Covered Calls Established in ConocoPhillips

Today, a Covered Calls position was established in ConocoPhillips (ticker symbol COP) when three hundred COP shares were purchased at $99.81 and three May 26th, 2023 weekly Call options were sold for $5.85 per share at the $95.00 strike price.  The net debit limit order at $93.96 was executed, so the potential time value profit was $1.04 per share [$5.85 Call options premium - ($99.81 stock purchase price - $95.00 strike price)]. There is an upcoming quarterly ex-dividend of $.51 per share (annual dividend yield of 2.0%) on May 15th (next Monday), 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 May 26th, 2023 options expiration date.  As preferred by the Covered Calls Advisor, the next quarterly earnings report on August 3rd, 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 74.9.

ConocoPhillips is a large ($123 billion market cap) and diversified oil and gas company.  It appeared in my Energy Sector Stock Screener and has an attractive valuation with a TTM EV/EBITDA of only 4.3 versus its prior 5-year average of 5.9.  Analysts' average price target is $131.20 (+31.4% above today's purchase price).

As detailed below, a potential return-on-investment result is +1.1% absolute return (equivalent to +80.8% annualized return for the next 5 days) in the relatively unlikely event that the stock is assigned early this Friday (the last business day prior to next Monday's May 15th ex-date); OR +1.6% absolute return (equivalent to +35.4% annualized return over the next 17 days) if the stock is assigned on the May 26th, 2023 options expiration date.


ConocoPhillips (COP) -- New Covered Calls Position

The transactions were:
5/10/2023 Bought 300 ConocoPhillips shares @ $99.81
5/10/2023 Sold 3 COP 5/26/2023 $95.00 Call options @ $5.85
Note: A simultaneous buy/write transaction was executed.   The Implied Volatility of the Call options was 33.2 when this Covered Calls position was established (which as preferred is well above the 17.7 of the S&P 500 Volatility Index--VIX).
5/15/2023 Upcoming quarterly ex-dividend of $.51 per share

Two possible overall performance results (including commissions) for this ConocoPhillips Covered Calls position are as follows:
Covered Calls Cost Basis: $28,190.01
= ($99.81 - $5.85) * 300 shares + $2.01 commissions

Net Profit Components:
(a) Options Income: +$1,755.00
= ($5.85 * 300 shares)
(b) Dividend Income (If option exercised early on the business day prior to the May 15th ex-div date): +$0.00; or
(b) Dividend Income (If ConocoPhillips shares assigned at the May 26th, 2023 expiration): +$153.00
= ($.51 dividend per share x 300 shares)
(c) Capital Appreciation (If COP assigned early on May 15th, 2023): -$1,443.00
+($95.00 - $99.81) * 300 shares ;or
(c) Capital Appreciation (If COP assigned at $95.00 strike price at the May 26th, 2023 options expiration): -$1,443.00
+($95.00 -$98.81) * 300 shares

1. Total Net Profit [If option exercised on May 12th (last business day prior to the May 15th ex-dividend date)]: +$312.00

= (+$1,755.00 options income +$0.00 dividend income -$1,443.00 capital appreciation); or

2. Total Net Profit (If ConocoPhillips shares assigned at $95.00 strike price at its May 26th, 2023 expiration): +$465.00

= (+$1,755.00 +$153.00 dividend income -$1,443.00)

1. Absolute Return [If COP options exercised on business day prior to ex-dividend date]: +1.1%

= +$312.00/$28,190.01

Annualized Return (If option exercised early): +80.8%

= (+$312.00/$28,190.01) * (365/5 days); or

2. Absolute Return (If ConocoPhillips shares assigned at $95.00 at May 26th, 2023 expiration): +1.6%

= +$465.00/$28,190.01

Annualized Return (If COP stock assigned at $95.00 at the May 26, 2023 expiration): +35.4%

= (+$465.00/$28,190.01) * (365/17 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $95.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $93.45 ($99.81 -$5.85 -$.51) provides 6.4% 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 ConocoPhillips Covered Calls position.