Established Covered Calls Positions in The Cigna Group and Halliburton Company

Today Covered Calls positions were established in The Cigna Group (ticker CI) and Halliburton Company (ticker HAL) at the December 15th, 2023 options expiration date when my buy/write limit orders were executed.     

At 1:15 PM ET, after the report in the Wall Street Journal about the merger talks between Cigna and Humana caused a persistent sharp decline of over 6.0% in the stock of Cigna, I purchased one hundred shares at $267.58 and simultaneously sold 1 December 15th, 2023 Call option at $5.50 per share at the $270.00 strike price.  This strike price is slightly out-of-the-money which is consistent with the guideline of selling Calls between 3.0% below and 2.0% above the strike price when my Overall Market Meter is "Neutral" (as it is now).  I believe this merger is unlikely to occur and that Cigna's current price represents an attractive valuation at an estimated P/E ratio of only 10.8 based on this fiscal year's EPS estimates (which is well below its prior 5-year average P/E of 13.4).  In addition, Cigna has won Centene's business beginning in 2024 which bodes well for further earnings increases in 2024.        

The potential time value profit for this Cigna Covered Call position is $5.50 per share and in addition there is an upcoming quarterly ex-dividend income potential per share of $1.23 (annual dividend yield of 1.7%) next Tuesday (December 5th, 2023).  So, the potential return-on-investment results detailed below occurs if the stock price rebounds upward and the Covered Calls position is in-the-money (and therefore assigned) on the Dec. 15th options expiration date.  Furthermore, Cigna has exceeded analysts' EPS estimates every quarter for the past 3 years and the current average target price of Wall Street analysts that cover Cigna is $347.81 (+30.0% above today's purchase price). 

1. The Cigna Group (CI) -- New Covered Call Position
The buy/write transaction today was as follows:
11/29/2023 Bought 100 Cigna Corp. shares @ $267.58
11/29/2023 Sold 1 Cigna 9/15/2023 $270.00 Call option @ $5.50 per share.
12/5/2023 Upcoming quarterly ex-dividend of $1.23 per share

A possible overall performance results (including commissions) for this Covered Call position if assigned on the options expiration date is as follows:
Covered Call Net Investment: $26,208.67
= ($267.58 - $5.50) * 100 shares + $.67 commission

Net Profit Components:
(a) Options Income: +$549.33
= ($5.50 * 100 shares) - $.67 commission
(b) Dividend Income (If Cigna stock assigned at the Dec. 15th, 2023 expiration): $123.00
= ($1.23 dividend per share x 100 shares)
(c) Capital Appreciation (If shares assigned at $270.00 strike price at the 12/15/2023 options expiration date): +242.00
+($270.00 - $267.58) * 100 shares

Total Net Profit (If stock shares assigned at $270.00 strike price at the 12/15/2023 expiration): +$914.33

= (+$549.33 options income +$123.00 dividend income + $242.00 capital appreciation)

Potential Absolute Return-on-Investment: +3.5%

= +$914.33/$26,208.67

Potential Annualized Return-on-Investment: +79.6%

= (+$914.33/$26,208.67) * (365/16 days)

2. Halliburton Company (HAL) -- New Covered Calls Position

The buy/write transaction was:
11/29/2023 Bought 500 Halliburton Co. shares @ $37.19
11/29/2023 Sold 5 HAL 12/15/2023 $36.00 Call options @ $1.64
12/6/2023 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: $17,778.35
= ($37.19 - $1.64) * 500 shares + $3.35 commissions

Net Profit Components:
(a) Options Income: +$816.65
= ($1.64 * 500 shares) - $3.35 commission
(b) Dividend Income (If option exercised early on the last trading day prior to the Dec. 6th ex-div date): +$0.00; or
(b) Dividend Income (If Halliburton shares assigned at the 12/15/2023, 2023 expiration date): +$80.00
= ($.16 dividend per share x 500 shares)
(c) Capital Appreciation (If HAL assigned early on Dec. 6th, 2023): -$595.00
+($36.00 - $37.19) * 500 shares; or
(c) Capital Appreciation (If HAL assigned at the $36.00 strike price at the 12/15/2023 options expiration date): -$595.00
+($36.00 -$37.19) * 500 shares

1. Total Net Profit [If option exercised on Dec. 5th, 2023 (last business day prior to the Dec. 6th ex-dividend date)]: +$221.65

= (+$816.65 options income +$0.00 dividend income -$595.00 capital appreciation); or

2. Total Net Profit (If Halliburton shares assigned at $36.00 strike price at its Dec 15th, 2023 expiration): +$301.65

= (+$816.65 +$80.00 dividend income -$595.00)

1. Absolute Return-on-Investment [If HAL options exercised on the last business day prior to ex-dividend date]: +1.2%

= +$221.65/$17,778.35

Annualized Return-on-Investment (If option exercised early): +65.0%

= (+$221.65/$17,778.35) * (365/7 days); or

2. Absolute Return-on-Investment (If HAL shares assigned at $36.00 at the December 15th, 2023 options expiration): +1.7%

= +$301.65/$17,778.35

Annualized Return-on-Investment (If Halliburton stock assigned at $36.00 strike price at the Dec. 15th, 2023 expiration date): +38.7%

= (+$301.65/$17,778.35) * (365/16 days)