28/2023 options expiration date): +34.3%

= (+$347.49/$21,734.01) * (365/17 days)

Either outcome provides a good annualized return-on-investment result -- well above the minimum desired 25.0% aroi for positions with from 10 to 19 days remaining until expiration.  These returns will be achieved as long as the stock is above the $73.00 strike price on the options expiration date.  However, if the stock declines below the strike price, the breakeven price of $71.835 ($74.83 -$2.39 -$.605) provides 4.0% 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.  All nine criteria are achieved for this CVS Covered Calls position.
Note: Criteria #3 is the "Equivalent Annualized Dividend Yield (at the stock purchase price) must exceeds 5.0%."  For this CVS position, the Equivalent Annualized Dividend Yield of 17.4% which is calculated as ($.605/$74.83) x (365/17 days)] which in this CVS position achieves the objective in this case since it exceeds the minimum 5.0% threshold for this criteria. 

April 6th, 2023 Options Expiration Results

The Covered Calls Advisor Portfolio had two Covered Calls positions with April 6th, 2023 weekly options expirations.  Both positions closed at options expiration with the stock prices in-the-money, so the Calls expired and the Covered Calls were closed out and both stocks were sold at their respective strike prices with the following results:

1. Uber Technologies Inc. (UBER) -- +1.9% absolute return (equivalent to +44.4% annualized return-on-investment) for the 16 days of this investment.  The original blog post when this position was established is here. 

2. Valero Energy Corporation (VLO) -- +1.7% absolute return (equivalent to +43.8% annualized return-on-investment) for the 14 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

Covered Calls Established in EOG Resources Inc.

This afternoon at 1:40pm ET, a new Covered Calls position was established in EOG Resources Inc. (ticker EOG) when 200 shares were purchased at $119.23 and two April 21st, 2023 Call options were sold at $6.27 per share at the $114.00 strike price.  The position was executed at my net debit limit order of $112.96 per share--a time value of $1.04 per share [$6.27 Call options premium - ($119.23 stock purchase price - $114.00 strike price)].  As required by the Covered Calls Advisor, the 31.3 Implied Volatility in the EOG Calls exceeds that of the S&P 500 Volatility Index (VIX) which was 19.7.  Also, the 4/21/2023 options expiration date is prior to EOG's next quarterly earnings report which is scheduled for May 4th, 2022.

There is an upcoming ex-dividend of $.825 per share (2.8% annual dividend yield) on April 13th, 2023 (prior to the April 21st options expiration date).  So, two potential return-on-investment results for this position are detailed below:
(1) Early exercise on the day prior to the April 13th, 2023 ex-dividend date; OR
(2) Assignment on the April 21st, 2023 options expiration date.  So, this position is evaluated in the table at the bottom of this post to determine how many of the 9 criteria in the Covered Calls Advisor's Dividend Capture Strategy would be met by this Covered Calls position if it were to be established.  In this case, all nine criteria were met so a new Covered Calls position in EOG Resources was established. 

Given the Covered Calls Advisor's current Slightly Bearish Overall Market Meter outlook, an in-the-money Covered Calls position was established -- the Delta was 74.2 when this position was established, which approximates a probability of 74.2% that the Call options will be in-the-money on the options expiration date. According to Reuters Research, EOG is covered by 31 brokerage firm analysts and their average target price is $146.18 which is +22.6% above today's purchase price.  The trailing twelve months earnings per share was $13.75--a P/E ratio of 8.7 based on today's stock purchase price and below the prior 5-year average P/E ratio of 11.1.  Estimates for this year's P/E ratio takes it back near its historic average of 11.0.  Given the great uncertainty with future oil prices, the 2023 EPS estimate is unreliable, but even if WTI declines from its current approximate $80 per barrel, continued strong profitability of domestic exploration and production companies (like EOG) should help its stock price. Also, EOG appeared today in the Covered Calls Advisor's 'Energy Sector' stock screener.     

As detailed below, a potential return-on-investment result is +0.9% absolute return (equivalent to +41.7% annualized return for the next 8 days) if the stock is assigned early (business day prior to the April 13th ex-date); OR +1.6% absolute return (equivalent to +35.3% annualized return-on-investment over the next 17 days) if the stock is assigned on the April 21st, 2023 options expiration date.  I want to continue to diversify my current holdings among sectors and my sole current Energy sector position in Valero Energy is likely to be assigned at its options expiration date tomorrow.  Also, since many Energy sector companies have good dividend yields, I prefer to establish Covered Calls positions using my Dividend Capture Strategy in this Energy Sector.  

Another key reason I want to use the Dividend Capture Strategy when there is an intervening ex-dividend prior to the options expiration date is that (as is the case with this EOG position), the potential annualized return-on-investment results for Covered Calls is greater than that of its comparable 100% Cash-Secured Puts position.  For example, in this EOG position the $1.865 maximum potential profit ($1.04 time value plus $.825 ex-dividend) for this Covered Calls positions greatly exceeds the $1.53 that would have been available at the same time from selling the comparable Puts. 

EOG Resources Inc. (EOG) -- New Covered Calls Position
The buy/write transaction today was as follows:
4/5/2023 Bought 200 EOG Resources Inc. shares @ $119.23
4/5/2023 Sold 2 EOG 4/21/2023 $114.00 Call options @ $6.27 per share.
4/13/2023 Upcoming regular ex-dividend of $.825 per share.

Two possible overall performance results (including commissions) for this EOG Resources Covered Calls position are as follows:
Covered Calls Net Investment: $22,593.34
= ($119.23 - $6.27) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$1,252.66
= ($6.27 * 200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on the business day prior to the April 13th ex-div date): +$0.00; or
(b) Dividend Income (If EOG shares assigned at the April 21st, 2023 options expiration): +$165.00
= ($.825 dividend per share x 200 shares)
(c) Capital Appreciation (If EOG shares assigned early on April 13th, 2023): -$1,046.00
+($114.00 - $119.23) * 200 shares ;or
(c) Capital Appreciation (If EOG shares assigned at $114.00 strike price at options expiration): -$1,046.00
= +($114.00 - $119.23) * 200 shares

1. Potential Total Net Profit [If options exercised on April 12th (last business day prior to the April 13th ex-dividend date)]: +$206.66

= (+$1,252.66 options income +$0.00 dividend income - $1,046.00 capital appreciation); or

2. Potential Total Net Profit (If EOG shares assigned at $114.00 strike price at the April 21st, 2023 expiration): +$371.66

= (+$1,252.66 + $165.00 - $1,046.00)

1. Absolute Return-on-Investment [If EOG Call options exercised on business day prior to ex-dividend date]: +0.9%

= +$206.66/$22,593.34

Annualized Return-on-Investment (If options exercised early): +41.7%

= (+$206.66/$22,593.34) * (365/8 days); or

2. Absolute Return-on-Investment (If EOG shares assigned at $114.00 strike price on April 21st, 2023 options expiration date): +1.6%

= +$371.66/$22,593.34

Annualized Return-on-Investment (If EOG stock assigned at $114.00 strike at the April 21st, 2023 options expiration date): +35.3%

= (+$371.66/$22,593.34) * (365/17 days)

These returns will be achieved as long as the stock is above the $114.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $112.135 ($119.23 -$6.27 -$.825) provides 6.0% downside protection below today's purchase price.

You will notice that the Covered Calls Advisor always calculates potential return-on-investment results (using "annualized-return-on-investment") BEFORE establishing any Covered Call position.  This approach enables us to obtain a good perspective on whether or not the potential annualized-return-on-investment results (including their associated probability of assignment) provides a risk/reward profile that qualifies as a potential investment if it meets or exceeds the minimum thresholds specified in criteria 8 and 9 in the Dividend Capture Strategy table below. 

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 EOG Resources Inc. Covered Calls position.

Covered Call Position Established in Albemarle Corporation

Today, a Covered Call net debit limit order was executed when 100 shares of Albemarle Corporation (ticker symbol ALB) stock was purchased at $219.98 and 1 April 21st, 2023 $210.00 Call option was  simultaneously sold at $14.50 per share -- a net debit of $205.48 per share -- so the potential time value profit if the stock is in-the-money and therefore closed out by assignment at expiration is $4.52 per share [$14.50 Call option premium - ($219.98 stock purchase price - $210.00 strike price)].   The Call option Delta of 69.0 gives a good approximation of the probability of 69.0% that this position will be in-the-money and therefore assigned on the 4/21/2023 options expiration date.

Albemarle is a leading lithium provider with mining operations in Chile, Australia, and the U.S.(Nevada).  Lithium-based products are important components of the majority of electric batteries for EVs, so its ongoing demand prospects are very good.  Albemarle is very profitable and its stock valuation is attractive with its trailing twelve months P/E ratio at only 10.0.  In addition, it exceeded analysts' profit estimates in every quarter this past year.  It's 2023 earnings are currently expected to grow by an additional 29% and the average target price by the 26 analysts currently covering the company is $314.67 (+43.0% above today's purchase price).

As detailed below, a potential outcome for this Albemarle Corporation investment is +2.2% absolute return-on-investment for the next 19 days (equivalent to +42.2% annualized-return-on-investment) if the stock closes above the $210.00 strike price on the April 21st, 2023 options expiration date.

Albemarle Corporation (ALB) -- New Covered Call Position

The net debit buy/write limit order was executed as follows:
4/3/2023 Bought 100 shares of Albemarle Corporation stock @ $219.98 per share 
4/3/2023 Sold 1 ALB April 21st, 2023 $210.00 Call option @ $14.50 per share
Note: The Implied Volatility of the Call option was 43.2 when this position was established, an attractive level given the next earnings report in May is after the 4/21/2023 options expiration date.

A possible overall performance result (including commissions) if this Albemarle Corporation position is assigned on its April 21st options expiration date is follows:
Covered Call Net Investment: $20,548.67
= ($219.98 - $14.50) * 100 shares + $0.67 commission

Net Profit Components:
(a) Option Income: +$1,449.33
= ($14.50 * 100 shares) - $0.67 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Albemarle stock is above the $210.00 strike price and therefore assigned at its April 21st options expiration): -$998.00
= ($210.00 -$219.98) * 100 shares

Potential Total Net Profit (If assigned at the 4/21/2023 options expiration date): +$451.33
= (+$1,449.33 option income +$0.00 dividend income -$998.00 capital appreciation)

Potential Absolute Return-on-Investment: +2.2%
= +$451.33/$20,548.67
Potential Equivalent Annualized-Return-on-Investment: +42.2%
= (+$451.33/$20,548.67) * (365/19 days)

Covered Calls Established in Uber Technologies Inc.

Today, a Covered Calls net debit limit order was executed and 500 shares of Uber Technologies Inc.(ticker symbol UBER) stock were purchased at $31.36 and 5 April 21st, 2023 $30.00 Call options were simultaneously sold at $2.01 per share -- a net debit of $29.35 per share -- so the potential time value profit if the stock is in-the-money and therefore closed out by assignment at expiration is $.65 per share [$2.01 Call options premium - ($31.36 stock purchase price - $30.00 strike price)].  This is the second Uber Covered Calls position established currently in the Covered Calls Advisor Portfolio.  The first one has an options expiration date this Thursday (April 6th) at the same $30.00 strike price as today's new Uber position.  For today's new position, the approximate probability that this position will be in-the-money and therefore assigned on the options expiration date was 69.9% when this position was transacted.

As described in previous blog posts about Uber, it 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. 

As detailed below, a potential outcome for this Uber Technologies investment is +2.2% absolute return-on-investment for the next 19 days (equivalent to +42.1% annualized-return-on-investment) if the stock closes above the $30.00 strike price on the April 21st, 2023 options expiration date.

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

The net debit buy/write limit order was executed as follows:
4/3/2023 Bought 500 shares of Uber Technologies Inc. stock @ $31.36 per share 
4/3/2023 Sold 5 Uber April 21st, 2023 $30.00 Call options @ $2.01 per share
Note: The Implied Volatility of the Calls was 42.4 when this position was established, an 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 21st options expiration date is follows:
Covered Calls Net Investment: $14,678.35
= ($31.36 - $2.01) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$1,001.65
= ($2.01 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Uber stock is above the $30.00 strike price and therefore assigned at the April 21st options expiration): -$680.00
= ($30.00 -$31.36) * 500 shares

Potential Total Net Profit (If assigned at expiration): +$321.65
= (+$1,001.65 options income +$0.00 dividend income -$680.00 capital appreciation)

Potential Absolute Return-on-Investment: +2.2%
= +$321.65/$14,678.35
Potential Equivalent Annualized-Return-on-Investment: +42.1%
= (+$321.65/$14,678.35) * (365/19 days)

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 31st, 2023 options expiration date.  Cigna shares closed at $255.53 then and the strike price was $277.50.  I decided to attempt to repair this current losing position back toward breakeven, so I continued this Covered Call position today by rolling down-and-out to the $270.00 strike price at the April 21st, 2023 expiration date by selling one Call option at $2.50 per share against the 100 Cigna shares owned.  The stock price had risen to $262.30 today when this Cigna Call option sale was transacted.   

As detailed below, two potential return-on-investment results are: (1) -2.7% absolute return (equivalent to -19.2% annualized return-on-investment for the 52 days holding period) if Cigna's price is unchanged at today's $262.30 price on the April 21st, 2023 expiration date; and (2) +0.03% absolute return (equivalent to +0.2% annualized return-on-investment for the 52 days holding period) if it is in-the-money (i.e. above the $270.00 strike price) on the April 21st 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.
3/31/2023 One Cigna Call option expired out-of-the-money and 100 shares remain in the Covered Calls Advisor Portfolio
4/3/2023 Continued Cigna Covered Call position by selling one April 21st, 2023 $270.00 Call option @ $2.50 per share.  The stock price was $262.30 when this transaction was made and the Delta for this Call option was 29.9.

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: +$1,825.98
= ($11.70 + $4.10 + $2.50) * 100 shares - $4.02 commissions
(b) Dividend Income: +$123.00
= ($1.23 dividend per share x 100 shares)
(c) Capital Appreciation (If CI stock price unchanged at $262.30 on the April 21st options expiration date): -$2,710.00
+($262.30 - $289.40) * 100 shares; or
(c) Capital Appreciation (If Cigna shares assigned at $270.00 strike price at the 4/21/2023 options expiration): -$1,940.00
+($270.00 - $289.40) * 100 shares

1. Total Net Profit [If stock price unchanged at $262.30 and Covered Call position unwound (i.e.closed out) on the 4/21/2023 options expiration date): -$761.02

= (+$1,825.98 options income +$123.00 dividend income - $2,710.00 capital appreciation); or

2. Total Net Profit (If Cigna shares assigned at $270.00 strike price at the April 21st, 2023 expiration): +$8.98

= (+$1,825.98 + $123.00 - $1,940.00)

1. Absolute Return-on-Investment [If Cigna stock price unchanged at $262.30 on the 4/21/2023 options expiration date]: -2.7%

= -$761.02/$27,770.67

Annualized Return-on-Investment (If Cigna stock price unchanged at $262.30 on the 4/21/2023 options expiration date): -19.2%

= (-$761.02/$27,770.67) * (365/52 days); or

2. Absolute Return-on-Investment (If Cigna shares assigned at $270.00 strike price on the 4/21/2023  expiration): +0.03%

= +$8.98/$27,770.67

Annualized Return-on-Investment (If Cigna stock assigned at $270.00 at the 4/21/2023 expiration): +0.2%

= (+$8.98/$27,770.67) * (365/52 days)

Established a 100% Cash-Secured Puts Position in Harmony Biosciences Holdings, Inc.

This morning (10 minutes after the market opened), a 100% Cash-Secured Put options position was established in Harmony Biosciences Holdings, Inc. (ticker HRMY) at the April 21st, 2023 options expiration date and at the $30.00 strike price.  Five Puts were sold at $1.05 per share when the stock price was $32.70 (9.0% above the strike price).  The Implied Volatility of these Puts was 65.2 when this position was established.  Establishing positions where the Implied Volatility is greater than that of the S&P 500 Volatility Index (i.e. VIX), which is currently at 19.4, is strongly preferred by the Covered Calls Advisor.  This preference is the fifth of the twelve investing "edges" (see here) utilized that contributes to our achieving outperformance in comparison with that of the benchmark S&P 500 Index. There is no earnings report or quarterly dividend prior to the options expiration date. 

Harmony Biosciences is a small-cap ($1.9 billion market cap) commercial-stage pharmaceutical company headquartered in suburban Philadelphia that is focused on rare neurological diseases such as narcolepsy.  Recently, they were included in a list of recommended investments by Goldman Sachs for companies with good sales growth, profitability, and valuation characteristics.  The current average target price for the eight analysts covering Harmony Biosciences is $63.00 (+92.7% above the current stock price).   

The probability that Harmony Biosciences' stock is above the strike price on the April 21st options expiration date (in which case the Puts expire worthless and the maximum potential profit is achieved) was 73.0% when this position was established.  Just prior to establishing this position, a comparison was made to determine whether establishing a Covered Calls position or a Cash-Secured Puts position would be preferable.  For this Harmony Biosciences position, selling the Puts was preferable since it provided a tighter bid/ask spread ratio and the potential for a slightly higher annualized-return-on-investment. 

Harmony Biosciences Holdings, Inc. (HRMY) -- New 100% Cash-Secured Puts Position

As detailed below for this Harmony Biosciences 100% Cash-Secured Puts position, there is potential for a +3.6% absolute return in 19 days (equivalent to a +69.2% annualized return-on-investment).  As a consequence of the high Implied Volatility of these HRMY Puts, I am very pleased with this attractive potential result--especially given both the large 9.0% downside protection to the strike price and an approximate 73.0% probability of achieving the maximum return-on-investment potential with this investment.

The transaction today was as follows:
4/3/2023  Sold 5 Harmony Biosciences April 21st, 2023 $30.00 100% Cash-Secured Put options @ $1.05 per share.

The Covered Calls Advisor does not use margin, so the detailed information on this position and the potential result detailed below reflect that this position was established using 100% cash securitization for the five Harmony Biosciences Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Puts Net Investment: $14,478.35
= ($30.00 - $1.05) * 500 shares + $3.35 commission

Potential Net Profit:
(a) Options Income: +$521.65
= ($1.05 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Harmony Biosciences stock is above the $30.00 strike price at the April 21st options expiration): +$0.00
= ($105.00 - $105.00) * 500 shares

Total Net Profit [If Harmony Biosciences stock price is out-of-the-money (i.e. above $30.00 strike price) at options expiration]: +$521.65
= (+$521.65 options income +$0.00 dividend income +$0.00 capital appreciation)

Potential Absolute Return-on-Investment: (If stock is above $30.00 strike price at the 4/21/2023 options expiration) : +3.6%
= +$521.65/$14,478.35
Potential Annualized Return-on-Investment: +69.2%
= (+$521.65/$14,478.35) * (365/19 days)

Regards and Godspeed,
Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net

March 31st, 2023 Options Expiration Results

The Covered Calls Advisor Portfolio had three Covered Calls positions with March 31st, 2023 weekly options expirations.  Two positions [Energy Select Sector SPDR ETF (XLE) and the SPDR S&P 500 ETF (SPY)] 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 The Cigna Group closed out-of-the-money so the Calls expired and the 100 Cigna shares remain in the Covered Calls Advisor Portfolio.  A summary of the results for each position are as follows:

1. Energy Select Sector SPDR ETF -- +2.3% absolute return (equivalent to +38.5% annualized return-on-investment) for the 22 days of this investment.  This Covered Calls position was assigned at the $80.00 strike price on its 3/31/2023 options expiration date since XLE stock closed in-the-money at $82.83 per share.  The original post detailing this Energy Select Sector SPDR ETF Covered Calls position is here. 

2. SPDR S&P 500 ETF (SPY) -- +1.4% absolute return (equivalent to +21.2% annualized return-on-investment) for the 24 days of this investment.  This Covered Call position was assigned at the $386.00 strike price on its 3/31/2023 options expiration date since SPY closed in-the-money at $409.39 per share.  The original post detailing this S&P 500 Covered Call position is here.  

3. The Cigna Group (CI) -- Cigna's stock price has declined sharply, so this Covered Call position closed deeply out-of-the-money.  The strike price was $277.50 and the stock closed at $255.53.  The one 3/31/2023 Cigna Call expired and 100 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 with this Covered Call position and attempting to repair it back towards breakeven by selling one CI Call against the 100 Cigna 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, at my email address shown below, on any topics related to the Covered Calls investing strategy.

Best Wishes and Godspeed,

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net