This Covered Calls position in Globe Life Inc. (ticker GL) has been a disastrous one. My blog post when this position was originally established in late March is shown here. A short seller issued an extensive report claiming fraudulent activities at Globe Life and as a direct result, the stock price plummeted by 53% from the closing price on April 11th of $104.92 to a closing price of $49.16 on April 12th. In my over four decades as a Covered Calls investor, this is the first time that I've had an experience like this occur where one of the companies I was invested in was accused of fraud. I was not surprised that the company issued a statement in reply saying that the report showed a great lack of understanding of Globe Life's business practices and was inaccurate in their accusations.
I decided at that time to await their quarterly earnings report results and to listen to the related conference call which occurred yesterday. They grew both revenue and earnings by high-single-digit percents which was largely in-line with analysts' expectations and they continued to defend the integrity of their business practices. On the other hand, they have hired an independent party to study and then report their findings to Globe's management on the claims asserted by the short seller. There is also an ongoing inquiry by the Department of Justice, the scope of which is somewhat unclear at this time. Given these two uncertainties, both in the time duration until their conclusion as well as the specific outcomes, I feel that exiting the position today at $79.52 per share at a huge loss was a prudent decision. The stock price has already recovered about half of its original loss, but I am highly uncertain in the near term whether the stock price will continue its recovery or not. Sometimes it is better to accept the results from a bad investment, put it behind us by closing out the position, and then moving on to other companies where we have a more bullish current outlook.
As detailed below, the return-on-investment results for this Globe Life Inc. position was: -26.0% absolute
return in 22 days (equivalent to a -431.6% annualized
return-on-investment). This result will have a substantially negative effect on the overall prior year results in the Covered Calls Advisor Portfolio which will be reported as part of my next monthly options expiration summary report on May 17th, 2024.
The buy/write transaction was:
3/27/2024 Bought 200 Globe Life shares @ $116.50.
3/27/2024 Sold 2 GL 4/19/2024 $110.00 Call options @ $8.70 per share.
4/4/2024 Ex-dividend of $.24 per share.
4/19/2024 GL Calls expired deep out-of-the-money with the stock at $67.41, so 200 GL shares remained in the Covered Calls Advisor Portfolio.
4/24/2024 Sold 200 Global Life shares at $79.52 to close out this position.
The overall performance results (including commissions) for this Globe Life Covered Calls position are as follows:
Covered Calls Net Investment: $21,561.34
= ($116.50 - $8.70) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$1,738.66
= ($8.70 * 200 shares) - $1.34 commission
(b) Dividend Income: +$48.00
= ($.24 dividend per share x 200 shares)
(c) Capital Appreciation (200 Globe Life shares sold at $79.52 per share): -$7,396.00
+($79.52 sales price - $116.50 purchase price) * 200 shares Total Net Loss: -$5,609.34
= (+$1,738.66 options income +$48.00 dividend income -$7,396.00 capital appreciation)
Absolute Return-on-Investment: -26.0%
= -$5,609.34/$21,561.34
Annualized Return-on-Investment: -431.6%
= (-$5,609.34/$21,561.34) * (365/22 days)
