Today Covered Calls were established in Schlumberger Ltd. (ticker symbol SLB) and D.R. Horton Company (ticker DHI) when the Covered Calls Advisor's buy/write limit orders were executed. For Schlumberger (now named SLB), 300 shares were purchased at $52.43 and 3 February 16th, 2024 Call options were sold at $2.09 at the $51.00 strike price. For D.R. Horton, 200 shares were purchased at $140.48 and 2 February 9th, 2024 Call options were sold at $5.53 at the $136.00 strike price. Given the Covered Calls Advisor's current "Neutral" Overall Market Meter outlook, moderately in-the-money Covered Calls positions were established. The Delta was 67.6 for the SLB position and 74.2 for DHI. Both positions have intervening ex-dividend dates so the potential results detailed below includes the possibility of early exercise since the ex-dividends are prior to their respective options expiration dates.
1. Schlumberger Ltd. (SLB) -- New Covered Calls Position
The buy/write transaction was:
01/29/2024 Bought 300 Schlumberger shares @ $52.43
01/29/2024 Sold 3 Schlumberger 2/16/2024 $51.00 Call options @ $2.09
Note: the Time Value (aka Extrinsic Value) in the Call options was $.66 per share = [$2.09 Call options premium - ($52.43 stock price - $51.00 strike price)]
02/06/2024 Upcoming quarterly ex-dividend of $.275 per share
Two possible overall performance results (including commissions) for this SLB Covered Calls position are as follows:
Covered Calls Net Investment: $15,104.01
= ($52.43 - $2.09) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$627.00
= ($2.09 * 300 shares)
(b) Dividend Income (If option exercised early on Feb 5th, the business day prior to the Feb. 6th ex-div date): +$0.00;
or
(b) Dividend Income (If SLB stock assigned at Feb. 16th, 2024 expiration): +$82.50
= ($.275 dividend per share x 300 shares)
(c) Capital Appreciation (If SLB Call options assigned early on Feb. 5th): -$429.00
+($51.00 - $52.43) * 300 shares; or
(c) Capital Appreciation (If SLB shares assigned at $51.00 strike price at the Feb. 16th options expiration): -$429.00
+($51.00 - $52.43) * 300 shares
1. Total Net Profit [If option exercised on Feb. 5th, 2024 (last business day prior to the Feb. 6th ex-dividend date)]: +$198.00
= (+$627.00 options income +$0.00 dividend income -$429.00 capital appreciation); or
2. Total Net Profit (If SLB shares assigned at $51.00 strike price at the Feb 16th, 2024 expiration): +$280.50
= (+$627.00 options income +$82.50 dividend income -$429.00 capital appreciation)
1. Absolute Return-on-Investment (If three SLB Call options exercised early on Feb. 6th): +1.3%
= +$198.00/$15,104.01
Annualized Return-on-Investment (If options assigned early): +59.8%
= (+$198.00/$15,104.01) * (365/8 days); or
2. Absolute Return-on-Investment (If SLB shares assigned at $51.00 at the Feb 16th, 2024 options expiration): +1.9%
= +$280.50/$15,104.01
Annualized Return-on-Investment (If SLB shares assigned at $51.00 at the Feb 16th, 2024 expiration): +37.7%
= (+$280.50/$15,104.01) * (365/18 days)
Either
outcome provides an attractive return-on-investment result for this
Schlumberger investment. These returns will be achieved as long as the stock is
above the $51.00 strike price at assignment. If the stock declines
below the strike price, the breakeven price of $50.065 ($52.43 -$2.09 -$.275)
provides 4.5% downside protection below today's stock purchase
price.
2. D.R. Horton Company (DHI) -- New Covered Calls Position
The Buy/Write transaction was as follows:
1/29/2024 Bought 200 shares of D.R. Horton Co. stock @ $140.48 per share.
1/29/2024 Sold 2 DHI February 9th, 2024 $136.00 Call options @ $5.53 per share. The Implied Volatility of the Calls was 27.2 when this transaction was made.
2/5/2024 Upcoming ex-dividend of $.30 per share.
Two possible overall performance results (including commissions) would be as follows:
Covered Calls Position Net Investment: $26,991.34
= ($140.48 - $5.53) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$1,106.00
= ($5.53 * 200 shares)
(b) Dividend Income (If option exercised early on Friday, Feb. 2nd, the last business day prior to the February 5th ex-div date): +$0.00; or
(b) Dividend Income (If DHI stock assigned at the Feb. 9th, 2024 expiration): $60.00
= ($.30 dividend per share x 200 shares)
(c) Capital Appreciation (If D.R. Horton Call options assigned early on Feb. 5th): -$896.00
+($136.00 strike price - $140.48 stock price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $136.00 strike price at the Feb. 9th options expiration): -$896.00
+($136.00 - $140.48) * 200 shares
1. Total Net Profit [If option exercised early on the last business day prior to the Feb. 5th ex-dividend date)]: +$210.00
= (+$1,106.00 options income +$0.00 dividend income -$896.00 capital appreciation); or
2. Total Net Profit (If stock shares assigned at $136.00 strike price at the Feb. 9th, 2024 expiration): +$270.00
= (+$1,106.00 options income +$60.00 dividend income -$896.00 capital appreciation)
1. Absolute Return-on-Investment (If option exercised early on Feb 5th): +0.8%
= +$210.00/$26,991.34
Annualized Return-on-Investment: +40.6%
= (+$210.00/$26,991.34) * (365/7 days); or
2. Absolute Return-on-Investment (If D.R. Horton shares assigned at $136.00 at the Feb. 9th, 2024 options expiration date): +1.0%
= +$270.00/$26,991.34
Annualized Return-on-Investment (If shares assigned at the 2/9/2024 options expiration date): +33.2%
= (+$270.00/$26,991.34) * (365/11 days)
