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.
