Shutterstock is a micro-cap company with a market capitalization of $1.6 Billion. It is one of the eleven best companies identified by Morgan Stanley with regards to their Artificial Intelligence stock price potential. The company is in the interactive media and services industry and went public in 2012. They now have approximately one million contributors and two million customers across 150 countries and their current product inventory includes 757 million images, 52 million clips, 4 million music tracks, and 1.2 million 3D models. Shutterstock's 586,000 subscribers provide 42% of total revenue and this percentage continues to grow.
CEO Paul Hennessy has been in his position for only 1.5 years now but was previously on Shutterstock's board for 7 years during which time he was also CEO of both VROOM and Priceline. He obtained the CEO role from Jon Oringer, the founder of Shutterstock and who now serves as its Executive Chairman.
As shown on the table at the bottom of this post, all nine criteria of the Dividend Capture Strategy are met with this position. Even if the stock price declines somewhat during the next 30 days until the options expiration date, if the stock closes above the $45.00 strike price, then a very satisfactory annualized-return-on-investment of +63.4% will be achieved.
The Delta for these Call options was 53.8 when this position was established which approximates the probability of 53.8% that the position will be in-the-money at market close on the options expiration date. Analysts' average target price is $60.80 (+32.4% above today's stock purchase price). The current 2023 fiscal year estimate P/E ratio is only 10.3 and the related PEG ratio of only 0.8 provides a very attractive current stock price valuation.
As detailed below, two potential return-on-investment results are:
- +4.6% absolute return (equivalent to +119.6% annualized
return-on-investment for the next 14 days) if the stock is assigned early (on the last business day
prior to the November 29th ex-dividend date); or
- +5.2% absolute return (equivalent to +63.4% annualized return-on-investment over the next 30 days) if the stock is assigned on the December 15th, 2023 options expiration date.
The buy/write transaction was:
11/15/2023 Bought 500 Shutterstock shares @ $45.91
11/15/2023 Sold 5 SSTK 12/15/2023 $45.00 Call options @ $2.89 per share.
Note: Implied Volatility (IV) of the Call options was at 34.6 when this position was transacted which, as preferred, is above the current VIX of 14.0.
11/29/2023 Upcoming quarterly ex-dividend of $.27 per share
Two possible overall performance results (including commissions) for this Shutterstock Inc. Covered Calls position are as follows:
Covered Calls Net Investment: $21,513.35
= ($45.91 - $2.89) * 500 shares + $3.35 commission
Net Profit Components:
(a) Options Income: +$1,441.65
= ($2.89 * 500 shares) - $3.35 commission
(b) Dividend Income (If Shutterstock Call options exercised early on Nov. 28th, 2023, the last business day prior to the Nov. 29th ex-div date): +$0.00; or
(b) Dividend Income (If Shutterstock stock assigned at the December 15th, 2023 options expiration): +$135.00
= ($.27 dividend per share x 500 shares)
(c) Capital Appreciation (If shares assigned at $45.00 strike price at the 12/15/2023 options expiration): -$455.00
+($45.00 - $45.91) * 500 shares
Either outcome provides an attractive return-on-investment result for this Shutterstock Inc. investment. These returns will be achieved as long as the stock is above the $45.00 strike price at assignment. However, if the stock declines below the strike price, the breakeven price of $42.75 ($45.91 -$2.89 -$.27) provides 6.9% 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. As shown below, eight of the nine criteria are achieved for this Shutterstock Inc. Covered Calls position.
