Established Covered Calls Position in Truist Financial Corporation

At 10:40a.m. this morning, a Covered Calls position was established in Truist Financial Corporation (ticker symbol TFC) with the purchase of 400 shares at $29.63 per share and four June 16th, 2023 Call options were sold for $2.69 per share at the $27.50 strike price.  The Extrinsic Value (aka Time Value) in the Call options when this position was established was $.56 per share = [$2.69 options premium - ($29.63 stock price - $27.50 strike price)] per share.  Given the Covered Calls Advisor's currently cautious Overall Market Meter sentiment, a moderately in-the-money Covered Calls position was established.  The Delta of the Calls was 73.3 when this buy/write transaction was executed which approximates the probability of assignment on the June 16th, 2023 options expiration date.  

Truist is a super-regional bank in Southeast U.S. (note: it is the 6th largest bank in the U.S. by market capitalization) that resulted from the merger completed in late 2019 of SunTrust and BB&T banks.  Fundamentally, the stock has a very attractive current valuation and technically it is short-term oversold with its RSI(2)=15.9.  Twenty-three Wall Street analysts have a current average price target of $40.92 which is +38.1% above today's purchase price.

A potential return-on-investment result for this Truist Financial Covered Calls position is +2.1% absolute return (equivalent to +44.1% annualized return for the next 17 days) if the stock is assigned on the June 16th, 2023 options expiration date. 

Truist Financial Corporation (TFC) -- New Covered Calls Position
The transactions were:
5/31/2023 Bought 400 Truist shares @ $29.63
5/31/2023 Sold 4 TFC 6/16/2023 $27.50 Call options @ $2.69
Note: the Implied Volatility of these Call options was very high at 56.9 when this position was established.

A possible overall performance result (including commissions) for this
Truist Covered Calls position is as follows:
Covered Calls Cost Basis: $10,778.68
= ($29.63 - $2.69) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,073.32
= ($2.69 * 400 shares) - $2.68 commission
(b) Dividend Income (If Truist shares assigned at the June 16th, 2023 expiration): +$0.00
(c) Capital Appreciation (If TFC shares assigned at $27.50 strike price at options expiration): -$852.00
+($27.50- $29.63) * 400 shares

Total Net Profit (If Truist shares assigned at $27.50 at the June 16th, 2023 options expiration): +$221.32

= (+$1,073.32 options income +$0.00 dividend income -$852.00 capital appreciation)

Potential Absolute Return-on-Investment (If Truist shares assigned at $27.50 strike price at the June 16th, 2023 expiration): +2.1%

= +$221.32/$10,778.68

Potential Annualized Return-on-Investment (If TFC stock assigned at $27.50 at the June 16th options expiration date): +44.1%

= (+$221.32/$10,778.68) * (365/17 days)

Early Assignment of Covered Calls Position in Qualcomm Inc.

Early this morning, the Covered Calls Advisor was notified by my broker that the two Qualcomm Inc.(ticker QCOM) June 9th, 2023 $101.00 Call options were exercised yesterday.  Qualcomm stock has had a significant increase from its purchase price of $104.35 on May 23rd to $116.00 at the market close yesterday.  The original $1.02 time value in the Calls when the position was established had declined at yesterday's market close to $0.05 per share at the Call options Bid/Ask midpoint price, so I was not surprised that (with nine days remaining until the options expiration date), the owner of these Qualcomm Calls exercised their option to buy the 200 shares at the $101.00 strike price in order to receive today's $.80 per share ex-dividend.  

I am pleased for this early assignment (despite losing the opportunity to capture today's $.80 ex-dividend) since the +46.2% annualized-return-on-investment (aroi) achieved by early assignment is greater than the +36.8% aroi that would have been achieved 9 days from today if this position remained in-the-money and so instead would be assigned on its June 9th options expiration date.   

The post when this Qualcomm Covered Calls position was originally established is here.  As detailed below, the return-on-investment result for this position was +1.0% absolute return in 8 days (equivalent to a +46.2% annualized return-on-investment).  

Qualcomm Inc. (QCOM) -- Covered Calls Position Closed Out by Early Assignment
The simultaneous buy/write transactions was as follows:
5/23/2023 Bought 200 shares of Qualcomm stock @ $104.35 per share.  
5/23/2023 Sold 2 Qualcomm June 9th, 2023 $101.00 Call options @ $4.37 per share.
5/31/2023 This QCOM Covered Calls position was closed out by early assignment.  The owner of the QCOM Calls exercised their option, so the Calls expired worthless and the 200 Qualcomm shares were sold at the $101.00 strike price.

The overall performance results (including commissions) are as follows:
Covered Calls Net Investment: $19,994.66
= ($104.35 - $4.37) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$872.66
= ($4.37 * 200 shares) - $1.34 commission
(b) Dividend Income (Qualcomm stock assigned early on the day prior to the May 31st ex-dividend date): $0.00
(c) Capital Appreciation (QCOM stock assigned early on the day prior to the May 31st ex-dividend date): -$670.00
= ($101.00 strike price - $104.35 stock purchase price) * 200 shares

Net Profit: +$202.66
= (+$872.66 options income +$0.00 dividend income - $670.00 capital appreciation)

Absolute Return-on-Investment: +1.0%
= +$202.66/$19,994.66
Equivalent Annualized Return-on-Investment: +46.2%
= (+$202.66/$19,994.66) * (365/8 days)

Established Covered Calls Position in Match Group Inc.

A Covered Calls position was established in Match Group Inc. (MTCH) when the Covered Calls Advisor's buy/write limit order at a net debit limit price of $31.72 was executed.  Four hundred shares were purchased at $34.17 and four June 16th, 2023 Call options were sold at $2.45 at the $32.50 strike price.  The time value was $.78 per share = [$32.50 strike price - ($34.17 stock purchase price - $2.45 Call options price)].   Given my current cautious stock market outlook, a moderately in-the-money Covered Call position was established with a Delta of 69.6 which approximates a 69.6% probability this position will be in-the-money and therefore assigned on the June 16th, 2023 options expiration date.  As desired, there is no earnings report prior to the options expiration date.

The Match Group is the leading online dating services company worldwide including several brands that include Tinder, Match, and Hinge.  Their stock price has plummeted by 57% in the past year and it is now near its lowest price of the past 5 years.  Importantly, Match is profitable and their earnings per share are likely to be at an inflection point where they can begin to obtain regular quarterly revenue and profit increases based on their worldwide presence and their growth opportunities (especially in Asia but also in Europe).  Importantly, as part of their Q1 2023 earnings report, they announced a new $1.0 billion stock buyback authorization (10%+ of the current market cap) which will be implemented over the next two to three years using about half of their free cash flow resources.  The primary catalyst for this increasing optimism stems primarily from the dynamism of Match's relatively new CEO, Bernard Kim, who has been in his new position for only one year now but who demonstrated outstanding performance in his prior CEO role at Zynga.  Match's current FY 2023 EPS estimates are at $1.97 per share (+60% above FY 2022) and a further +21% increase to about $2.38 is estimated for FY2024.  Wall Street analysts are also becoming increasingly bullish on Match Group's near-term prospects -- twenty-three analysts follow the company and their average price target is currently at $52.36 (fully +53.2% above today's purchase price).  

As detailed below, the potential return-on-investment results for this Match Group Inc. Covered Calls position is +2.4% absolute return (equivalent to +49.4% annualized return-on-investment for the next 18 days) if the stock is assigned on the June 16th options expiration date.

Match Group Inc. (MTCH) -- New Covered Calls Position

The buy/write transaction was:
5/30/2023 Bought 400 Match Group Inc. shares @ $34.17
5/30/2023 Sold 4 MTCH 6/16/2023 $32.50 Call options @ $2.45 per share.

A possible overall performance result (including commissions) for this Match Group Covered Calls position is as follows:
Covered Call Net Investment: $12,690.68
= ($34.17 - $2.45) * 400 shares + $2.68 commission

Net Profit:
(a) Options Income: +$977.32
= ($2.45 * 400 shares) - $2.68 commission
(b) Dividend Income: +$0.00
= ($0.00 dividends per share x 400 shares)
(c) Capital Appreciation (If MTCH shares assigned at $32.50 strike price at expiration): -$668.00
+($32.50 - $34.17) * 400 shares

Total Net Profit (If options exercised on the 6/16/2023 options expiration date): +$309.32

= (+$977.32 options income +$0.00 dividend income -$668.00 capital appreciation)

Potential Absolute Return-on-Investment (If the Match Group Inc. shares are assigned at the $32.50 strike price at the June 16th, 2023 options expiration date): +2.4%

= +$309.32/$12,690.68

Potential Annualized Return-on-Investment (If 400 Match Group shares assigned at $32.50 at the June 16th, 2023 options expiration): +49.4%

= ($309.32/$12,690.68) * (365/18 days)

Established Covered Calls Position in Terex Corporation

Early in this morning's trading, I entered a Covered Calls simultaneous buy/write net debit limit order in Terex Corporation (ticker TEX) for the June 16th, 2023 expiration and at the $45.00 strike price and at a net debit limit price of $44.40 per share.  The order was transacted after only about 5 minutes when 400 shares were purchased at $48.27 and four 6/16/2023 Call options were sold at the $45.00 strike price for $3.87 per share.  So, the potential time value profit from the Call options is $.60 per share [$45.00 strike price - ($48.27 stock purchase price - $3.87 Call options price)], and the Implied Volatility of these Call options was 34.2 when this transaction was executed.  

In addition to the potential time value profit of $.60 per share, there is an upcoming quarterly ex-dividend of $.15 per share (1.2% annual dividend yield) on June 5th which is included in the potential return-on-investment calculations detailed below.  When this in-the-money Covered Calls position was established this morning it had a probability of assignment on the options expiration date of 76.9%. 

Terex Corp. is a small-cap ($3.3 billion) company in the Machinery industry (within the Industrials sector) and their sales are balanced between two divisions -- Materials Processing (many brands) and Aerial Lifts and Work Platforms (Genie brand).  I am impressed with the mature and disciplined leadership of both CEO John Garrison and CFO Julie Beck.  Terex meets all five criteria I currently use for a company to be considered as a candidate for investment.

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

•  +1.3% absolute return (equivalent to +81.3% annualized return for the next 6 days) if the stock is assigned early (the last business day prior to the June 5th, 2023 ex-dividend date); OR 

• +1.6% absolute return (equivalent to +33.4% annualized return over the next 18 days) if the stock is assigned on the June 16th, 2023 options expiration date.

These returns will be achieved as long as the Terex stock price is above the $45.00 strike price when assigned.  If the stock declines below the strike price, the breakeven price of $44.25 per share ($48.27    stock purchase price - $3.87 Call options selling price - $.15 ex-dividend amount) provides an 8.3% downside breakeven protection if assigned on the options expiration date.
 

Terex Corporation -- New Covered Calls Position

The simultaneous buy/write transaction was:
5/30/2023 Bought 400 Terex Corporation shares @ $48.27 per share
5/30/2023 Sold 4 Terex June 16th, 2023 $45.00 Call options @ $3.87 per share
6/5/2023 Upcoming quarterly ex-dividend at $.15 per share

Two possible overall performance results (including commissions) for this Terex Corporation Covered Calls position are as follows:
Covered Calls Net Investment: $17,762.68
= ($48.27 - $3.87) * 400 shares + $2.68 commission

Net Profit:
(a) Options Income: +$1,545.32
= ($3.87 * 400 shares) - $2.68 commission
(b) Dividend Income (If option exercised early on this Friday, June 2nd, 2023 which is the last business day prior to next Monday's June 5th ex-div date): +$0.00; or
(b) Dividend Income (If Terex's shares assigned at the June 16th, 2023 options expiration date): +$60.00
= ($.15 dividend per share x 400 shares)

(c) Capital Appreciation (If 400 Terex shares assigned early): -$1,308.00
+($45.00 -$48.27) * 400 shares; or
(c) Capital Appreciation (If Terex shares assigned at $45.00 strike price at options expiration): -$1,308.00
+($45.00 -$48.27) * 400 shares

1. Total Net Profit (If option exercised early): +$237.32

= (+$1,545.32 options income +$0.00 dividend income -$1,308.00 capital appreciation); or

2. Total Net Profit (If Terex stock assigned at $45.00 at the June 16th, 2023 expiration): +$297.32

= (+$1,545.32 options income +$60.00 dividend income -$1,308.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on the last business day prior to the 6/5/2023 ex-dividend date): +1.3%

= +$237.32/$17,762.68

Annualized Return-on-Investment (If option exercised early): +81.3%

= (+$237.32/$17,762.68) * (365/6 days); or

2. Absolute Return-on-Investment (If Terex stock assigned at $45.00 at the June 16th, 2023 options expiration date): +1.6%

= +$297.32/$17,762.68

Annualized Return-on-Investment (If Terex shares assigned at $45.00 at the 6/16/2023 options expiration date): +33.4%

= (+$297.32/$17,762.68) *(365/18 days)

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, eight of the nine criteria are achieved for this Terex Corporation position.

May 26th, 2023 Options Expiration Results

The Covered Calls Advisor Portfolio had two Covered Calls positions with May 26th, 2023 weekly options expirations.  One position in Conoco Phillips closed in-the-money at $101.85 so the Calls expired and the shares were called away (i.e. sold) at the $95.00 strike price.  The second 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. Conoco Phillips -- +1.6% absolute return (equivalent to +35.4% annualized return-on-investment) for the 17 days of this investment.  This Covered Calls position was assigned at the $95.00 strike price on its 5/26/2023 options expiration date since COP closed in-the-money at $101.85 per share.  The original post detailing this Covered Calls position is here. 

2. The Cigna Group (CI) -- Cigna's stock price closed yesterday at $244.10 which was well below its $260.00 strike price.  The one 5/26/2023 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.  If you are interested in the details of this position to-date, the most recent Cigna post is shown here.

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

Covered Calls Established in Halliburton Company

Today, a Covered Calls position was established in Halliburton Company (ticker symbol HAL) when 800 HAL shares were purchased at $30.02 and eight June 16th, 2023 monthly Call options were sold for $2.50 per share at the $28.00 strike price.  The net debit limit order at $27.52 was executed, so the potential time value profit was $.48 per share [$2.50 Call options premium - ($30.02 stock purchase price - $28.00 strike price)].

There is an upcoming quarterly ex-dividend of $.16 per share (annual dividend yield of 2.1%) on June 6th, so potential return-on-investment results for this position, as detailed below, include the possibility of early assignment because the ex-dividend is prior to the June 16th, 2023 options expiration date.  As preferred by the Covered Calls Advisor, the next quarterly earnings report on July 25th, 2023 is after the options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, a moderately in-the-money Covered Calls position was established with a Delta of 75.1.  Since many companies in the Energy Sector are slow-growers but also have a good dividend yield, I prefer using my Dividend Capture Strategy (see here) for my Covered Calls positions in this sector.

Halliburton is a leading oilfield services company providing products and services to the global energy industry.  Given its current fiscal year EPS estimate of $3.13 per share, the P/E ratio is 9.6 which is well below its prior 5-year average of 14.0.  They have beat analysts' EPS estimates for each of the past 4 quarters and are also expected to exceed EPS estimates in each of the next 4 quarters when compared against their prior year quarter.  Analysts' current average price target is $48.00 (+59.9% above today's purchase price).

As detailed below, a potential return-on-investment result is +1.7% absolute return (equivalent to +57.9% annualized return for the next 11 days) if the stock is assigned early on the last business day prior to the June 6th ex-dividend date); OR +2.3% absolute return (equivalent to +38.6% annualized return over the next 22 days) if the stock is assigned on the June 16th, 2023 options expiration date.


Halliburton Company (HAL) -- New Covered Calls Position

The transactions were:
5/26/2023 Bought 800 Halliburton Co. shares @ $30.02
5/26/2023 Sold 8 HAL 6/16/2023 $28.00 Call options @ $2.50
Note: A simultaneous buy/write transaction was executed.   The Implied Volatility of the Call options was 42.9 when this Covered Calls position was established (which as preferred is well above the 17.7 of the S&P 500 Volatility Index--VIX).
6/6/2023 Upcoming quarterly ex-dividend of $.16 per share

Two possible overall performance results (including commissions) for this Halliburton Co. Covered Calls position are as follows:
Covered Calls Cost Basis: $22,010.64
= ($30.02 - $2.50) * 800 shares + $5.36 commissions

Net Profit Components:
(a) Options Income: +$2,000.00
= ($2.50 * 800 shares)
(b) Dividend Income (If option exercised early on the business day prior to the June 6th ex-div date): +$0.00; or
(b) Dividend Income (If Halliburton shares assigned at the June 16th, 2023 expiration): +$128.00
= ($.16 dividend per share x 800 shares)
(c) Capital Appreciation (If HAL assigned early on June 6th, 2023): -$1,616.00
+($28.00 - $30.02) * 800 shares; or
(c) Capital Appreciation (If HAL assigned at the $28.00 strike price at the June 16th, 2023 options expiration): -$1,616.00
+($28.00 -$30.02) * 800 shares

1. Total Net Profit [If option exercised on June 5th (last business day prior to the June 6th ex-dividend date)]: +$384.00

= (+$2,000.00 options income +$0.00 dividend income -$1,616.00 capital appreciation); or

2. Total Net Profit (If Halliburton shares assigned at $28.00 strike price at its June 16th, 2023 expiration): +$512.00

= (+$2,000.00 +$128.00 dividend income -$1,616.00)

1. Absolute Return-on-Investment [If HAL options exercised on business day prior to ex-dividend date]: +1.7%

= +$384.00/$22,010.64

Annualized Return-on-Investment (If option exercised early): +57.9%

= (+$384.00/$22,010.64) * (365/11 days); or

2. Absolute Return (If HAL shares assigned at $28.00 at the June 16th, 2023 expiration): +2.3%

= +$512.00/$22,010.64

Annualized Return (If Halliburton stock assigned at $28.00 at the June 16th, 2023 expiration): +38.6%

= (+$512.00/$22,010.64) * (365/22 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $28.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $27.36 ($30.02 -$2.50 -$.16) provides 8.9% 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, all nine criteria are achieved for this Halliburton Company Covered Calls position.

Established Covered Calls Position in The Walt Disney Company

A Covered Calls position was established in The Walt Disney Company (DIS) when the Covered Calls Advisor's buy/write limit order at a net debit limit price of $83.66 was executed. Two hundred shares were purchased at $88.80 and two June 16th, 2023 Call options were sold at $5.14 at the $85.00 strike price.  The time value was $1.34 per share = [$85.00 strike price - ($88.80 stock purchase price - $5.14 Call options price)].   Given my current cautious stock market outlook, a moderately in-the-money Covered Call position was established with a Delta of 71.4 which approximates a 71.4% probability this position will be in-the-money and therefore assigned on the June 16th, 2023 options expiration date.  As desired, there is no earnings report prior to the options expiration date.

This Disney investment is largely a belief in the extraordinary leadership of Bob Iger.  In his prior 15 years as CEO (that concluded in February 2020), his operating and acquisition decisions were very highly praised and which resulted in a +256% stock price appreciation during his tenure as CEO.  Now that he has returned as CEO for at least a couple more years, I am confident his knowledge of the company combined with his exceptional decision-making ability will bode well for the near-term results of the company and its stock price. Wall Street analysts' agree since their current average target price is $120.78 (+36.0% above today's purchase price).

As detailed below, the potential return-on-investment results for this Disney Covered Calls position is +1.6% absolute return (equivalent to +25.3% annualized return-on-investment for the next 23 days) if the stock is assigned on the June 16th options expiration date.

The Walt Disney Company (DIS) -- New Covered Calls Position

The buy/write transaction was:
5/25/2023 Bought 200 The Walt Disney Company shares @ $88.80
5/25/2023 Sold 2 DIS 6/16/2023 $85.00 Call options @ $5.14 per share.

A possible overall performance result (including commissions) for this Disney Covered Calls position is as follows:
Covered Call Net Investment: $16,733.34
= ($88.80 - $5.14) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,026.66
= ($5.14 * 200 shares) - $1.34 commission
(b) Dividend Income (If DIS shares assigned at the June 16th, 2023 expiration): +$0.00
= ($0.00 dividends per share x 200 shares)
(c) Capital Appreciation (If DIS shares assigned at $85.00 strike price at expiration): -$760.00
+($85.00 - $88.80) * 200 shares

Total Net Profit (If options exercised on the 6/16/2023 options expiration date): +$266.66

= (+$1,026.66 options income +$0.00 dividend income -$760.00 capital appreciation)

Absolute Return-on-Investment (If Disney shares assigned at $85.00 at the June 16th, 2023 expiration): +1.6%

= +$266.66/$16,733.34

Annualized Return-on-Investment (If 200 shares assigned at $85.00 at the June 16th, 2023 options expiration): +25.3%

= (+$266.66/$16,733.34) * (365/23 days)

Established Covered Calls Position in General Motors Co.

A Covered Calls position was established this afternoon in General Motors Co. (ticker symbol GM) with a June 9th, 2023 options expiration.  This is the third Covered Calls position established today in the Covered Calls Advisor's Portfolio.

GM's current price of $32.17 is near its low for the past 3 years and its recent decline from the $40 area for a good portion of the past year.  But I am bullish on GM now given both: (1) its good valuation metrics (such as low price-to-sales, p/e ratio, and price-to-book values) in comparison to their prior 5-year averages; and (2) the fact that GM is estimated to make a dramatic EPS increase this quarter to $1.63 per share versus $1.14 in the same quarter last year--and they also have exceeded analysts' EPS estimates in each of their last three quarters.  

GM has an upcoming quarterly ex-dividend on June 1st at $.09 per share, so two potential return-on-investment results for this position includes the possibility of early exercise since the ex-dividend date is prior to the June 9th options expiration date.  Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, in-the-money Covered Calls were established. 

As detailed below, two potential return-on-investment results for this GM position are: 

• If Early Assignment: +1.2% absolute return (equivalent to +55.8% annualized return for the next 8 days) if the stock is assigned early (business day prior to June 1st ex-date); OR

• If Dividend Capture: +1.5% absolute return (equivalent to +32.2% annualized return over the next 17 days) if the stock is assigned at the June 9th, 2023 expiration date.

General Motors Co. (GM) -- New Covered Calls Position

The $.09 ex-dividend of June 1st is included in the potential results detailed below.  Although unlikely, if the current time value (i.e. extrinsic value) of $.40 [$2.07 option premium - ($32.17 stock price - $30.50 strike price)] remaining in the short Call options decay to about $.10 or less by May 31st (the last business day prior to the 6/1/2023 ex-div date), then it is possible that the five Call options would be exercised early by the owner of the Calls in order for them to capture the dividend and purchase the 500 GM shares at the $30.50 strike price.

The transactions were:
05/24/2023 Bought 500 GM shares @ $32.17
05/24/2023 Sold 5 GM June 9, 2023 $30.50 Call options @ $2.07 per share
Note: a simultaneous buy/write transaction was executed at a net debit limit order of $30.10 per share.
06/01/2023 Upcoming ex-dividend of $.09 per share

Two possible overall performance results (including commissions) for this General Motors Covered Calls position are as follows:
Covered Calls Position Net Investment: $16,088.35
= ($32.17 * 500 shares +$3.35 commission)

Net Profit:
(a) Options Income: +$1,031.65
= ($2.07 per share x 500 shares) - $3.35 commissions
(b) Dividend Income (If option exercised early on business day prior to June 1st ex-div date): +$0.00; or
(b) Dividend Income (If GM assigned at the June 9th, 2023 expiration): +$45.00

= $.09 per share x 500 shares.

(c) Capital Appreciation (If GM assigned early on June 1st): -$835.00
+($30.50 - $32.17) * 500 shares; or
(c) Capital Appreciation (If GM assigned at $30.50 at the June 9th, 2023 options expiration): -$835.00
+($30.50 - $32.17) * 500 shares 

1. Total Net Profit (If option exercised on day prior to June 1st ex-dividend date): +$196.65

= (+$1,031.65 options income +$0.00 dividend income -$835.00 capital appreciation); or

2. Total Net Profit (If GM assigned at $30.50 at the June 9th, 2023 expiration date): +$241.65

= (+$1,031.65 options income +$45.00 dividend income - $835.00 capital appreciation)

1. Absolute Return [If option exercised on May 31st (business day prior to ex-dividend date)]: +1.2%

= +$196.65/$16,088.35

Annualized Return (If option exercised early): +55.8%

= (+$196.65/$16,088.35) * (365/8 days); or

2. Absolute Return (If GM assigned at $30.50 at its June 9th, 2023 expiration): +1.5%
= +$241.65/$16,088.35

Annualized Return: +32.2%

= (+$241.65/$16,088.35) * (365/17 days)

Using the Black-Scholes Options Pricing Model in the Schwab Hypothetical Options Pricing Calculator, the probability of making a profit (if held until the June 9th, 2023 options expiration) for this GM position is 74.6%. This compares with a probability of profit of 50.2% for a buy-and-hold of this GM stock over the same time period. Using this probability of profit of 74.6%, the approximate expected value annualized return-on-investment (if held until expiration) is +24.1% (+32.2% maximum potential annualized return on investment * 74.6%), an attractive risk/reward profile for this relatively conservative investment.  

The 'crossover price' at expiration is $34.15 ($32.17 - $.09 + $2.07).  This is the price above which it would have been more profitable to simply buy-and-hold GM stock until the June 9th, 2023 options expiration date rather than establishing this GM Covered Calls position.

As always I welcome your email questions at partlow@cox.net.

Best Wishes and Godspeed,

Jeff Partlow

partlow@cox.net

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 $308.86 was executed. One hundred shares were purchased at $332.70 and 1 June 9th, 2023 Call option was sold at $23.84 at the $315.00 strike price.  The time value was $6.14 per share = [$315.00 strike price - ($332.70 stock purchase price - $23.84 Call option price)].   Given my current cautious stock market outlook, a moderately in-the-money Covered Call position was established with a Delta of 71.6 which approximates a 71.6% probability this position will be in-the-money and therefore assigned on the June 9th, 2023 options expiration date.

Three features of this position are: (1) the next earnings report on July 26th is after the June 9th options expiration date; (2) There is no intervening ex-dividend date prior to the expiration date; and (3) As preferred, the Implied Volatility of this United Rentals Call option of 44.6 when this position was established is substantially above that of VIX which is currently 20.2.  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 Rentals is the largest rental equipment company in the world (two divisions are general rentals and specialty rentals) with annual revenues of $14 billion, a market cap of $23 billion, 25,000 employees, and 1,450 rental locations.  Their store network is nearly three times the size of any other provider, with locations in 49 states and all Canadian provinces, and they continue to grow faster than their competitors through a combination of organic growth and tuck-in acquisitions.  They have identified five tailwinds that bode well for their continued strong organic growth -- Infrastructure Bill, EV investment, new domestic semiconductor manufacturing, North American LNG infrastructure, and the Inflation Reduction Act (clean energy).  CEO Matt Flannery has a strong, experienced top management team all of whom seem to be focused on a company culture of serving people (both customers and employees) as well as on continued financial excellence via a continuing commitment to increasing revenues, return-on-invested-capital margins, and EBITDA.  They also continue to demonstrate confidence in their business with shareholder-friendly policies of aggressive share repurchases, debt reduction from their strong cash flow, and beginning this year they established their first quarterly dividend policy at an approximate 1.5% annual dividend yield. 

United Rental's valuation is attractive based on a trailing twelve months (through Q1 2023) P/E Ratio of only 10.2 (below their prior 5-year average of 12.0) and their upcoming full FY 2023 EPS are expected to increase by 18.6% and they have beat analysts' quarterly EPS estimates in the Q1 quarter as well as two of the last three prior quarters.  In addition, Wall Street analysts' current average target price is $433.22 (+30.2% above today's purchase price).

As detailed below, the potential return-on-investment results for this United Rentals Inc. Covered Call position is +2.0% absolute return (equivalent to +42.6% annualized return-on-investment for the next 17 days) if the stock is assigned on the June 9th options expiration date.

United Rentals Inc.(URI) -- New Covered Call Position
The buy/write transaction was:
5/24/2023 Bought 100 United Rentals shares @ $332.70
5/24/2023 Sold 1 URI 6/9/2023 $315.00 Call option @ $23.84 per share.

A possible overall performance result (including commissions) for this United Rentals Covered Call position are as follows:
Covered Call Net Investment: $30,886.67
= ($332.70 - $23.84) * 100 shares + $.67 commission

Net Profit:
(a) Option Income: +$2,383.33
= ($23.84 * 100 shares) - $.67 commission
(b) Dividend Income (If URI shares assigned at June 9th, 2023 expiration): +$0.00
= ($0.00 dividends per share x 100 shares)
(c) Capital Appreciation (If URI shares assigned at $315.00 strike price at expiration): -$1,770.00
+($315.00 - $332.70) * 100 shares

Total Net Profit (If option exercised on the 6/9/2023 options expiration date): +$613.33

= (+$2,383.33 option income +$0.00 dividend income -$1,770.00 capital appreciation)

Absolute Return-on-Investment (If URI shares assigned at $315.00 at the June 9th, 2023 expiration): +2.0%

= +$613.33/$30,886.67

Annualized Return-on-Investment (If 100 shares assigned at $315.00 at the June 9th, 2023 options expiration): +42.6%

= (+$613.33/$30,886.67) * (365/17 days)

Covered Calls Established in Bank of America Corporation

Early this afternoon, a Covered Calls position was established in Bank of America Corp. (ticker BAC) with the purchase of 500 shares at $28.11 per share and five June 9th, 2023 Call options were sold for $1.40 per share at the $27.00 strike price.  This position replaces another Financial Sector position in Discover Financial Services that was called away by early assignment early this morning.  This Bank of America transaction occurred via a simultaneous buy/write transaction at my net debit limit order of $26.71 per share.  The corresponding time value (aka extrinsic value) in the Call options was $.29 per share = [$1.40 Call options premium received - ($28.11 stock purchase price - $27.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at approximately 72.9 when this buy/write transaction was executed, which approximates the probability of assignment on the June 9th, 2023 options expiration date. 

Bank of America goes ex-dividend at $.22 per share (3.1% annualized dividend yield at the current stock price) on June 1st, 2023 which is prior to the June 9th options expiration date, so this dividend is included in the potential return-on-investment results shown below.  This 3.1% annual dividend yield exceeds the current 1.55% annual dividend yield of the S&P 500 Index (i.e. SPY).  Also shown below, all nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and (as preferred by the Covered Calls Advisor) the next quarterly earnings report on July 18th, 2023 is after the June 9th options expiration date.  Wall Street analyts' current target price is $36.40 which is +29.5% above today's stock purchase price.

Most companies in the Financial Sector provide only modest growth prospects, but they often provide good annual dividend yields.  Consequently, the Covered Calls Advisor targets opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions.  This new June 9th, 2023 Bank of America Covered Calls position continues the Dividend Capture Strategy of often selling in-the-money monthly Covered Calls for one of six megacap U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, Morgan Stanley, and Wells Fargo) for each options expiration month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup, Morgan Stanley, and/or Wells Fargo for Feb, May, Aug, and Nov options expirations; and
Bank of America and/or Goldman Sachs for Mar, Jun, Sep, and Dec options expirations). 

The goal of these monthly Covered Calls in these banks is to both provide an opportunity to either: (1) potentially capture the quarterly dividend payment and if the stock price remains above the strike price at options expiration, the maximum possible return-on-investment result on the options expiration date for the position would be achieved; or (2) have the stock assigned early on the day prior to the ex-dividend date in which case the Covered Calls Advisor is usually very pleased since the Dividend Capture Strategy criteria are designed such that most often the annualized return-on-investment for early assignment is greater than that would be achieved if the stock was instead assigned on the options expiration date (which is the case for this BofA position).  So far, applying this approach has provided attractive annualized return results -- significantly better than would be achieved if Covered Calls positions for these bank stocks were held in the Covered Calls Advisor Portfolio in the other two non-dividend paying months each quarter.  

Two potential return-on-investment results for this Bank of America Covered Calls position are: (a) +1.1% absolute return-on-investment (equivalent to +55.4% annualized return-on-investment for the next 7 days) in the event that the stock is assigned early [i.e. on May 31st which is the last trading day prior to the June 1st ex-dividend date]; OR (b) +1.9% absolute return-on-investment (equivalent to +40.5% annualized return-on-investment over the next 17 days) if the stock is assigned on the June 9th, 2023 options expiration date. 

Bank of America Corporation (BAC) -- New Covered Calls Position

The buy/write transaction was as follows:
5/24/2023 Bought 500 shares of Bank of America Corp. stock @ $28.11 per share 
5/24/2023 Sold 5 BAC June 9th, 2023 $27.00 Call options @ $1.40 per share
Note: The Implied Volatility of these Calls was 31.0 when this position was established.
6/1/2023 Upcoming ex-dividend of $.22 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $13,358.35
= ($28.11 - $1.40) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$696.65
= ($1.40 * 500 shares) - $3.35 commission
(b) Dividend Income (If BAC shares assigned on 5/31/2023, the last business day prior to the 6/1/2023 ex-dividend date): = +$0.00; or
(b) Dividend Income (If BAC shares assigned at the 6/9/2023 options expiration): +$110.00
= $.22 per share x 500 shares
(c) Capital Appreciation (If BAC shares assigned early on 5/31/2023): -$555.00
= ($27.00 - $28.11) * 500 shares; or
(c) Capital Appreciation (If shares above $27.00 strike price at the June 9th options expiration): -$555.00
= ($27.00 -$28.11) * 500 shares

1. Potential Net Profit (If Bank of America shares assigned on 5/31/2023, the day prior to the June 1st ex-dividend date): +$141.96
= (+$696.65 options income +$0.00 dividend income - $555.00 capital appreciation)
2. Potential Net Profit (If BAC price is above the $27.00 strike price at the June 9th options expiration): +$251.96
= (+$696.65 options income +$110.00 dividend income - $555.00 capital appreciation)

1. Absolute Return (If BAC shares assigned on 5/31/2023, the day prior to the June 1st ex-dividend date): +1.1%
= +$141.96/$13,358.35
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +55.4%
= (+$141.96/$13,358.35) * (365/7 days)

2. Absolute Return (If BAC price is above $27.00 strike price at the June 9th options expiration): +1.9%
= +$251.96/$13,358.35
Equivalent Annualized Return (If assigned on the 6/1/2023 options expiration date): +40.5%
= (+$251.96/$13,358.35) * (365/17 days)

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 Bank of America Covered Calls position.

Early Assignment of Covered Calls Position in Discover Financial Services

Early this morning, the Covered Calls Advisor was notified by my broker that the three Discover Financial Services (ticker DFS) June 2nd, 2023 $91.00 Call options were exercised yesterday.  Discover stock has had a significant increase from its purchase price of $95.69 on May 16th to $101.90 at the market close yesterday.  The original $.80 time value in the Calls when the position was established had declined at yesterday's market close to $0.00 per share at the Call options Bid/Ask midpoint, so I was not surprised that (with nine days remaining until the options expiration date), the owner of these Discover Calls exercised their option to buy the 300 shares at the $91.00 strike price in order to receive today's $.70 per share ex-dividend.  

I am pleased for this early assignment (despite losing the opportunity to capture the $.70 ex-dividend) since the +40.1% annualized-return-on-investment (aroi) achieved by early assignment is greater than the +33.6% aroi that would have been achieved 9 days from today if this position remained in-the-money and so instead would be assigned on its June 2nd options expiration date.   

The post when this Discover Covered Calls position was originally established is here.  As detailed below, the return-on-investment result for this position was +0.9% absolute return in 8 days (equivalent to a +40.1% annualized return-on-investment).  

Discover Financial Services (DFS) -- Covered Calls Position Closed Out by Early Assignment
The simultaneous buy/write transaction was as follows:
5/16/2023 Bought 300 shares of Discover Financial Services @ $95.69 per share; and 
5/16/2023 Sold 3 DFS June 2nd, 2023 $91.00 Call options @ $5.49 per share.  The Implied Volatility of these Calls was 28.7 when this position was established.
5/24/2023 This DFS Covered Calls position was closed out by early assignment.  The owner of the DFS Calls exercised their option, so the Calls expired worthless and the 300 Discover shares were sold at the $91.00 strike price.
 
The overall performance results (including commissions) are as follows:
Covered Calls Cost Basis: $27,062.01
= ($95.69 - $5.49) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$1,644.99
= ($5.49 * 300 shares) - $1.34 commission
(b) Dividend Income (Call options exercised early on the last business day prior to the ex-div date): +$0.00
(c) Capital Appreciation (If Discover shares assigned early): -$1,407.00
+($91.00 strike price - $95.69 stock purchase cost) * 300 shares

Total Net Profit: +$237.99

= (+$1,644.99 options income + $0.00 dividend income - $1,407.00 capital appreciation)

Absolute Return-on-Investment: +0.9%

= +$237.99/$27,062.01

Annualized Return-on-Investment: +40.1%

= (+$237.99/$27,062.01) * (365/8 days)

Covered Calls Established in Uber Technologies Inc.

This morning my buy/write net debit limit order was executed and 500 shares of Uber Technologies Inc.(ticker symbol UBER) stock were purchased at $39.50 and 5 June 23rd, 2023 $38.00 Call options were sold at $2.04 per share -- a net debit of $37.46 per share -- so the potential time value profit if the stock is in-the-money and therefore closed out by assignment at expiration is $.54 per share [$2.04 Call options premium - ($39.50 stock purchase price - $38.00 strike price)].  This limit order was placed soon after market open when the stock was $40.12 (well above the $39.50 purchase price).  I didn't expect the stock to decline that quickly, but am pleased that my limit order was executed at my net debit price.

This is a repeat of five similar Covered Calls positions in Uber during the past three months and all five were successfully assigned on their respective options expiration dates.  Like the prior five positions, today's new position was established at a moderately in-the-money strike price with an approximate probability that this position will be in-the-money and therefore assigned on the options expiration date of 71.0%.

The reasons for my bullish outlook on Uber remain unchanged from the descriptions included in my prior posts on this blog when these five Uber Covered Calls positions were established.  In addition, yesterday Evercore's Mark Mahaney identified three "value catalysts" that could propel its stock higher: (1) Uber is going to start actually generating positive positive GAAP earnings; (2) they'll start buying back stock, and (3) they'll finally reach the metrics needed to be included in the S&P 500.

As detailed below, a potential outcome for this Uber Technologies investment is +1.4% absolute return-on-investment for the next 17 days (equivalent to +30.6% annualized-return-on-investment) if the stock closes above the $38.00 strike price on the June 23rd, 2023 options expiration date.

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

The net debit buy/write limit order was executed as follows:
6/7/2023 Bought 500 shares of Uber Technologies Inc. stock @ $39.50 per share 
6/7/2023 Sold 5 Uber June 23rd, 2023 $38.00 Call options @ $2.04 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of the Calls was 34.0 when this position was established.  Also, 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 June 23rd expiration date is follows:
Covered Calls Net Investment: $18,733.35
= ($39.50 - $2.04) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$1,016.65
= ($2.04 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Uber stock is above the $38.00 strike price at the June 23rd expiration): -$750.00
= ($38.00 - $39.50) * 500 shares

Potential Total Net Profit (If assigned at expiration): +$266.65
= (+$1,016.65 options income + $0.00 dividend income - $750.00 capital appreciation)

Potential Absolute Return-on-Investment: +1.4%
= +$266.65/$18,733.35
Potential Equivalent Annualized-Return-on-Investment: +30.6%
= (+$266.65/$18,733.35) * (365/17 days)

Established Covered Calls in Qualcomm Inc.

Today a Covered Calls position was established using my dividend capture strategy in Qualcomm Inc. (ticker QCOM) when my buy/write limit order for the June 9th, 2023 $101.00s was executed at a net debit limit price of $99.98 per share.  Two hundred QCOM shares were purchased at $104.35 and 2 June 9th, 2023 $101.00 Calls were sold at $4.37 per share.  The corresponding potential time value (aka extrinsic value) profit is $1.02 per share = [$4.37 Call options premium - ($104.35 stock purchase price - $101.00 strike price)].  Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Call position was established at a Delta of 71.0, which closely approximates a probability of 71.0% that the Call options will be in-the-money and therefore assigned on the options expiration date.  In addition, the Implied Volatility of the Calls was 26.3 when the position was established which, as desired, was above the S&P 500 Volatility Index (VIX) which was 17.9. 

Qualcomm Inc. goes ex-dividend on May 31st, 2023 at $.80 per share (3.1% annualized dividend yield at the current stock price), so this dividend is included in the potential return-on-investment results shown below.  There is no earnings report prior to the options expiration date.  The average analysts' target price is currently $133.81 which is +28.2% above today's stock purchase price.

Two potential return-on-investment results for this Qualcomm Covered Calls position are: (a) +1.0% absolute return (equivalent to +46.2% annualized return for the next 8 days) if the stock is assigned early [i.e. on May 30th which is the last trading day prior to the May 31st ex-dividend date]; OR (b) +1.8% absolute return (equivalent to +36.8% annualized return over the next 18 days) if the stock is assigned on its June 9th, 2023 options expiration date.  I would not be disappointed, in fact I would be pleased, if the position is closed out early on the day prior to the ex-dividend date since the annualized return-on-investment of +46.2% would exceed the annualized return-on-investment of +36.8% if the position was instead closed out on its June 9th options expiration date.

Qualcomm Inc.(QCOM) -- New Covered Calls Position
The simultaneous buy/write transactions was as follows:
5/23/2023 Bought 200 shares of Qualcomm stock @ $104.35 per share.  
5/23/2023 Sold 2 Qualcomm June 9th, 2023 $101.00 Call options @ $4.37 per share.
5/31/2023 Upcoming ex-dividend at $.80 per share

The overall performance results (including commissions) would be as follows:
Covered Calls Net Investment: $19,994.66
= ($104.35 - $4.37) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$872.66
= ($4.37 * 200 shares) - $1.34 commission
(b) Dividend Income (If Qualcomm stock assigned early on the day prior to the May 31st ex-dividend date): $0.00
(b) Dividend Income (If Qualcomm stock assigned on the June 9th, 2023 options expiration date): +$160.00
= $.80 dividend per share x 200 shares
(c) Capital Appreciation (If Qualcomm stock assigned early on the day prior to the May 31st ex-dividend date): -$670.00
= ($101.00 - $104.35) * 200 shares
(c) Capital Appreciation (If Qualcomm stock is above $101.00 strike price and therefore assigned at the June 9th expiration date): -$670.00
= ($101.00 - $104.35) * 200 shares

1. Potential Net Profit (If Qualcomm shares assigned early on 5/30/2023, the day prior to the May 31st ex-dividend date): +$202.66
= (+$872.66 options income +$0.00 dividend income - $670.00 capital appreciation)
2. Potential Net Profit (If QCOM price is above the $101.00 strike price at the June 9th options expiration): +$362.66
= (+$872.66 options income +$160.00 dividend income - $670.00 capital appreciation)

1. Absolute Return (If Qualcomm shares assigned early on the day prior to the May 31, 2023 ex-dividend date): +1.0%
= +$202.66/$19,994.66
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +46.2%
= (+$202.66/$19,994.66) * (365/8 days)
2. Absolute Return (If QCOM price is above $101.00 strike price at the June 9th options expiration): +1.8%
= +$362.66/$19,994.66
Equivalent Annualized Return (If assigned on the 6/9/2023 options expiration date): +36.8%
= (+$362.66/$19,994.66) * (365/18 days)

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 Qualcomm Inc. Covered Calls position.

Established Covered Calls in Dupont De Nemours Inc.

Today a Covered Calls position was established in Dupont De Nemours Inc. (ticker DD) with a June 2nd, 2023 options expiration date. Three hundred shares of Dupont were purchased at $66.41 and three Call options were sold at $2.03 per share at the $65.00 strike price.  The potential time value profit is $.62 per share [$65.00 strike price - ($66.41 share price - $2.03 Call options premium)] when this buy/write net debit limit order transaction was executed.  

Dupont also has an upcoming ex-dividend date on May 30th (8 days from today) at $.36 per share (2.2% annual dividend yield), so this is included in the potential return-on-investment results detailed below.  This Covered Calls position is consistent with my preference when my Overall Market Meter viewpoint is Slightly Bearish to establish in-the-money Covered Calls in low-growth sectors (such as this one in the Materials sector) using my Dividend Capture Strategy.  With this strategy it is possible to achieve an attractive annualized return-on-investment result if either the position is assigned on the options expiration date or if it is assigned early (normally on the day prior to the ex-dividend date).  Also as preferred, there is no quarterly earnings report prior to the June 2nd expiration date.  The approximate probability of assignment was 68.0% when this position was established.

Two potential return-on-investment results are as follows: (a) +1.0% absolute return-on-investment (equivalent to +43.5% annualized roi) for 8 days if this Covered Calls position is assigned early on May 29th, 2023 (the last business day prior to the May 30th ex-dividend date); OR  (b) +1.5% absolute return-on-investment (equivalent to +46.0% annualized roi) for 12 days if this Covered Calls position is in-the-money on its June 2nd, 2023 options expiration date.

Dupont De Nemours Inc. (DD) -- New Covered Calls Position Established
The simultaneous buy/write transaction was as follows:
5/22/2023 Bought 300 shares of Dupont @ $66.41 per share.  
5/22/2023 Sold 3 DD June 2nd, 2023 $65.00 Call options @ $2.03 per share.  The Implied Volatility of these Calls was 23.9 when this position was established.
5/30/2023 Upcoming ex-dividend of $.36 per share
 
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $19,316.01
= ($66.41 - $2.03) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$606.99
= ($2.03 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on the last business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If Dupont shares assigned at the June 2nd, 2023 expiration): +$108.00
= ($.36 dividend per share x 300 shares)
(c) Capital Appreciation (If Dupont shares assigned early): -$423.00
+($65.00 strike price - $66.41 stock purchase cost) * 300 shares; or
(c) Capital Appreciation (If DD shares assigned at $65.00 strike price at options expiration): -$423.00
+($65.00 - $66.41) * 300 shares

1. Total Net Profit [If option exercised on May 29th, 2023 (the last business day prior to the May 30th ex-dividend date)]: +$183.99

= (+$606.99 options income +$0.00 dividend income -$423.00 capital appreciation); or

2. Total Net Profit (If Dupont shares assigned at $65.00 strike price at the June 2nd, 2023 options expiration): +$291.99

= (+$606.99 +$108.00 -$423.00)

1. Absolute Return-on-Investment (If Dupont options exercised early on the last business day prior to the ex-dividend date): +1.0%

= +$183.99/$19,316.01

Annualized Return-on-Investment (If DFS Call options exercised early on May 29th): +43.5%

= ($183.99/$19,316.01) * (365/8 days); or

2. Absolute Return-on-Investment (If DFS shares assigned at $65.00 at the June 2nd, 2023 options expiration date): +1.5%

= +$291.99/$19,316.01

Annualized Return-on-Investment (If DFS stock assigned at $91.00 at June 2nd, 2023 options expiration date): +46.0%

= (+$291.99/$19,316.01) * (365/12 days)

Either outcome would provide a very good annualized-return-on-investment result above 40%.  These returns will be achieved as long as the stock is above the $65.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $64.02 ($66.41 -$2.03 -$.36) provides 3.6% 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 achieved for this Dupont De Nemours Inc. Covered Calls position.

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

The Covered Calls Advisor Portfolio has an ongoing Covered Calls position in iShares China Large-Cap ETF (ticker FXI) that expired out-of-the-money last Friday on its May 19th, 2023 options expiration date.  This morning, when the FXI price was $28.44, I decided to continue this Covered Calls position by rolling out to the $29.00 strike price at the June 2nd, 2023 weekly options expiration date by selling ten Call options at $.31 per share against the 1,000 FXI shares owned.   

As detailed below, two potential return-on-investment results are: (1) +2.8% absolute return-on-investment (equivalent to +8.6% annualized return-on-investment for the 120 days holding period) if the iShares China Large-Cap ETF price is unchanged at today's $28.44 price on the June 2nd, 2023 expiration date; and (2) +4.7% absolute return-on-investment (equivalent to +14.4% annualized return-on-investment for the 120 days holding period) if it is in-the-money (i.e. above the $29.00 strike price) on the June 2nd, 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. 
5/19/2023 Ten FXI Call options expired out-of-the-money and 1,000 shares remain in the Covered Calls Advisor Portfolio.
5/22/2023 Continued iShares China Large-Cap ETF Covered Calls position by selling ten June 2nd, 2023 $29.00 Call options @ $.31 per share.  The stock price was $28.44 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: +$3,496.62
= ($1.52 + $.59 + $.64 + $.47 + $.31) * 1,000 shares - $33.50 commissions
(b) Distribution Income: +$0.00
(c) Capital Appreciation (If the iShares China Large-Cap ETF price is unchanged at today's $28.44 price on the June 2nd, 2023 expiration date): -$2,660.00
+($28.44 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 6/2/2023 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 $28.44 price on the June 2nd, 2023 expiration date): +$836.62

= (+$3,496.62 options income +$0.00 distribution income -$2,660.00 capital appreciation); OR

2. Total Net Profit (If iShares China Large-Cap ETF shares are assigned at the $29.00 strike price at the 6/2/2023 options expiration date): +$1,396.62

= (+$3,496.62 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 $28.44 price on the 6/2/2023 expiration date): +2.8%

= +$836.62/$29,586.70

Annualized Return-on-Investment (If stock price unchanged at $29.08 at expiration): +8.6%

= (+$836.62/$29,586.70) * (365/120 days); OR

2. Absolute Return-on-Investment (If iShares China Large-Cap ETF shares are assigned at the $29.00 strike price at the 6/2/2023 options expiration date): +4.7%

= +$1,396.62/$29,586.70

Annualized Return-on-Investment (If iShares China Large-Cap ETF shares are assigned at the $29.00 strike price at the June 2nd options expiration date): +14.4%
= (+$1,396.62/$29,586.70) * (365/120 days)

Monthly Options Expiration Results through May 19th, 2023

Each month 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 April 21st, 2023 options expiration through Friday's May 19th, 2023 monthly options expiration date.  

During this past month, the Covered Calls Advisor Portfolio held a total of eight positions.  Seven positions were closed out at a profit and one position in iShares China Large-Cap ETF had its options expire out-of-the-money so the shares currently remain in the Covered Calls Advisor Portfolio.   

The specific results for each position are summarized as follows: 

• Four Covered Calls positions expired in-the-money (stock price above the strike price) on their May 19th, 2023 monthly options expiration date as follows: 

1. CF Industries Holdings Inc. -- +1.8% absolute return-on-investment in 12 days (equivalent to a +56.0% annualized return-on-investment).
2. Charles Schwab Corporation -- +1.5% absolute return-on-investment in 12 days (equivalent to a +46.6% annualized return-on-investment).
3. Uber Technologies Inc. -- +3.6% absolute return-on-investment in 11 days (equivalent to a +118.6% annualized return-on-investment).
4. United Rentals Inc. -- +1.9% absolute return-on-investment in 22 days (equivalent to a +31.0% annualized return-on-investment).

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

1. CVS Health Corp. -- +1.6% absolute return-on-investment in 17 days (equivalent to a +34.3% annualized return-on-investment).
2. Uber Technologies Inc. -- +1.1% absolute return-on-investment in 11 days (equivalent to a +35.2% annualized return-on-investment).

• One Covered Call position in Morgan Stanley was closed out by early assignment on the day prior to its quarterly ex-dividend date with a +0.5% absolute return-on-investment in 3 days (equivalent to a +56.6% annualized return-on-investment).

• One Covered Calls positions in iShares China Large-Cap ETF closed out-of-the-money on its monthly May 19th, 2023 options expiration date, so the options expired and the 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 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 114 positions (90.4%) in the Covered Calls Advisor Portfolio (CCAP) were closed out at a profit and 11 positions were closed out at a loss.  The Covered Calls Advisor Portfolio weighted average annualized-return-on-investment (aroi) was +20.6% during the past year and the average holding period for these 114 closed positions was 20.1 days.  In comparison, the benchmark S&P 500 returned +5.5% during the same prior one-year period.

As demonstrated by these past year's results, the Covered Calls investing strategy can be extraordinarily beneficial when applied in an informed and disciplined manner.  However, my caveat to you is that these return-on-investment results achieved by the Covered Calls Advisor Portfolio during the past year above that of the benchmark S&P 500 (i.e. +20.6% versus +5.5%) should not be your expectation over a period of several years.  Instead, as indicated in this post made in 2021 on this blog site (see Link), "by exploiting our Covered Calls investing 'edges', we can expect to achieve (over a period of several years) an average annualized-return-on-investment above the S&P 500 benchmark index of at least 3 to 5 percentage points on an annualized-return-on-investment basis".  

This Covered Calls Advisor blog (see homepage 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 to All,

Jeff Partlow
Covered Calls Advisor
partlow@cox.net

Covered Calls Established in U.S. Bancorp

A June 2nd, 2023 Covered Calls buy/write limit order was executed this morning in U.S. Bancorp (ticker USB) at a net debit price of $27.03 per share.  Four hundred shares were purchased at $30.12 and four June 2nd, 2023 $27.50 strike price Call options were sold at $3.09 per share.  The corresponding extrinsic value (i.e. time value) profit potential was $.47 per share [$3.09 Call options premium - ($30.12 stock purchase price - $27.50 strike price)].   As desired, there is no quarterly earnings report prior to the options expiration date. 

U.S. Bancorp is the fifth largest bank in the U.S. by total assets ($675 billion) and its recent price decline in sympathy with the widespread decline in bank stocks triggered by the Silicon Valley Bank and Signature Bank failures seems to have gone too far for a high-quality bank like U.S. Bancorp.  The Implied Volatility of the Call options sold was very high at 59.2 when this transaction was executed which provided a nice premium income for the Call options sold and, as shown below, an attractive maximum potential annualized return-on-investment of +39.1%.  The probability that the Calls will be in-the-money and therefore the stock called away (i.e. sold) on the options expiration date was 76.8% when this position was established.

U.S. Bancorp appeared in my Financial Sector stock screener results.  Its current valuation is attractive relative to its prior 5-year averages, both in terms of its forward FY2023 P/E Ratio estimate of 6.5 (versus 11.8 historically) and its Price/Tangible Book Value of 1.4 (versus 2.0 historically).  Their commercial real estate loans portfolio is only 13% of total loans which is well below the average for other regional banks and their overall loan-to-deposit ratio remains strong.  Wall Street analysts' that follow U.S. Bancorp have an average target price of $44.23 (+46.8% above today's stock purchase price) and Morningstar currently rates USB as their #1 "best value stock to buy for the long term".

Some key numbers for this U.S. Bancorp Covered Calls position are:

Covered Calls Net Investment: $10,814.68
= ($30.12 - $3.09) x 400 shares + $2.68 commissions 

If Assigned on the June 2nd, 2023 Options Expiration Date:

Total Potential Profit:  $185.32
= ($.47*400 shares - $2.68 commissions) time value profit 
Calendar Days Until the June 2nd, 2023 Options Expiration: 16
Absolute Return-on-Investment if Assigned at Expiration: +1.7%
= $185.32 total profit potential /$10,814.68 net investment
=Annualized Return-on-Investment if Assigned at Expiration: +39.1%
= ($185.32/$10,814.68) x (365/16 days)

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

 

Established Covered Calls in Discover Financial Services

Today a Covered Calls position was established in Discover Financial Services (ticker DFS) with a June 2nd, 2023 options expiration date. Three hundred shares of Discover were purchased at $95.69 and three Call options were sold at $5.49 per share at the $91.00 strike price.  The potential time value profit was $.80 per share [$91.00 strike price - ($95.69 share price - $5.49 Call options premium)] when this buy/write net debit limit order transaction was executed.  

Discover also has an upcoming ex-dividend date on May 24th (8 days from today) at $.70 per share (2.9% annual dividend yield), so this is included in the potential return-on-investment results detailed below.  This Covered Calls position is consistent with my preference when my Overall Market Meter viewpoint is Slightly Bearish to establish in-the-money Covered Calls in low-growth sectors (such as this one in the Financials sector) using my Dividend Capture Strategy.  With this strategy it is possible to achieve an attractive annualized return-on-investment result if either the position is assigned on the options expiration date or if it is assigned early (normally on the day prior to the ex-dividend date).  Also, because of the volatility immediately after quarterly earnings reports are released, it is preferred that there be no quarterly earnings report prior to the options expiration date, and this is true for this Discover Financial position since the next earnings report is not until July 19th, 2023.  The approximate probability of assignment was 77.6% when this position was established.

Discover's business is in digital banking (including the Discover brand credit cards) and payment services.  In their recent Q1 2023 EPS report, they missed analysts' estimates by 8.4%.  Their positive loan growth and net interest margin trends were offset by sharply higher loan loss provisioning.  As a result, their stock has declined by 9.0% since their earnings release.  Three sources for my optimism that this price decline is a short-term overreaction are: (1) their estimated FY 2023 P/E ratio is only 7.2 which is well below their prior 5-year average of P/E of 10.9; and (2) their $.70 per share quarterly dividend rate is a 16.7% increase compared with the same quarter last year; and (3) they are continuing their aggressive buyback program of the past 5 years by announcing a $2.7 billion buyback authority by the end of June 2024 which is 11.2% of their current shares outstanding.  Finally, the twenty analysts' that cover Discover have an average target price of $116.44 (+21.7% above today's purchase price.

Two potential return-on-investment results are as follows: (a) +0.9% absolute return-on-investment (equivalent to +40.1% annualized roi) for 8 days if this Covered Calls position is assigned early on May 23rd, 2023 (the last business day prior to the May 24th ex-dividend date); OR  (b) +1.7% absolute return-on-investment (equivalent to +33.6% annualized roi) for 18 days if this Covered Calls position is in-the-money on the June 2nd, 2023 weekly options expiration date.

Discover Financial Services (DFS) -- New Covered Calls Position Established
The simultaneous buy/write transaction was as follows:
5/16/2023 Bought 300 shares of Discover Financial Services @ $95.69 per share; and 
5/16/2023 Sold 3 DFS June 2nd, 2023 $91.00 Call options @ $5.49 per share.  The Implied Volatility of these Calls was 28.7 when this position was established.
5/24/2023 Ex-dividend of $.70 per share
 
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $27,062.01
= ($95.69 - $5.49) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$1,644.99
= ($5.49 * 300 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on the last business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If DFS shares assigned at the June 2nd, 2023 expiration): +$210.00
= ($.70 dividend per share x 300 shares)
(c) Capital Appreciation (If Discover shares assigned early): -$1,407.00
+($91.00 strike price - $95.69 stock purchase cost) * 300 shares; or
(c) Capital Appreciation (If DFS shares assigned at $91.00 strike price at options expiration): -$1,407.00
+($91.00 - $95.69) * 300 shares

1. Total Net Profit [If option exercised on May 23rd, 2023 (the last business day prior to the May 24th ex-dividend date)]: +$237.99

= (+$1,644.99 options income +$0.00 dividend income -$1,407.00 capital appreciation); or

2. Total Net Profit (If Discover Financial shares assigned at $91.00 strike price at the June 2nd, 2023 options expiration): +$447.99

= (+$1,644.99 +$210.00 -$1,407.00)

1. Absolute Return-on-Investment (If DFS options exercised early on the last business day prior to the ex-dividend date): +0.9%

= +$237.99/$27,062.01

Annualized Return-on-Investment (If DFS Call options exercised early on May 23rd): +40.1%

= (+$237.99/$27,062.01) * (365/8 days); or

2. Absolute Return-on-Investment (If DFS shares assigned at $91.00 at the June 2nd, 2023 options expiration date): +1.7%

= +$447.99/$27,062.01

Annualized Return-on-Investment (If DFS stock assigned at $91.00 at June 2nd, 2023 options expiration date): +33.6%

= (+$447.99/$27,062.01) * (365/18 days)

Either outcome would provide a very good return-on-investment result.  These returns will be achieved as long as the stock is above the $91.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $89.50 ($95.69 -$5.49 -$.70) provides 6.5% 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, all nine criteria are achieved for this Discover Financial Services Covered Calls position.