Established Covered Calls Position in Honeywell International Inc.

Late in this afternoon's trading session, a Covered Calls position was established in Honeywell International Inc. (ticker symbol HON) when the Covered Calls Advisor's buy/write limit order at $188.52 was executed.  Two hundred shares were purchased at $193.51 and 2 August 18th, 2023 Call options were sold at $4.99 at the $190.00 strike price.  The corresponding extrinsic value (i.e. time value) was $1.48 per share [$4.99 Call options premium - ($193.51 stock purchase price - $190.00 strike price)], all of which will be profit if the stock is assigned (either by early assignment on the last business day prior to the August 10th ex-dividend date or at the August 18th options expiration date).

At today's purchase price, the upcoming ex-dividend of $1.03 on August 10th has a 2.1% annualized dividend yield.  The Implied Volatility of the Call options was 16.9 which (as preferred by the Covered Calls Advisor) is above the current 13.6 of the S&P 500 Volatility Index (i.e. VIX) and the Delta was 68.0 which approximates a 68.0% probability that this position will be in-the-money on the 8/18/2023 options expiration date.

This relatively short-term (only 19 days until options expiration) position is established to take advantage of the potential to achieve a satisfactory annualized return-on-investment in a position that meets eight of the nine criteria of the Covered Calls Advisor's Dividend Capture Strategy (see table below at the end of this post).  

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

•  +0.8% absolute return (equivalent to +28.5% annualized return for the next 10 days) if the stock is assigned early on the last business day prior to the August 10th ex-dividend date); OR 

• +1.3% absolute return (equivalent to +25.5% annualized return over the next 19 days) if the stock is assigned on the August 18th options expiration date.

Honeywell International Inc. (HON) -- New Covered Calls Position

The buy/write transaction was:
7/31/2023 Bought 200 Honeywell shares @ $193.51
7/31/2023 Sold 2 Honeywell 8/18/2023 $190.00 Call options @ $4.99
8/10/2023 Upcoming quarterly ex-dividend of $1.03 per share

Two possible overall performance results (including commissions) for this Honeywell Covered Calls position are as follows:
Covered Calls Cost Basis: $37,705.34
= ($193.51 - $4.99) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$996.66
= ($4.99 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on August 9th, the last business day prior to the August 10th ex-div date): +$0.00; or
(b) Dividend Income (If Honeywell stock assigned at the August 18th, 2023 options expiration date, in which case the $1.03 dividend is captured): +$206.00
= ($1.03 dividend per share x 200 shares)

(c) Capital Appreciation (If HON Call options assigned early on 8/9/2023): -$702.00
+($190.00 - $193.51) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $190.00 strike price at the 8/18/2023 options expiration date): -$715.00
+($190.00 - $193.51) * 200 shares

1. Total Net Profit [If option exercised on 8/9/2023 (business day prior to the 8/10/2023 ex-dividend date)]: +$294.66

= (+$996.66 options income +$0.00 dividend income -$702.00 capital appreciation); or

2. Total Net Profit (If Honeywell shares assigned at $190.00 on the August 18th, 2023 options expiration date): +$500.66

= (+$996.66 +$206.00 -$702.00)

1. Absolute Return-on-Investment [If option exercised on Aug. 9th (business day prior to the ex-dividend date)]: +0.8%

= +$294.66/$37,705.34

Annualized Return-on-Investment (If option exercised early): +28.5%

= (+$294.66/$37,705.34) * (365/10 days); or

2. Absolute Return-on-Investment (If Honeywell shares assigned at $190.00 at the 8/18/2023 options expiration date): +1.3%

= +$500.66/$37,705.34

Annualized Return-on-Investment (If HON shares assigned at $190.00 at the August 18th, 2023 expiration): +25.5%

= (+$500.66/$37,705.34) * (365/19 days)

These returns will be achieved as long as the stock is above the $190.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $187.49 ($193.51 -$4.99 -$1.03) provides a 3.1% 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 Honeywell position, eight of the nine criteria are achieved.

Established Covered Calls Position in Baker Hughes Company

A Covered Calls position was established in Baker Hughes Company (ticker symbol BKR) today when the Covered Calls Advisor's buy/write limit order at $33.72 was executed.  Five hundred shares were purchased at $35.43 and 5 August 18th, 2023 Call options were sold at $1.71 at the $34.00 strike price.  The corresponding extrinsic value (i.e. time value) was $.28 per share [$1.71 Call options premium - ($35.43 stock purchase price - $34.00 strike price)], all of which will be profit if the stock is assigned (either by early assignment this Friday on the last business day prior to next Monday's August 7th ex-dividend date or at the August 18th options expiration date).

At today's purchase price, the upcoming ex-dividend of $.20 on August 7th has a 2.3% annualized dividend yield.  The Implied Volatility of the Call options was 23.4 which (as preferred by the Covered Calls Advisor) is above the current 14.0 of the S&P 500 Volatility Index (i.e. VIX) and the Delta was 75.0 which approximates a 75.0% probability that this position will be in-the-money on the 8/18/2023 options expiration date.

This relatively short-term (only 19 days until options expiration) position is established to take advantage of the potential to achieve a high annualized return-on-investment in a position that meets all nine criteria of the Covered Calls Advisor's Dividend Capture Strategy (see table below at the end of this post).  Baker Hughes is among several attractively priced companies at present in the Oil and Gas Equipment and Services industry.  It appeared in my Future 5-Year Growth stock screener and Wall Street analysts have a current average target price of $39.54 (+11.6% above today's purchase price.

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

•  +0.8% absolute return (equivalent to +42.3% annualized return for the next 7 days) if the stock is assigned early this Friday (the last business day prior to the August 7th ex-dividend date); OR 

• +1.4% absolute return (equivalent to +27.0% annualized return over the next 19 days) if the stock is assigned on the August 18th options expiration date.

Baker Hughes Company (BKR) -- New Covered Calls Position

The buy/write transaction was:
7/31/2023 Bought 500 Baker Hughes shares @ $35.43
7/31/2023 Sold 5 BKR 8/18/2023 $34.00 Call options @ $1.71
8/7/2023 Upcoming quarterly ex-dividend of $.20 per share

Two possible overall performance results (including commissions) for this Baker Hughes Company Covered Calls position are as follows:
Covered Calls Cost Basis: $16,863.35
= ($35.43 - $1.71) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$851.65
= ($1.71 * 500 shares) - $3.35 commission
(b) Dividend Income (If option exercised early on August 4th, the last business day prior to the August 7th ex-div date): +$0.00; or
(b) Dividend Income (If Baker Hughes stock assigned at the August 18th, 2023 options expiration date, in which case the $.20 dividend is captured): +$100.00
= ($.20 dividend per share x 500 shares)

(c) Capital Appreciation (If BKR Call options assigned early on 8/4/2023): -$715.00
+($34.00 - $35.43) * 500 shares; or
(c) Capital Appreciation (If shares assigned at $34.00 strike price at the 8/18/2023 options expiration date): -$715.00
+($34.00 - $35.43) * 500 shares

1. Total Net Profit [If option exercised on 8/4/2023 (business day prior to the 8/7/2023 ex-dividend date)]: +$136.65

= (+$851.65 options income +$0.00 dividend income -$715.00 capital appreciation); or

2. Total Net Profit (If Baker Hughes shares assigned at $34.00 on the August 18th, 2023 options expiration date): +$236.65

= (+$851.65 +$100.00 -$715.00)

1. Absolute Return-on-Investment [If option exercised on Aug. 4th (business day prior to the ex-dividend date)]: +0.8%

= +$136.65/$16,863.35

Annualized Return-on-Investment (If option exercised early): +42.3%

= (+$136.65/$16,863.35) * (365/7 days); or

2. Absolute Return-on-Investment (If Baker Hughes shares assigned at $34.00 at the 8/18/2023 options expiration date): +1.4%

= +$236.65/$16,863.35

Annualized Return-on-Investment (If BKR shares assigned at $34.00 at the August 18th, 2023 expiration): +27.0%

= (+$381.65/$16,863.35) * (365/19 days)

Either outcome provides an attractive return-on-investment result for this Baker Hughes Company investment.  These returns will be achieved as long as the stock is above the $34.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $33.52 ($35.43 -$1.71 -$.20) provides a 5.4% 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 Baker Hughes position, all nine criteria are achieved.

Established Covered Calls Position in the iShares 20+ Year Treasury Bond ETF

Today an in-the-money Covered Calls position was established in the iShares 20+ Year Treasury Bond ETF (ticker TLT) at the August 11th, 2023 options expiration date and at the $99.00 strike price.  Three hundred TLT shares were purchased at $100.71 per share and three August 11th, 2023 $99.00 Calls were sold at $2.18 per share. The corresponding potential time value profit is $.47 per share [$2.18 Call options premium - ($99.00 strike price - $100.71 ETF purchase price)].  The Delta was 70.5 when this position was established which approximates the probability that the Calls will be in-the-money on the options expiration date.  In addition to the potential time value profit of $.47 per share, there is an upcoming monthly ex-distribution on August 1st which is not pre-announced but which I estimate at $.27 per share and which is prior to the August 11th options expiration date.  

As you know, normally I prefer to establish Covered Calls using individual stocks rather than broader indices such as ETFs.  The reasons for this is described in my prior post entitled "Exploiting Our Covered Calls Investing "Edges"' (see items #2 and #3 in the article here).  This TLT ETF contains U.S. Government Treasury Bonds of 20-and-more years duration and its current 30-day yield is only 3.83%.  Many investors are satisfied with buying-and-holding T-Bonds, but we Covered Calls investors know we can do much better than a 3.83% return via this long-term Treasury Bond ETF by using our Covered Calls investing approach.  This is true not only for our usual Covered Calls positions using stocks as the underlying equity, but this TLT Covered Calls position demonstrates that it is also even true with Covered Calls with this conservative Treasury Bond ETF (i.e. TLT), whose potential annualized-return-on-investment (aroi) result of +18.2% at the options expiration date, as detailed below, greatly exceeds the current 3.83% yield from simply owning TLT shares.  

Two potential return-on-investment results are: (a) +0.5% absolute return (equivalent to +34.1% annualized return-on-investment for the next 5 days) if TLT is assigned early on the day prior to the August 1st ex-distribution date; or (b) +0.7% absolute return (equivalent to +18.1% annualized return-on-investment for the next 15 days) if it is assigned at market close on the August 11th, 2023 options expiration date.  

While I do not intend to change from my approach of almost always establishing my Covered Calls positions using individual stocks as the underlying equity, I admit that I am finding this experiment in establishing a Covered Calls position using the TLT Bond ETF to be a good and conservative alternative to simply buying Treasury Bonds.

iShares 20+ Year Treasury Bond ETF (TLT) -- New Covered Calls Position 

The buy/write transaction was as follows:
7/27/2023 Bought 300 iShares 20+ Year Treasury Bond ETF shares at $100.71.

7/27/2023 Sold 3 TLT August 11th, 2023 $99.00 Call options @ $2.18 per share.
8/1/2023 Ex-distribution of $.275282 per share.

The overall performance results (including commissions) if TLT remains in-the-money at options expiration would be as follows:
Covered Calls Net Investment: $29,561.01
= ($100.71 - $2.18) * 300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$651.99
= ($2.18 * 300 shares) - $2.01 commission

(b) Distribution Income [If TLT is assigned early on next Monday which is the last business day prior to the August 1st ex-distribution date: +$0.00
(b) Distribution Income [If TLT price is in-the-money (i.e. above the $99.00 strike price) and the position is assigned (i.e. closed out) at options expiration on August 11th]: +$82.5846

= $.275282 distribution per share x 300 TLT shares

(c) Capital Appreciation (If TLT is assigned at the $99.00 strike price either early or on the 8/11/2023 options expiration date): -$513.00

= ($99.00 strike price - $100.71 purchase price) * 300 shares

Total Net Profit:

1.  If TLT shares are assigned early on the day prior to the ex-distribution date: +$138.99
     = (+$651.99 options income +$0.00 distribution income -$513.00 capital appreciation)

2.  If TLT share price is in-of-the-money (i.e. above the $99.00 strike price) at options expiration: +$221.5746
= (+$651.99 options income +$82.5846 distribution income -$513.00 capital appreciation)

Potential Absolute Return-on-Investment: 

1. If TLT shares are assigned early on the day prior to the ex-distribution date: +0.5%

    = +$138.99/$29,561.01

2. If TLT shares are above the $99.00 strike price at the August 11th, 2023 options expiration): +0.7%

    = +$221.5746/$29,561.01

Potential Annualized Return-on-Investment: 

1. If TLT shares are assigned early on the day prior to the ex-distribution date: +34.3% 

    = (+$138.99/$29,561.01) * (365/5 days)

2. If TLT shares are above the $99.00 strike price at the August 11th, 2023 options expiration): +18.2%

    = (+$221.5746/$29,561.01) * (365/15 days)

Please email if you have any comments or questions related to this post or to anything related to the Covered Calls investing strategy.

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

Covered Calls Established in Delta Air Lines Inc.

With less than an hour remaining in today's trading session, a Covered Calls position was established in Delta Air Lines Inc. (ticker symbol DAL) when the Covered Calls Advisor's buy/write limit order was executed -- 500 shares were purchased at $47.49 and 5 August 4th, 2023 Call options were sold at $1.93 at the $46.00 strike price.  The corresponding extrinsic value (i.e. time value) was $.44 per share [$1.93 Call options premium - ($47.49 stock purchase price - $46.00 strike price)].  The $.44 per share will be profit if the stock remains above the $46.00 strike price (and therefore assigned) on the August 4th options expiration date.

A moderately in-the-money Covered Calls position was established -- the Delta was 72.1, which closely approximates the probability that the Call option will be in-the-money on the options expiration date.  In addition, the Implied Volatility of the Call was 29.6 when the position was established (well above the current VIX of 13.9) and there is no quarterly earnings report prior to the options expiration date. 

Delta's valuation is attractive since its estimated current FY 2023 P/E ratio is only 7.1 based on today's stock purchase price.  Analysts' average stock target price is $60.80 (+28.0% above today's purchase price), and Delta also appears in three of my stock screeners -- Earnings Growers, Low 5-Year Forward PEG Ratio, and Analysts' Picks. 

Some key numbers for this Delta Air Lines Inc. Covered Calls position are:
Covered Calls Cost Basis: $22,783.35
Profit if Assigned on Expiration Date: $216.65
Days Until August 4th, 2023 Options Expiration: 12
Absolute Return-on-Investment if Assigned at Expiration: +1.0%
Annualized Return-on-Investment if Assigned at Expiration: +28.9%

As always, I encourage your email questions on anything related to the Covered Calls investing strategy.

Regards and Godspeed,

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

Monthly Options Expiration Results through July 21st, 2023

Each month on the day after the monthly options expiration date, this summary report provides the results of 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 June 15th, 2023 options expiration through yesterday's July 21st, 2023 monthly options expiration date.  

During this past month, the Covered Calls Advisor Portfolio held a total of sixteen Covered Calls positions.  Fifteen positions were closed out at a profit and one position was closed out at a loss.  

The specific results for each position are summarized as follows: 

• Eight Covered Calls positions expired in-the-money (stock price above the strike price) during the past month on their weekly options expiration dates and were therefore assigned at their strike prices with the following results: 

1. American International Group Inc. (AIG) -- +1.3% absolute return in 12 days (equivalent to a +38.6% annualized return-on-investment). 
   
2. Uber Technologies Inc. (UBER) -- +1.4% absolute return in 17 days (equivalent to a +30.6% annualized return-on-investment).
   
3. The Cigna Group (CI) -- -0.5% absolute return in 122 days (equivalent to a -1.6% annualized return-on-investment). 
   
4. General Motors Company (GM) -- +1.1% absolute return in 11 days (equivalent to a +36.7% annualized return-on-investment).
5. Gilead Sciences Inc. (GILD) -- +1.7% absolute return in 22 days (equivalent to a +27.5% annualized return-on-investment). 
   
6. iShares China Large-Cap ETF (FXI) -- +5.1% absolute return in 25 days (equivalent to a +74.9% annualized return-on-investment).
7. PayPal Holdings Inc. (PYPL) -- +0.8% absolute return in 10 days (equivalent to a +29.6% annualized return-on-investment). 
   
8. Uber Technologies Inc. (UBER) -- +1.6% absolute return in 16 days (equivalent to a +36.9% annualized return-on-investment).

• Seven Covered Calls positions were closed out by early assignment on the last business day prior to their ex-dividend dates with the following results:

1. iShares 20+ Year Treasury Bond ETF (TLT) -- +0.3% absolute return in 2 days (equivalent to a +55.0% annualized return-on-investment).
2. JPMorgan Chase & Co. (JPM) -- +0.8% absolute return in 7 days (equivalent to a +42.6% annualized return-on-investment).
3. Bristol-Myers Squibb Co. (BMY) -- +0.7% absolute return in 8 days (equivalent to a +33.8% annualized return-on-investment).
4. Abbvie Inc. (ABBV) -- +0.3% absolute return in 3 days (equivalent to a +40.1% annualized return-on-investment).
5. Sociedad Quimica Y Minera de Chile SA (SQM) -- +0.9% absolute return in 7 days (equivalent to a +44.6% annualized return-on-investment). 
6. APA Corporation (APA) -- +1.3% absolute return in 3 days (equivalent to a +154.9% annualized return-on-investment).
7. CVS Health Corporation (CVS) -- +0.4% absolute return in 3 days (equivalent to a +48.4% annualized return-on-investment).

• One Covered Calls position in Halliburton Company (HAL) met my early closeout rule-of-thumb decision criteria since the stock had moved higher very soon after the position was established.  So I unwound it early (prior to its expiration date) and achieved +1.3% absolute return in 5 days (equivalent to a +97.4% annualized return-on-investment).

During the past year (last 12 months) 117 of 129 positions (90.7%) in the Covered Calls Advisor Portfolio (CCAP) were closed out at a profit.  The Covered Calls Advisor Portfolio weighted average annualized-return-on-investment (aroi) was +23.0% during the past year and the average holding period for these 129 closed positions was 18.5 days.  In comparison, the benchmark S&P 500 returned +14.5% during the same prior one-year period.   

This Covered Calls Advisor blog is available to anyone interested in learning about implementing a successful Covered Calls investing strategy.  As always, I also encourage you to email me at partlow@cox.net any time you would like my feedback on your comments or questions on anything related to the Covered Calls investing strategy.  Since all sixteen positions were closed out this month and there are only two current positions remaining in the Covered Calls Advisor Portfolio, I will be looking to establish several new Covered Calls positions during the next several days.  

Best Wishes and Godspeed,

Jeff Partlow
Covered Calls Advisor
partlow@cox.net

Early Assignment of APA Corporation and CVS Health Corporation Covered Calls Positions

Early this morning, I was notified via email from my broker (Schwab) that my Covered Calls positions in APA Corporation (ticker APA) and CVS Health Corporation (ticker CVS) were closed out by early assignment yesterday which is the day before today's ex-dividend date for both companies.  APA has increased from a purchase price three days ago of $36.24 to $38.03 yesterday and CVS has increased from $70.57 to $74.38.  There was very little time value remaining in the Call options for both companies, so with eight days remaining until the July 28th options expiration date for both positions, the Call owners decided to exercise their Calls early to capture today's ex-dividend.  The Calls expired worthless and the stocks were sold at their respective strike prices with the following results:

1. APA Corporation (APA) -- I had owned 500 APA shares and sold five July 28th, 2023 $35.00 Calls and today's ex-dividend amount is $.25 per share.  This position achieved +1.3% absolute return (equivalent to +154.9% annualized return-on-investment) for the 3 days of this investment.  The original blog post details when this position was established are here. 

2. CVS Health Corporation (CVS) -- I had owned 400 CVS shares and sold three July 28th, 2023 $69.00 Calls and today's ex-dividend amount is $.605 per share.  This position achieved +0.4% absolute return (equivalent to +48.4% annualized return-on-investment) for the 3 days of this investment.  The original blog post details when this position was established are here.

I welcome your questions or feedback at the email address below on anything related to the Covered Calls investing strategy.  

Best Wishes and Godspeed,

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net

Established Covered Calls Position in DICK'S Sporting Goods Inc.

A Covered Calls position was established in DICK'S Sporting Goods Inc. (ticker DKS) when the Covered Calls Advisor's buy/write limit order at a net debit limit price of $128.08 was executed.  Two hundred shares were purchased at $133.73 and two August 4th, 2023 Call options were sold at $5.65 at the $130.00 strike price.  The potential time value profit is $1.92 per share = [$130.00 strike price - ($133.73 stock purchase price - $5.65 Call options price)].   A moderately in-the-money Covered Calls position was established with a Delta of 66.9 which approximates a 66.9% probability this position will be in-the-money and therefore assigned on the August 4th, 2023 options expiration date.  There is no upcoming ex-dividend date prior to the expiration date.

Dick's Sporting Goods meets all five of my current primary evaluation criteria for identifying worthwhile candidates for investing:

In addition, for the past 4 quarters, DICK'S earnings per share have exceeded the comparable prior year quarter and are expected to continue to do so for each of the four FY 2024 quarters.  They have also beat analysts' EPS estimates every quarter for the past 4 quarters.  A very short-term stock price technical indicator of relative strength RS(2) was very oversold at only 13.2 (note: readings below 30 are generally considered to be oversold) when this position was transacted this morning.

As detailed below, the potential return-on-investment results for this DICK'S Sporting Goods Inc. Covered Calls position is +1.5% absolute return (equivalent to +32.1% annualized return-on-investment for the next 17 days) if the stock is assigned on the August 4th options expiration date.

DICK'S Sporting Goods Inc. (DKS) -- New Covered Calls Position

The buy/write transaction was:
7/19/2023 Bought 200 DICK'S Sporting Goods shares @ $133.73
7/19/2023 Sold 2 DKS 8/4/2023 $130.00 Call options @ $5.65 per share.

A possible overall performance result (including commissions) for this DICK'S Sporting Goods Covered Calls position is as follows:
Covered Calls Net Investment: $25,617.34
= ($133.73 - $5.65) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,128.66
= ($5.65 * 200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
= ($0.00 dividends per share x 200 shares)
(c) Capital Appreciation (If DICK'S shares assigned at $130.00 strike price at expiration): -$746.00
+($130.00 - $133.73) * 200 shares

Total Net Profit (If options exercised on the August 4th, 2023 options expiration date): +$382.66

= (+$1,128.66 options income +$0.00 dividend income -$746.00 capital appreciation)

Potential Absolute Return-on-Investment (If the DICK'S Sporting Goods shares are assigned at the $130.00 strike price at the 8/4/2023 options expiration date): +1.5%

= +$382.66/$25,617.34

Potential Annualized Return-on-Investment (If 200 DICK'S shares assigned at the $130.00 strike price on the August 4th, 2023 options expiration date): +32.1%

= (+$382.66/$25,617.34) * (365/17 days)

Established Covered Calls Position in iShares China Large-Cap ETF

A buy/write Covered Calls position was established this afternoon in iShares China Large-Cap ETF (ticker FXI) with an August 4th, 2023 options expiration date.  FXI is very attractive from a valuation perspective since its current P/E of 8.6 and P/Book of 1.1 is less than one-half of the S&P 500 P/E of 19 and P/Book of 3.9.  One thousand shares of iShares China Large-Cap ETF were purchased at $27.51 and ten August 4th, 2023 Call options were sold at the $27.00 strike price at $1.02 per share--a net debit transaction of $26.49 per share which provides a $.51 per share time value profit potential.  Covered Calls and Cash-Secured Puts are normally synthetically equivalent positions when transacted at the same time and at the same strike price and expiration date.  The Covered Calls position was selected since the $.51 time value in the Covered Calls was significantly greater than the $.45 time value in the comparable Puts.

The Implied Volatility of iShares China Large-Cap ETF options are significantly higher than those of a common U.S. market benchmark like the S&P 500 (i.e. SPY).  For example, the FXI 8/4/2023 $27.00 Calls I sold today had an Implied Volatility of 30.9 while at the same time the Implied Volatility of comparable SPY Calls was only 14.3 -- so FXI provides a significantly higher potential annualized-return-on-investment than that of SPY.  In addition, FXI options are very liquid (even in weekly options) so it is likely I will continue to often establish approximately bi-weekly Covered Calls in FXI in upcoming weeks this year.  Finally, the fact that investing in China-based companies improves the diversification of the Covered Calls Advisor Portfolio appeals to me.  In short, it serves as a counterbalance to my normal home country bias.  

As detailed below, a potential return-on-investment result is +1.9% absolute return (equivalent to +38.5% annualized return-on-investment for the next 18 days) if the iShares China Large-Cap ETF share price is in-the-money (i.e. above the $27.00 strike price) and therefore assigned on the August 4th, 2023 options expiration date.

 
iShares China Large-Cap ETF (FXI) -- New Covered Calls Position 
The Buy/Write transaction was as follows:
7/18/2023 Bought 1,000 shares of iShares China Large-Cap ETF @ $27.51 per share.  
7/18/2023 Sold 10 FXI August 4th, 2023 $27.00 Call options @ $1.02 per share.  The Delta of these Calls was 61.0 when this position was transacted.

A possible overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position is as follows:
FXI Covered Calls Net Investment: $26,496.70
= ($27.51 - $1.02) * 1,000 shares + $6.70 commission

Net Profit:
(a) Options Income: +$1,013.30
= ($1.02 * 1,000 shares) - $6.70 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 1,000 iShares China Large-Cap ETF shares assigned at $27.00 strike price at expiration): -$510.00
+($27.00 - $27.51) * 1,000 shares

Total Net Profit Potential (If 1,000 iShares China Large-Cap ETF shares assigned at $27.00 strike price at expiration): +$503.30
= (+$1,013.30 options income +$0.00 dividend income -$510.00 capital appreciation)
Absolute Return-on-Investment Potential: +1.9%
= +$503.30/$26,496.70
Annualized Return-on-Investment Potential: +38.5%
= (+$503.30/$26,496.70) * (365/18 days)

Established Covered Calls Positions in APA Corporation and CVS Health Corporation

Early in this morning's trading session, short-term Covered Calls positions were established in APA Corporation (ticker APA) and CVS Health Corporation (ticker CVS) when the Covered Calls Advisor's buy/write limit orders were executed.   For APA Corporation, 500 shares were purchased at $36.24 and 5 July 28th, 2023 Call options were sold at $1.68 per share at the $35.00 strike price.   For CVS, 400 shares were purchased at $70.57 and 4 July 28th, 2023 Call options were sold at $1.85 at the $69.00 strike price.  Given the Covered Calls Advisor's current cautious outlook, moderately in-the-money Covered Calls positions were established for both companies.  Both of these Covered Calls were established using my Dividend Capture Strategy since they both have intervening ex-dividend dates prior to their July 28th, 2023 options expiration date and the details for each position are provided below.  Importantly, the next quarterly earnings report for both APA and CVS are after their July 28th options expiration date.

APA Corporation (formerly known as Apache Corporation) is an $11.3 billion market capitalization independent natural gas, oil, and natural gas liquids exploration and production company based in Houston with operations in the U.S. (primarily in the Permian Basin), Egypt, the North Sea, and Suriname.  It holds a majority interest in Altus Midstream, which, through its consolidated subsidiaries, operates gathering, processing and transmission assets in West Texas and holds equity ownership in four Permian-to-Gulf Coast pipelines.  Their FY2023 estimated P/E Ratio is very attractive at only 8.1 and they have beat earnings estimates for each of the last 4 quarters.  The twenty-eight Wall Street analysts that now cover APA believe that the stock is currently undervalued since their average target price is $45.96 which has +26.8% upside potential above today's purchase price.   As preferred, the Implied Volatility of these Call options was 35.5 which is well above that of the S&P 500 Implied Volatility (i.e.VIX) which is currently only 13.7.  The Delta was 70.6 when this position was established, which approximates a 70.6% probability that the Calls will expire in-the-money on the July 28th, 2023 options expiration date.

CVS Health Corporation has its roots in retail pharmacy, primarily in the U.S. where it operates about 9,000 retail stores.  It is the largest pharmacy benefit manager and processes about 2 billion prescriptions annually.  Through acquisitions it has become a top-tier vertically integrated healthcare company.  In 2017 they acquired health insurer Aetna which serves about 24 million members.  They entered the home healthcare area with last year's acquisition of Signify Health and this year they entered the primary care business by acquiring Oak Street Health.  CVS' current market capitalization is $91.5 billion, but the stock has suffered this year with a decline of 25%.  Although I applaud the benefits toward the long-term success of the company, their large acquisitions described above means that their long-term debt has remained stubbornly high at $56.5 billion at the end of the most recent quarter.  Analysts that follow CVS think that this year's sell-off in the stock price is overdone.  The average target price of the twenty-five analysts covering CVS is $95.52 -- fully +35.4% above today's purchase price.  The Delta was 74.7 when this position was established, which approximates a 74.7% probability that the Calls will expire in-the-money on the July 28th, 2023 options expiration date.

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

• For APA Corporation: +1.3% absolute return-on-investment (equivalent to +154.9% annualized return-on-investment for the next 3 days) in the relatively unlikely event that the stock is assigned early (last trading day prior to the July 20th ex-dividend date); OR (2) +2.0% absolute return-on-investment (equivalent to +60.7% annualized return-on-investment for the next 12 days) if the stock is assigned on its July 28th options expiration date.
• For CVS Health Corporation: +0.4% absolute return-on-investment (equivalent to +48.4% annualized return-on-investment for the next 3 days) if the stock is assigned early (last trading day prior to the July 20th ex-dividend date); OR (2) +1.3% absolute return-on-investment (equivalent to +38.9% annualized return-on-investment over the next 12 days) if the stock is assigned on its July 28th options expiration date.

1. APA Corporation (APA) -- New Covered Calls Position

The buy/write net debit limit order was entered at $34.56 per share with a 500 shares position.  The time value was $.44 per share = [$35.00 strike price - ($36.24 stock purchase price - $1.68 Call options price)] when this position was established.  APA goes ex-dividend this Thursday on July 20th at $.25 per share (2.8% annual dividend yield) which is 8 days prior to the July 28th options expiration date.  So, the potential return-on-investment result in the relatively unlikely event that the dividend is assigned early on the day prior to the ex-dividend date is included in the results detailed below.  

The transactions were:
7/17/2023 Bought 500 APA Corporation shares @ $36.24
7/17/2023 Sold 5 APA 7/28/2023 $35.00 Call options @ $1.68 per share
Note: A simultaneous buy/write transaction was executed.  
7/20/2023 Upcoming quarterly ex-dividend of $.25 per share

Two possible overall performance results (including commissions) for this APA Corporation Covered Calls position are as follows:
APA Covered Calls Net Investment: $17,283.35
= ($36.24 - $1.68) * 500 shares + $3.35 commissions

Net Profit Components:
(a) Options Income: +$840.00
= ($1.68 * 500 shares)
(b) Dividend Income (If option exercised early on the business day prior to the July 20th ex-div date): +$0.00; or
(b) Dividend Income (If APA shares assigned at the July 28th, 2023 options expiration date): +$125.00
= ($.25 dividend per share x 500 shares)
(c) Capital Appreciation (If APA assigned early on July 19th, 2023): -$620.00
+($35.00 - $36.24) * 500 shares; or
(c) Capital Appreciation (If APA assigned at the $35.00 strike price at the July 28th, 2023 options expiration): -$620.00
+($35.00 -$36.24) * 500 shares

1. Total Net Profit [If option exercised on July 19th (last business day prior to the July 20th ex-dividend date)]: +$220.00

= (+$840.00 options income + $0.00 dividend income - $620.00 capital appreciation); or

2. Total Net Profit (If APA shares assigned at $35.00 strike price at its July 28th, 2023 expiration): +$345.00

= (+$840.00 +$125.00 dividend income -$620.00 capital appreciation)

1. Absolute Return-on-Investment [If APA options exercised on business day prior to ex-dividend date]: +1.3%

= +$220.00/$17,283.35

Annualized Return-on-Investment (If option exercised early): +154.9%

= (+$220.00/$17,283.35) * (365/3 days); or

2. Absolute Return (If APA shares assigned at $35.00 at the July 28th, 2023 expiration): +2.0%

= +$345.00/$17,283.35

Annualized Return (If APA Corporation stock assigned at $35.00 at the July 28th, 2023 expiration): +60.7%

= (+$345.00/$17,283.35) * (365/12 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $35.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $34.31 ($36.24 -$1.68 -$.25) provides 5.3% 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 APA Corporation Covered Calls position.

2. CVS Health Corporation (CVS) -- New Covered Calls Position

The buy/write net debit limit order was entered at $68.72 per share with a 400 shares position.  The time value was $.28 per share = [$69.00 strike price - ($70.57 stock purchase price - $1.85 Call options price)] when this position was established.  CVS goes ex-dividend this Thursday at $.605 per share (3.4% annual dividend yield) which is 8 days prior prior to the July 28th options expiration date.  So, the potential for capturing this dividend is included in the potential return-on-investment results detailed below.  

The buy/write transaction was:
7/17/2023 Bought 400 CVS shares @ $70.57 per share
7/17/2023 Sold 4 CVS 7/28/2023 $69.00 Call options @ $1.85 per share
7/20/2023 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: $27,490.68
= ($70.57 - $1.85) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$737.32
= ($1.85 * 400 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on July 19th, the last business day prior to the 7/20/2023 ex-div date): +$0.00; or
(b) Dividend Income (If CVS stock assigned at the July 28th, 2023 options expiration date): +$242.00
= ($.605 dividend per share x 400 shares)

(c) Capital Appreciation (If CVS Call options assigned early): -$628.00
= +($69.00 strike price - $70.57 stock purchase price) * 400 shares; or
(c) Capital Appreciation (If shares assigned at $69.00 strike price at the 7/28/2023 options expiration): -$628.00
= +($69.00 - $70.57) * 400 shares

1. Potential Total Net Profit [If option exercised early]: +$109.32

= (+$737.32 options income +$0.00 dividend income -$628.00 capital appreciation); or

2. Potential Total Net Profit (If CVS shares assigned at $69.00 at the July 28th, 2023 expiration date): +$351.32

= (+$737.32 options income +$242.00 dividend income -$628.00 capital appreciation)

1. Absolute Return-on-Investment [If option exercised early on July 19th (business day prior to ex-dividend date)]: +0.4%

= +$109.32/$27,490.68

Annualized Return-on-Investment (If option exercised early): +48.4%

= (+$109.32/$27,490.68) * (365/3 days); or

2. Absolute Return-on-Investment (If CVS shares assigned at $69.00 at the July 28th, 2023 options expiration date): +1.3%

= +$351.32/$27,490.68

Annualized Return-on-Investment (If CVS shares assigned at $69.00 at the 7/28/2023 options expiration date): +38.9%

= (+$351.32/$27,490.68) * (365/12 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 [see item 9(c) in the table with 9 criteria below].  These returns will be achieved as long as the stock is above the $69.00 strike price on the options expiration date.  However, if the stock declines below the strike price, the breakeven price of $68.115 ($70.57 - $1.85 -$.605) provides 3.5% 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 Health Corporation 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 26.1% which is calculated as ($.605/$70.57) x (365/12 days)] which in this CVS position greatly exceeds the minimum threshold in this case since it exceeds 5.0% minimum for this criteria. 

July 14th, 2023 Options Expiration Results

The Covered Calls Advisor Portfolio had three Covered Calls positions with July 14th, 2023 weekly options expirations.  Fortunately, all three positions closed on their options expiration date yesterday with their equity prices in-the-money, so the Calls expired with no remaining value and the Covered Calls were closed out with the three equities sold at their respective strike prices.  A summary result for each position is as follows:

1. iShares China Large-Cap ETF (FXI) -- +5.1% absolute return (equivalent to +74.9% annualized return-on-investment) for the 25 days of this investment.  The detailed history of this position is here. 

2. PayPal Holdings Inc. (PYPL) -- +0.8% absolute return (equivalent to +29.6% annualized return-on-investment) for the 10 days of this investment.  The original blog post when this position was established is here.

3. Uber Technologies Inc. (UBER) -- +1.6% absolute return (equivalent to +36.9% annualized return-on-investment) for the 16 days of this investment.  The original blog post when this position was established is here.

I welcome your feedback and questions on any topics related to the Covered Calls investing strategy.  My email address is partlow@cox.net.

Jeff Partlow
The Covered Calls Advisor

Early Assignment of Two Covered Calls Positions

Early this morning, I was notified via email from my broker (Schwab) that my Covered Calls positions in Abbvie Inc. (ticker ABBV) and Sociedad Quimica Y Minera de Chile SA (SQM) were closed out by early assignment yesterday which is the day before today's ex-dividend date for both companies.  The current stock prices were both deep-in-the-money and there was very little time value remaining in the Call options, so with eight days remaining until the July 21st options expiration date for both positions, the Call owners decided to exercise their Calls early so they will capture today's ex-dividend.  So the Calls expired worthless and the stocks were sold at their respective strike prices with the following results:

1. Abbvie Inc. (ABBV) -- I had owned 200 ABBV shares and sold two July 21st, 2023 $132.00 Calls and today's ex-dividend amount is $1.48 per share.  This position achieved +0.3% absolute return (equivalent to +40.1% annualized return-on-investment) for the 3 days of this investment.  The original blog post details when this position was established are here. 

2. Sociedad Quimica Y Minera de Chile SA (SQM) -- I had owned 300 SQM shares and sold three July 21st, 2023 $70.00 Calls and today's ex-dividend amount is $.7876 per share.  This position achieved +0.9% absolute return (equivalent to +44.6% annualized return-on-investment) for the 7 days of this investment.  The original blog post details when this position was established are here.

New positions will be established in my Covered Calls Advisor Portfolio in the upcoming week.  Details of each position will be published on this blog on the same day the transactions occur.  I welcome your questions or feedback at the email address below on any topics related to the Covered Calls investing strategy.  

Best Wishes and Godspeed,

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net

Early Closeout of Covered Calls Position in Halliburton Company

Last Thursday (July 6th, 2023), a Covered Calls position was established in Halliburton Company (ticker HAL) at the $31.00 strike price and for the July 21st, 2023 options expiration date. The stock price has increased from $32.66 when purchased to $36.51 this morning.  I have a "Rule-of-Thumb for Early Close Out" table (shown below), and this Halliburton Covered Calls position exceeded the minimum annualized-return-on-investment (aroi) threshold for closing out a position early.  This position has been held for 5 days now and there were 16 days total duration until the 7/21/2023 options expiration date which corresponds to category #2 in the rules table below.  The category #2 decision criteria is that the aroi if closed early be at least 80% higher than the aroi if the position was instead assigned on the original options expiration date. The aroi if assigned on the 7/21 expiration date would be 39.9% and a minimum threshold of an 80% increase above 39.9% is 71.8%.  As detailed below, this Covered Calls position was closed out early since the +97.4% aroi achieved by this early closeout exceeded the 71.8% minimum threshold in this instance.

Halliburton Company (HAL) -- Covered Calls Position Closed Out Early

The buy/write transaction was:

7/6/2023 Bought 400 Halliburton shares @ $32.66 per share.
7/6/2023 Sold 4 Halliburton 7/21/2023 $31.00 Call options @ $2.20 per share.
7/11/2023 Unwound Halliburton Covered Calls position by simultaneously Selling-to-Close 400 shares @ $36.51 and Buying-to-Close 4 HAL 7/21/2023 $31.00 Call options @ $5.63 per share -- a net credit of $30.88 per share. 

The overall performance results (including commissions) were as follows:
Covered Calls Net Investment: $12,186.68
= ($32.66 - $2.20) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: -$1,377.36
= ($2.20 - $5.63) * 400 shares - $5.36 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation: +$1,540.00
= ($36.51 selling price per share - $32.66 purchase price) * 400 shares

Total Net Profit: +$162.64
= (-$1,377.36 options income + $0.00 dividend income + $1,540.00 capital appreciation)

Absolute Return-on-Investment: +1.3%
= +$162.64/$12,186.68
Annualized-Return-on-Investment: +97.4%
= (+$162.64/$12,186.68) * (365/5 days)

Established Covered Calls in Abbvie Inc.

Today, in the last half-hour of trading, a short-term Covered Calls position was established in Abbvie Inc. (ticker ABBV) with the purchase of 200 shares at $134.11 per share and two July 21st, 2023 Call options were sold for $2.55 per share at the $132.00 strike price.  This transaction occurred as a buy/write limit order at a net debit limit price of $131.56 per share.  The corresponding time value (aka extrinsic value) in the Call options was $.44 per share = [$2.55 Call options premium received - ($134.11 stock purchase price - $132.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at 74.4 when this buy/write transaction was executed, which approximates the probability of assignment on the options expiration date.  As I prefer, there is no quarterly earnings report prior to the options expiration date.

Abbvie goes ex-dividend at $1.48 per share (4.4% annualized dividend yield at the current stock price) on July 13th which is prior to the July 21st options expiration date, so this dividend is included in the potential return-on-investment results shown below.  In addition, as shown in the chart below at the end of this blog post, eight of the nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position.

Abbvie is a research-based pharmaceutical company with a strong pipeline in immunology, oncology, neuroscience plus targeted efforts in cystic fibrosis and women's health.  They acquired Allergan (think Botox) about three years ago which is aiding Abbvie's growth prospects.  Its #1 drug (Humira) is now beginning to face biosimilar competition, so its aggressive pipeline and acquisition strategy is designed to mitigate the upcoming revenue decline from that event.  But the Covered Calls Advisor does not view Abbvie as a long-term core holding.  Instead, because of its generous dividend, it will continue to re-evaluated each quarter as a Dividend Capture Strategy candidate.

The midpoint of Abbvie's FY2023 EPS estimate is now $10.77 per share which is a P/E Ratio of 12.5 and analysts' target price of $165.08 is +23.1% above today's stock purchase price.

Two potential return-on-investment results are: (a) +0.3% absolute return (equivalent to +40.1% annualized return-on-investment for the next 3 days) if the stock is assigned early on the day prior to the July 13th ex-dividend date; or (b) +1.5% absolute return (equivalent to +44.2% annualized return-on-investment for the next 12 days) if the stock is assigned at market close on the July 21st, 2022 options expiration date.  

 

Abbvie Inc. (ABBV) -- New Covered Calls Position
The simultaneous buy/write transaction was as follows:
7/10/2023 Bought 200 shares of Abbvie Inc. stock @ $134.11 per share 
7/10/2023 Sold 2 ABBV July 21st, 2023 $132.00 Call options @ $2.55 per share.  The Implied Volatility of these Calls was 13.8 when this position was established.
7/13/2023 Upcoming ex-dividend of $1.48 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Net Investment: $26,313.34
= ($134.11 - $2.55) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$508.66
= ($2.55 * 200 shares) - $1.34 commission
(b) Dividend Income (If Abbvie shares assigned on 7/12/2022, the business day prior to the 7/13/2023 ex-dividend date): = +$0.00; or
(b) Dividend Income (If Abbvie shares assigned at the July 21st, 2023 options expiration): +$296.00
= $1.48 per share x 200 shares
(c) Capital Appreciation (If ABBV shares assigned early on July 13th 2023): -$422.00
= ($132.00 strike price - $134.11 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If ABBV shares assigned with stock above $132.00 strike price on the July 21st, 2023 options expiration): -$422.00
= ($132.00 strike price - $134.11 stock purchase price) * 200 shares

1. Potential Net Profit (If Abbvie shares assigned early on 7/12/2022, the day prior to the 7/13/2023 ex-dividend date): +$86.66
= (+$508.66 options income +$0.00 dividend income - $422.00 capital appreciation)
2. Potential Net Profit (If ABBV price is above $132.00 strike price at the July 21st options expiration): +$382.66
= (+$508.66 options income +$296.00 dividend income - $422.00 capital appreciation)

1. Absolute Return-on-Investment (If ABBV shares assigned early on the day prior to the July 13th ex-dividend date): +0.3%
= +$86.66/$26,313.34
Equivalent Annualized Return-on-Investment (If assigned early on day prior to ex-div date): +40.1%
= (+$86.66/$26,313.34) * (365/3 days)
2. Absolute Return-on-Investment (If Abbvie price is above $132.00 strike price at the July 21st options expiration date): +1.5%
= +$382.66/$26,313.34
Equivalent Annualized Return-on-Investment (If assigned on the 7/21/2023 options expiration date): +44.2% 

= (+$382.66/$26,313.34) * (365/12 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 9 criteria are achieved for this Abbvie Inc. Covered Calls position.

July 7th, 2023 Options Expiration Results

The Covered Calls Advisor Portfolio had one Covered Calls position in Match Group Inc. with a July 7th, 2023 weekly options expiration date.  The position closed in-the-money yesterday at $42.21 per share, so the Calls expired worthless and the 400 Match Group shares were sold at their $39.00 strike price with the following results:

Match Group Inc. (MTCH) -- +2.0% absolute return (equivalent to +43.4% annualized return-on-investment) for the 17 days of this Covered Calls investment.  The original blog post details when this position was established is here. 

New positions will be established in my Covered Calls Advisor Portfolio in the upcoming week.  I welcome your questions or feedback at the email address below on any topics related to the Covered Calls investing strategy.  

Best Wishes,

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net

Established Two Covered Calls Positions in Halliburton Company and Sociedad Quimica Y Minera de Chile SA

This morning, Covered Calls positions were established in Halliburton Company (ticker HAL) and Sociedad Quimica Y Minera de Chile SA (ticker SQM) when the Covered Calls Advisor's buy/write limit orders were executed.   For Halliburton, 400 shares were purchased at $32.66 and 4 July 21st, 2023 Call options were sold at $2.20 per share at the $31.00 strike price.   For SQM, 300 shares were purchased at $73.75 and 3 July 21st, 2023 Call options were sold at $4.35 at the $70.00 strike price.  Given the Covered Calls Advisor's current cautious outlook, moderately in-the-money Covered Calls positions were established for both companies. 

Halliburton's FY2023 estimated P/E Ratio is 10.7 which is very attractive based on their ongoing growth potential and their discounted P/E relative to the S&P 500 and also compared with their historical P/E valuation.  Halliburton has also beat earnings estimates for each of the last 4 quarters and their projected continuing earnings growth every quarter this year are projected to exceed that of the prior year for all comparable quarters.  The twenty-six Wall Street analysts that now cover Halliburton Co. also believe that the stock is currently undervalued since their average target price is $47.19 which has +44.5% upside potential above today's purchase price.   As preferred, the Implied Volatility of these Call options was 44.8 which is well above that of the S&P 500 Implied Volatility (i.e.VIX) which is currently only 16.5.  The Delta was 73.2 when this position was established, which approximates a 73.2% probability that the Calls will expire in-the-money on the July 21st options expiration date.

Sociedad Quimica Y Minera de Chile SA is a Chilean commodities producer that includes substantial production of lithium (used in EV batteries and energy storage systems), potassium fertilizers, and iodine (used primarily in x-ray contrasts).  This position was established using my Dividend Capture Strategy.  The buy/write net debit limit order was entered at $69.40 per share with a 300 shares position.  The time value was $.60 per share = [$70.00 strike price - ($73.75 stock purchase price - $4.35 Call options price)] when this position was established.  SQM goes ex-dividend one week from today on July 13th at $.7876 per share (4.3% annual dividend yield) which is 8 days prior prior to the July 21st options expiration date.  So, the potential for capturing this dividend is included in the potential return-on-investment results detailed below.  The Implied Volatility of these Calls was 35.6 and the Delta was approximately 70.2 when this SQM Covered Calls position was established.

There is no intervening earnings report for either Halliburton or SQM prior to their July 21st options expirations.

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

• For Halliburton: +1.8% absolute return-on-investment (equivalent to +39.9% annualized return-on-investment for the next 16 days) if the stock is assigned on its July 21st options expiration date.

• Sociedad Quimica Y Minera de Chile SA: +0.9% absolute return-on-investment (equivalent to + 44.6% annualized return-on-investment for the next 7 days) if the stock is assigned early (last trading day prior to the July 13th ex-dividend date); OR (2) +2.0% absolute return-on-investment (equivalent to +45.4% annualized return-on-investment over the next 16 days) if the stock is assigned on its July 21st options expiration date.

1.  Halliburton Company (HAL) -- New Covered Calls Position
The buy/write transaction was:

7/6/2023 Bought 400 Halliburton shares @ $32.66 per share.
7/6/2023 Sold 4 Halliburton 7/21/2023 $31.00 Call options @ $2.20 per share.

A possible overall performance result (including commissions) if this position is assigned on its July 21st options expiration date is follows:
Covered Calls Net Investment: $12,186.68
= ($32.66 - $2.20) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$877.32
= ($2.20 * 400 shares) - $2.68 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HAL stock is above the $31.00 strike price and therefore assigned at the 7/21/2023 options expiration): -$664.00
= ($31.00 - $32.66) * 400 shares

Potential Total Net Profit (If assigned at expiration): +$213.32
= (+$877.32 options income +$0.00 dividend income -$664.00 capital appreciation)

Potential Absolute Return-on-Investment: +1.8%
= +$213.32/$12,186.68
Potential Equivalent Annualized-Return-on-Investment: +39.9%
= (+$213.32/$12,186.68) * (365/16 days)

2. Sociedad Quimica Y Minera de Chile SA (SQM) -- New Covered Calls Position

The net debit buy/write limit order was executed as follows:

7/6/2023 Bought 300 shares of SQM stock @ $73.75 per share 
7/6/2023 Sold 3 SQM 7/21/2023 $70.00 Call options @ $4.35 per share.
7/13/2023 Ex-dividend of $.7876 per share.

Two possible overall performance results (including commissions) for this Sociedad Quimica Y Minera de Chile SA Covered Calls position are as follows:
Covered Calls Cost Basis: $20,822.01
= ($73.75 - $4.35) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$1,302.99
= ($4.35 * 300 shares) - $2.01 commission
(b) Dividend Income (If option exercised early on July 12th, the last business day prior to the July 13th ex-div date): +$0.00; or
(b) Dividend Income (If SQM stock assigned at the 7/21/2023 options expiration date): $236.28 = ($.7876 dividend per share x 300 shares)

(c) Capital Appreciation (If SQM Call options assigned early on July 12th): -$825.00
+($70.00 - $73.75) * 300 shares; or
(c) Capital Appreciation (If shares assigned at $70.00 strike price at the 7/21/2023 options expiration): -$1,125.00
+($70.00 - $73.75) * 300 shares

1. Total Net Profit [If SQM Call options exercised early on the last business day prior to the July 13th ex-dividend date)]: +$177.99

= (+$1,302.99 options income +$0.00 dividend income -$1,125.00 capital appreciation); or

2. Total Net Profit (If SQM shares assigned at $70.00 strike price at the July 21st, 2023 expiration): +$414.27

= (+$1,302.99 +$236.28 -$1,125.00)

1. Absolute Return-on-Investment (If option exercised early on 7/12/2023): +0.9%

= +$177.99/$20,822.01

Annualized Return-on-Investment: +44.6%

= (+$177.99/$20,822.01) * (365/7 days); or

2. Absolute Return-on-Investment (If SQM shares assigned at $70.00 at the July 21st, 2023 options expiration): +2.0%

= +$414.27/$20,822.01

Annualized Return-on-Investment (If SQM shares assigned at the 7/21/2023 expiration): +45.4%

= (+$414.27/$20,822.01) * (365/16 days)

Either outcome would provide an attractive return-on-investment result for this Sociedad Quimica Y Minera de Chile SA investment.  These returns will be achieved as long as the stock is above the $70.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $68.6124 ($73.75 - $4.35 - $.7876) provides 7.0% downside protection below today's stock purchase price.

Early Assignment of Bristol-Myers Squibb Co. Covered Calls

Early this morning, the Covered Calls Advisor was notified by an email from my broker (Schwab) that the three Bristol-Myers Squibb Co. July 21st, 2023 $62.50 Call options were exercised early yesterday which was the last business day prior to today's July 6th ex-dividend date.   The Bristol-Myers stock price had increased slightly from its purchase price of $63.75 on June 28th to $64.16 at the market close yesterday.  

This early exercise by an owner of these Call options was surprising to me since they decided to immediately forgo the remaining $.54 time value in the Call options [$2.20 midpoint value of the Call options' $2/12/$2/28 Bid/Ask price - ($64.16 current stock price - $62.50 strike price)], and 8 days remaining until the July 14th options expiration date in order to buy the stock and therefore also capture today's $.57 ex-dividend.  The last time I was surprised by an early assignment was 21 months ago.  Since then, I have experienced 31 prior early assignments in the Covered Calls Advisor Portfolio where the remaining time value on the last business day prior to the ex-dividend date was sufficiently close to $0.00 that the early assignment was expected be me (and not the surprise that occurred this morning with the owner's early exercise decision).

Nevertheless, I am pleased with this outcome since the resulting +33.8% annualized return-on-investment (aroi) achieved is better than the +25.2% maximum possible aroi that might have been achieved 8 days from now if the stock remains above the $62.50 strike price on next Friday's (July 14th) options expiration date.  

The transactions and detailed results for this position are as follows:

Bristol-Myers Squibb Co. (BMY) -- Covered Calls Position Closed Out by Early Assignment
The simultaneous buy/write transaction was:
6/28/2023 Bought 300 Bristol-Myers Squibb Co. shares @ $63.75 per share.
6/28/2023 Sold 3 BMY 7/21/2023 $62.50 Call options @ $1.71 per share.
7/5/2023 Three Bristol-Myers Squibb Co. Calls exercised early, so these Call options immediately expired worthless and the Covered Calls position was closed out by early assignment by the selling of the 300 Bristol-Myers shares at their $62.50 strike price.

The overall performance results (including commissions) for this Bristol-Myers Squibb Co. Covered Calls position are as follows:
Covered Calls Net Investment: $18,614.01
= ($63.75 - $1.71) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$513.00
= ($1.71 * 300 shares)
(b) Dividend Income (Three Call options exercised early on July 5th, 2023, the business day prior to the July 6th ex-div date): +$0.00
(c) Capital Appreciation (BMY Call options assigned early on July 5th, 2023): -$375.00
= +($62.50 - $63.75) * 300 shares

Total Net Profit achieved: +$138.00

= +$513.00 options income +$0.00 dividend income -$375.00 capital appreciation

Absolute Return-on-Investment result: +0.7%

= +$138.00/$18,614.01

Annualized Return-on-Investment result: +33.8%

= (+$138.00/$18,614.01) * (365/8 days)

Established Covered Calls in PayPal Holdings Inc.

At 9:53am this morning, a short-term Covered Calls position was established by buying 400 shares of PayPal Holdings Inc. (ticker symbol PYPL) stock at $67.33 and simultaneously selling 4 July 14th, 2023 $65.00 Call options at $2.86 per share -- at the buy/write net debit limit order of $64.47 per share -- so the time value was $.53 per share [$2.86 Call options premium - ($67.33 stock purchase price - $65.00 strike price)].  The approximate probability that this position will be in-the-money and therefore assigned on the options expiration date is 75.0%.  Also important is the fact that the next quarterly earnings report on August 2nd, 2023 is after the July 14th options expiration date.

PayPal's FY2023 estimated P/E Ratio is 13.7 which is very attractive based on their ongoing growth potential and the discounted P/E relative to the S&P 500 and also their historical valuation.  PayPal has beat earnings estimates for each of the last 4 quarters and their projected continuing earnings growth every quarter this year is projected to exceed that of the prior year for the comparable quarter.  The forty-five Wall Street analysts that now cover PayPal agree with me that the stock is currently undervalued. Their average target price is $91.33 which is +35.6% upside from today's purchase price.    
 

As detailed below, a potential outcome for this PayPal investment is +0.8% absolute return-on-investment for the next 10 days (equivalent to +29.6% annualized-return-on-investment) if the stock closes above the $65.00 strike price on the July 14th, 2023 options expiration date.

PayPal Holdings Inc. (PYPL) -- New Covered Calls Position

The net debit buy/write limit order was executed as follows:
7/5/2023 Bought 400 shares of PayPal stock @ $67.33 per share 
7/5/2023 Sold 4 PYPL July 14th, 2023 $65.00 Call options @ $2.86 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of the Calls was 31.4 when this position was established.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Net Investment: $25,790.68
= ($67.33 - $2.86) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$1,141.32
= ($2.86 * 400 shares) - $2.68 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If PYPL stock is above the $65.00 strike price at the July 14th expiration): -$932.00
= ($65.00 -$67.33) * 400 shares

Potential Total Net Profit (If assigned at expiration): +$209.32
= (+$1,141.32 options income +$0.00 dividend income -$932.00 capital appreciation)

Potential Absolute Return-on-Investment: +0.8%
= +$209.32/$25,790.68
Potential Equivalent Annualized-Return-on-Investment: +29.6%
= (+$209.32/$25,790.68) * (365/10 days)

Early Assignment of Covered Calls Position in JPMorgan Chase & Co.

Overnight I was notified by my broker that the three JPMorgan Chase & Co. (ticker JPM) July 14th, 2023 $135.00 Call options were exercised yesterday.  JPMorgan stock has had a significant increase from its purchase price of $138.28 on June 28th to $146.61 at the market close yesterday.  During this one-week period, all 23 of the largest U.S. bank stocks (including JPMorgan which is the largest U.S. bank) passed the Federal Reserve's stress tests -- and their stock prices have benefited as a result.  

The original $1.10 time value in the Calls when the position was established had declined at yesterday's market close to $0.16 per share at the Call options Bid/Ask midpoint price, so I was not surprised that (with a $1.00 ex-dividend today and ten days remaining until the options expiration date), the owner of these JPMorgan Calls exercised their option to buy the 300 shares at the $135.00 strike price in order to capture the dividend.  

There are two reasons I am pleased for this early assignment, despite losing the opportunity to capture tomorrow's (since today is a holiday) $1.00 per share ex-dividend:
1. The +42.6% annualized-return-on-investment (aroi) achieved by early assignment is greater than the +33.6% aroi that would have been achieved 10 days from today if this position remained in-the-money and so instead would be assigned on its July 14th options expiration date; and
2. JPMorgan's Q2 2023 earnings report is before market open on July 14th (the options expiration date).  Because of the normal stock price volatility on the earnings reporting date (albeit sometimes positive but also sometimes negative), I strongly prefer not holding any company's stock on the day of their quarterly earnings report. 

The post when this JPMorgan Chase & Co. Covered Calls position was originally established is here.  As detailed below, the return-on-investment result for this position was +0.8% absolute return in 7 days (equivalent to a +42.6% annualized return-on-investment).  

JPMorgan Chase & Co. (JPM) -- Covered Calls Position Closed Out by Early Assignment

The simultaneous buy/write transaction was:
6/28/2023 Bought 300 JPMorgan Chase & Co. shares @ $138.28 

6/28/2023 Sold 3 JPM July 14th, 2023 $135.00 Call options @ $4.38 per share.
7/4/2023 This JPMorgan Covered Calls position was closed out by early assignment.  The owner of the JPM Calls exercised their option, so the Calls expired worthless and the 300 JPMorgan shares were sold at the $135.00 strike price.

The overall performance results (including commissions) for this JPM Covered Calls position were as follows:
Stock Purchase Net Investment: $40,172.01
= ($138.28 - $4.38) * 300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,311.99
= ($4.38 * 300 shares) - $2.01 commission
(b) Dividend Income (JPM Call options were exercised early on July 3rd, the last business day prior to the July 5th ex-div date): +$0.00

(c) Capital Appreciation (JPM shares assigned early): -$984.00
+($135.00 selling price -$138.28 purchase price) * 300 shares

Total Net Profit: +$327.99

= (+$1,311.99 options income +$0.00 dividend income -$984.00 capital appreciation)

Absolute Return-on-Investment: +0.8%

= +$327.99/$40,172.01

Annualized Return-on-Investment: +42.6%

= (+$327.99/$40,172.01) * (365/7 days)

Best Wishes,

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net

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

This past Friday, the June 30th, 2023 $27.35 Covered Calls position in iShares China Large-Cap ETF (ticker FXI) closed slightly out-of-the-money, so the Calls expired and 900 FXI shares remained in the Covered Calls Advisor Portfolio.  This morning, the Covered Calls position was continued by rolling up-and-out to the July 14th, 2023 $27.85 strike price at $.56 per share when FXI's price was $27.84. 

I am establishing ongoing Covered Calls positions in iShares China Large-Cap ETF because of my now bullish outlook for China's stock market.  Although the U.S. market (measured the S&P 500) has outperformed the iShares China Large-Cap ETF during the past dozen years, I believe this history is poised to begin to inflect to outperformance by China.  China's economic growth is likely to exceed our U.S.GDP growth in upcoming years, and while our Federal Reserve continues its economic tightening policy, China has now initiated a stimulative monetary loosening strategy.  Another reason for my contention about the two countries' respective stock markets going forward relates to stock price valuations.  FXI's valuation metrics currently trade at only about one-half of that of the S&P 500: (1) a trailing twelve-months P/E of 9.0 for FXI versus 21.5 for SPY; and (2) a forward PEG Ratio of 1.0 for FXI compared to 2.0 for SPY.  The overwhelming majority of my investments will continue to be in U.S.-based companies, but I believe now is a fortuitous time to include more international diversification in my Covered Calls Advisor Portfolio.

As detailed below, a potential return-on-investment result is +5.1% absolute return-on-investment (equivalent to +74.9% annualized return-on-investment for the 25 days holding period) if the stock price is in-the-money (i.e. above the $27.85 strike price) and therefore assigned on the July 14th, 2023 options expiration date.

iShares China Large-Cap ETF (FXI) -- Covered Calls Position Continued 
The Buy/Write transaction was as follows:
6/20/2023 Bought 900 shares of iShares China Large-Cap ETF @ $27.87 per share 
6/20/2023 Sold 9 FXI June 30th, 2023 $27.35 Call options @ $.86 per share
6/30/2023 Nine FXI Calls expired out-of-the-money so the 900 shares remained in the Covered Calls Advisor Portfolio.
07/3/2023 Continued this iShares China Large-Cap ETF Covered Calls position by selling 9 FXI July 14th, 2023 Call options at the  $27.85 strike price for $.56 per share.  The FXI share price was $27.84 when these Calls were sold and their Implied Volatility was 27.3.

A possible overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position is as follows:
FXI Covered Calls Net Investment: $24,315.03
= ($27.87 - $.86) * 900 shares + $6.03 commission

Net Profit Potential:
(a) Options Income: +$1,265.94
= ($.86 + $.56) * 900 shares - $12.06 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 900 iShares China Large-Cap ETF shares assigned at $27.85 strike price at the July 14th options expiration date): -$18.00
+($27.85 - $27.87) * 900 shares

Potential Total Net Profit (If 900 iShares China Large-Cap ETF shares assigned at $27.85 strike price upon options expiration): +$1,247.94
= (+$1,265.94 options income +$0.00 dividend income -$18.00 capital appreciation)

Absolute Return-on-Investment Potential: +5.1%
= +$1,247.94/$24,315.03
Annualized Return-on-Investment Potential: +74.9%
= (+$1,247.94/$24,315.03) * (365/25 days)