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
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.
