This afternoon my buy/write Covered Calls position was transacted in Netease Inc. ADR (ticker NTES) at a net debit limit order price of $97.72 per share. Two hundred shares were purchased at $103.50 and two April 19th, 2024 Call options were sold at the $100.00 strike price at $5.78 per share. This provides a time value profit potential of $2.28 per share [$5.78 Call options premium - ($103.50 stock purchase price - $100.00 strike price)]. The Delta was 66.6 which approximates a 66.6% probability of closing in-the-money on the options expiration date. Although I am primarily a fundamental, valuation-oriented investor, Netease's short-term price action became oversold today [i.e. RSI(2) = 19.9] since, on a technical analysis basis, it was in what is commonly considered oversold territory (below 30.0). As preferred, the next earnings report on May 30th is after the April 19th options expiration date.
Netease began as a Chinese internet portal in the late 1990s but has now become the second largest mobile game company in the world. It owns one of the most well-known massively multiplayer franchises in China -- Fantasy Westward Journey. The firm's other investments in music streaming, online education, and e-commerce also have long-term potential. Although primarily in China, they also offer services in Japan, U.S., Europe, and SE Asia. Netease is in the Communications Services sector of the stock market.
The ten analysts that cover Netease have an average target price of $135.27 (+30.7% above today's purchase price) and the discounted cash flow margin-of-safety is 22%. Every analyst has either a Strong Buy or Buy rating on the company -- none have a Hold, Sell, or Strong Sell rating. Netease also appeared today in my Stock Rover Overall stock screener (see chart below) where it met all 15 screener filters. I was also pleased to see that LSEG (Refinitiv) gives Netease its top rating of 10 for both its Average Score and its Optimized Score, which puts it in the top 5% of companies monitored by Refinitiv.
As detailed below, a potential return-on-investment result is +2.3% absolute return-on-investment (equivalent to +38.6% annualized
return-on-investment for the next 22 days) if the Netease Inc. share price is in-the-money (i.e. above the $100.00 strike price) and therefore assigned on its April 19th, 2024 options expiration date.
Netease Inc. ADR (NTES) -- New Covered Calls Position
The Buy/Write transaction was as follows:
3/28/2024 Bought 200 shares of Netease Inc. @ $103.50 per share.
3/28/2024 Sold 2 NTES April 19th, 2024 $100.00 Call options @ $5.78 per share. The Implied Volatility of these Call options was 35.6 today when this transaction was executed and its Beta (1-year) is 1.02.
A possible overall performance result (including commissions) for this Netease Inc. ADR Covered Calls position is as follows:
Covered Calls Net Investment: $19,545.34
= ($103.50 - $5.78) * 200 shares + $1.34 commission
Net Profit:
(a) Options Income: +$1,154.66
= ($5.78 * 200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 200 Netease Inc. shares assigned at $100.00 strike price at the options expiration date): -$700.00
+($100.00 strike price - $103.50 stock purchase price) * 200 shares
Total Net Profit Potential (If 200 Netease Inc. shares assigned at $100.00 strike price at the options expiration date): +$454.66
= (+$1,154.66 options income +$0.00 dividend income -$700.00 capital appreciation)
Potential Absolute Return-on-Investment: +2.3%
= +$454.66/$19,545.34
Potential Annualized Return-on-Investment: +38.6%
= (+$454.66/$19,545.34) * (365/22 days)
