Established Covered Calls in Robinhood Markets Inc.

Early this afternoon a Covered Calls position was established in Robinhood Markets Inc. (ticker HOOD). Three hundred shares were purchased at $36.02 and three March 28th, 2025 weekly Call options were sold at the $32.00 strike price at $5.16 per share--a buy/write net debit amount of $30.86 per share which provides a $1.14 per share time value profit potential.  A Covered Calls position was established instead of a 100% Cash-Secured Puts position since the maximum time value profit potential of $1.14 per share for the Covered Calls exceeds the $1.05 per share time value available for the Puts when this position was established. 

As detailed below, a potential return-on-investment result is +3.7% absolute return-on-investment (equivalent to +89.3% annualized return-on-investment for the next 15 days) if the Robinhood share price is in-the-money (i.e. above the $32.00 strike price) and therefore assigned on its March 28th, 2025 options expiration date.  The probability this outcome will be achieved was 69.4% when this position was established.  

Robinhood is a $32 billion market cap company in the Investment Banking and Brokerage sub-industry within the Capital Markets industry.  It is the 5th largest company in that sub-industry behind Morgan Stanley, Goldman Sachs, Schwab, and Interactive Brokers.  Something that appeals to me about Robinhood is their highly fintech business model.  Their 47.8% net margin is substantially greater than the 23% to 30% net margin range of MS, GS, and Schwab and they dwarf the 8% of Interactive Brokers.  They are also growing rapidly having just reported year-over-year stats through February 2025 such as: (1) +8% funded new customers; (2) +45% net new deposits; and (3) +58% assets under custody.  

As Covered Calls investors, we try to take advantage of temporary spikes in Implied Volatility by selling Calls against the stock purchased.  Because of the overall market decline and the much greater decline in Robinhood's stock price over the past month, the Implied Volatility of the Call options sold was an incredibly high 96.4 today when this position was established.  So, this position is a very risky one, but one in which selling a deep in-the-money strike price helps to mitigate the risk while at the same time establishing the potential for a substantial return-on-investment if the stock price is above the $32.00 strike price on the March 28th options expiration date.    

 
Robinhood Markets Inc. (HOOD) -- New Covered Calls Position

The buy/write market order transaction was as follows:
3/13/2025 Bought 300 Robinhood Markets shares at $36.02.

3/13/2025 Sold 3 HOOD 3/28/2025 $32.00 Call options @ $5.16 per share.  These $32.00 Calls were 12.6% in-the-money when this position was established.  

A possible overall performance result (including commissions) for this Robinhood Covered Calls position is as follows:
Covered Calls Net Investment: $9,260.01
= ($36.02 - $5.16) * 300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$1,545.99
= ($5.16 * 300 shares) - $2.01 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 300 Robinhood shares assigned at the $32.00 strike price at the options expiration): -$1,206.00
+($32.00 strike price - $36.02 stock purchase price) * 300 shares

Total Net Profit Potential: +$339.99
= (+$1,545.99 options income + $0.00 dividend income - $1,206.00 capital appreciation)

Potential Absolute Return-on-Investment: +3.7%
= +$339.99/$9,260.01
Potential Annualized Return-on-Investment: +89.3%
= (+$339.99/$9,260.01) * (365/15 days)