Continuation of Covered Calls Position in U.S. Steel Corp.

At the July 20th, 2018 options expiration, the Covered Calls position in United States Steel Corp. (ticker X) expired with the stock price below the strike price.  So, the Call options expired and the stock shares were retained in the Covered Calls Advisor's Portfolio.  Today, the Covered Calls Advisor continued this Covered Calls positions by selling 4 Aug 17th, 2018 $39.00 Call options against the current long 400 shares held in U.S. Steel.

As detailed below, two potential return-on-investment results are:

+15.8% absolute return in 197 days (equivalent to a +29.3% annualized return-on-investment) if the price of U.S. Steel stock is unchanged upon the July 20th options expiration; OR

+18.1% absolute return in 197 days (equivalent to a +33.6% annualized return-on-investment) if the price of U.S. Steel increases above the $39.00 strike price on the expiration date 

United States Steel Corp. (X) -- Continuation of Covered Calls Position

The transactions were:
02/01/2018 Bought 400 shares of U.S. Steel stock @ $36.72 per share 
02/01/2018 Sold 4 U.S. Steel Mar 16th, 2018 $36.00 Call options @ $2.62 per share
Note: this was a simultaneous Buy/Write transaction
02/08/2018 $20.00 = ($.05 per share ex-dividend x 400 shares)
03/13/2018 Bought-to-Close 4 Mar 16th $36.00 Call options @ $5.99
03/13/2018 Sold-to-Open 4 Apr 20th $40.00 Call options @ $3.57
Note: this Calls debit spread transaction occurred when the stock was at $41.88
04/20/2018 4 U.S. Steel April 20th Call options expired
05/09/2018 $20.00 = ($.05 per share ex-dividend x 400 shares)
05/10/2018 Sold 4 U.S. Steel June 15th, 2018 $40.00 Call options @ $.66 per share
Note: the price of U.S. Steel stock was $36.04 when these Calls were sold
06/15/2018 4 X Call options expired with stock price below strike price
06/22/2018 Sold 4 U.S. Steel July 20, 2018 $37.50 Call options @ $1.35 to continue U.S. Steel Covered Calls position
Note: the price of U.S. Steel stock was $36.79 when these Calls were sold
07/20/2018 4 U.S. Steel July 20, 2018 $37.50 Call options expired with stock price of $37.13 below the $37.50 strike price
07/24/2018 Sold 4 U.S. Steel Aug 17th, 2018 $39.00 Call options @ $1.64
Note: the price of U.S. Steel stock was $38.21 when these Calls were sold
08/09/2018 Expected Ex-Dividend of $20.00 ($.05 per share x 400 shares)

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $13,647.63
= ($36.72 - $2.62)* 400 shares + $7.63 commission

Net Profit Components:
(a) Options Income: +$1,509.48
= ($2.62 - $5.99 + $3.57 + $.66 + $1.35 +$1.64) * 400 shares - $30.52 commissions 
(b) Dividend Income: +$60.00
= $.05 per share * 3 ex-dividends * 400 shares 
(c) Capital Appreciation (If price of X stock is unchanged at $38.21 at Aug 17th expiration): +$591.05
= ($38.21 -$36.72)* 400 shares - $4.95 commission; OR
(c) Capital Appreciation (If X is above $39.00 strike price at Aug 17th expiration):
+$907.05
= ($39.00 -$36.72)* 400 shares - $4.95 commission

1. Potential Total Net Profit (If stock price unchanged at expiration): +$2,160.53
= (+$1,509.48 options income +$60.00 dividend income +$591.05 capital appreciation); OR
2. Potential Total Net Profit (If assigned at expiration): +$2,476.53
= (+$1,509.48 options income +$60.00 dividend income +$907.05 capital appreciation)
Each of these outcomes demonstrate the 'trifecta' possibilities with Covered Calls investing (i.e. options income plus dividend income plus capital appreciation of the stock).

1. Absolute Return (If stock price unchanged at $38.21 at options expiration): +15.8%
= +$2,160.53/$13,647.63
Equivalent Annualized Return: +29.3%
= (+$2,160.53/$13,647.63)*(365/197 days); OR
2. Absolute Return (If assigned at expiration): +18.1%
= +$2,476.53/$13,647.63
Equivalent Annualized Return: +33.6%
= (+$2,476.53/$13,647.63)*(365/197 days)

Established Covered Calls in Skyworks Solutions Inc.

Today, a Covered Calls position was established in Skyworks Solutions Inc. (ticker symbol SWKS) with a August 17th, 2018 expiration and at the $92.50 strike price.  This position has an upcoming quarterly ex-dividend on August 6th of $.38 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the Aug 17th, 2018 options expiration date.  Quarterly earnings were reported recently, so the next earnings report will not be until early November.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, a slightly in-the-money Covered Calls position was established. 

As detailed below, a potential return-on-investment result is +1.6% absolute return (equivalent to +42.1% annualized return for the next 14 days) if the stock is assigned early (business day prior to Aug 6th ex-date); OR +2.0% absolute return (equivalent to +28.5% annualized return over the next 26 days) if the stock is assigned on the August 17th options expiration date.


Skyworks Solutions Inc. (SWKS) -- New Covered Calls Position

Although unlikely, if the current time value (i.e. extrinsic value) of $1.50 [$4.37 option premium - ($95.37 stock price - $92.50 strike price)] remaining in the two short Call options decays substantially (down to about $.10 or less) by Aug 5th (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 Skyworks Solutions shares away to capture the dividend payment.

The transactions were:
07/23/2018 Bought 200 Skyworks Solutions shares @ $95.37
07/23/2018 Sold 2 SWKS 08/17/2018 $92.50 Call options @ $4.37
Note: a simultaneous buy/write transaction was executed.
08/06/2018 Upcoming quarterly ex-dividend of $.38 per share

Two possible overall performance results (including commissions) for this Skyworks Solutions Covered Calls position are as follows:
Covered Calls Cost Basis: $18,204.95
= ($95.37 - $4.37) *200 + $4.95 commission

Net Profit Components:
(a) Options Income: +$872.66
= ($4.37*200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on Aug 5th, the business day prior to Aug 6th ex-div date): +$0.00; or
(b) Dividend Income (If Skyworks Solutions assigned at Aug 17th, 2018 expiration): +$76.00
= ($.38 dividend per share x 200 shares)

(c) Capital Appreciation (If SWKS assigned early on Aug 5th): -$578.95
+($92.50-$95.37)*200 shares - $4.95 commissions; or
(c) Capital Appreciation (If SWKS assigned at $92.50 strike price at options expiration): -$578.95
+($92.50-$95.37)*200 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Aug 5th (business day prior to February 6th ex-dividend date)]: +$293.71

= (+$872.66 +$0.00 -$578.95); or

2. Total Net Profit (If Skyworks Solutions shares assigned at $92.50 at Aug 17, 2018 expiration): +$369.71

= (+$872.66 +$76.00 -$578.95)

1. Absolute Return [If option exercised on Aug 5th (business day prior to ex-dividend date)]: +1.6%

= +$293.71/$18,204.95

Annualized Return (If option exercised early): +42.1%

= (+$293.71/$18,204.95)*(365/14 days); or

2. Absolute Return (If Skyworks Solutions shares assigned at $92.50 at Aug 17, 2018 expiration): +2.0%

= +$369.71/$18,204.95

Annualized Return (If SWKS assigned at $92.50 at Aug 17, 2018 expiration): +28.5%

= (+$236.37/$18,880.95)*(365/26 days)

Either outcome provides a good return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $92.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $90.62 ($95.37 -$4.37 -$.38) provides 5.0% downside protection below today's purchase price.

The Covered Calls Advisor has established a set of eleven criteria to evaluate potential Covered Dalls using a dividend capture strategy.  The minimum threshold desired to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, all of the eleven criteria are achieved for this Skyworks Solutions Covered Calls position.

July 20th, 2018 Options Expiration Results

The Covered Calls Advisor Portfolio had eight positions with July 20th, 2018 options expirations:

• Six Covered Calls positions (Alibaba Group Holding Ltd., Blackstone Group, Citigroup Inc., Halliburton Corp., JPMorgan Chase & Co., and Lam Research Corp.) closed at yesterday's July 20th monthly options expiration in-the-money (stock price above the options strike price), so those shares were assigned (sold) at their respective strike prices.

• Two positions (Deere & Co. and U.S. Steel Corp.) closed with the stock price below the strike price, so the options expired and the long stock positions now remain in the Covered Calls Advisor Portfolio.  Within the next few days, these stocks will either be sold or next month Call options will be sold against the stock to re-establish Covered Calls positions.  As always, all transactions will be posted on this blog on the same day they occur. 

For the six positions assigned on the July 20th expiration, the average annualized return-on-investment was +33.2%.  The results for each position was:

• Alibaba Group Holding Ltd.:  +1.8% absolute return (+24.7% annualized return) in 26 days
• Blackstone Group:  +3.0% absolute return (+6.4% annualized return) in 170 days
• Citigroup Inc.:  +5.5% absolute return (+22.9% annualized return) in 88 days
• Halliburton Corp.:  +1.9% absolute return (+75.0% annualized return) in 9 days
• JPMorgan Chase & Co.:  +1.9% absolute return (+23.7% annualized return) in 30 days
• Lam Research Corp.:  +3.8% absolute return (+46.4% annualized return) in 30 days

The cash now available in the Covered Calls Advisor Portfolio from the closing of these six positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Any new position(s) established with this available cash will be posted on this site on the same day the transactions occur.  However, there are three important factors (near all-time high stock market valuations, tightening monetary policies, and rising trade tensions) that are, for the time being, causing the Covered Calls Advisor to increase cash (i.e. money-market) holdings to a majority position in the overall portfolio.   

So far in 2018, thirty-four of thirty-seven positions (91.9%) were assigned profitably.  This 91.9% year-to-date result exceeds the Covered Calls Advisor's overall long-term goal of having at least two-thirds (67%) of positions closed out at a profit.  None of the remaining three positions (Deere & Co., Citigroup Inc., Metlife Inc., and U.S.Steel Corp.) have yet to be closed out, but instead are currently held as open long stock positions in the Covered Calls Advisor Portfolio.

For the thirty-four positions closed so far in 2018, the average annualized return-on-investment is +28.2%.  

To demonstrate how return-on-investment results for a closed Covered Calls position are calculated, the details for one of the six assigned positions (Alibaba Group) is detailed below:


Alibaba Group Holding Ltd. (BABA) -- Covered Calls Position Closed

The transactions were as follows:
06/25/2018 Bought 200 shares of Alibaba stock @ $190.92 per share 
06/25/2018 Sold 2 Alibaba July 20th, 2018 $180.00 Call options @ $14.06 per share
Note: this was a simultaneous Buy/Write transaction
07/20/2018 2 BABA Call options closed in-the-money and stock assigned at $180.00 strike price
Note: Closing price of BABA stock was $187.25 upon 7/20/2018 options expiration.

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $35,378.29
= ($190.92 - $14.06)* 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$2,812.00
= ($14.06* 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (BABA stock closed above $180.00 strike price at July 20th expiration): -$2,188.95
= ($180.00 -$190.92)* 200 shares - $4.95 commission

Total Net Profit: +$623.05
= (+$2,812.00 options income +$0.00 dividend income -$2,188.95 capital appreciation)

Absolute Return: +1.8%
= +$623.05/$35,378.29
Equivalent Annualized Return: +24.7%
= (+$623.05/$35,378.29)*(365/26 days)

Established Covered Calls Position in Halliburton Co.

Yesterday, a Covered Calls position has been established in Halliburton Co. (ticker HAL) at the $45.00 strike price and for the July 20th, 2018 options expiration date.  This position is slightly out-of-the-money since the 400 shares of HAL stock was purchased at $44.82 (just below the $45.00 strike price).

As detailed below, two potential return-on-investment results are:

+1.5% absolute return in 9 days (equivalent to a +59.7% annualized return-on-investment) if the price of HAL is unchanged upon the July 20th options expiration; OR

+1.9% absolute return in 9 days (equivalent to a +75.0% annualized return-on-investment) if the price of HAL increases above the $45.00 strike price on the expiration date 

Halliburton Co. (HAL) -- New Covered Calls Position

The transactions were as follows:
07/12/2018 Bought 400 shares of Halliburton Co. @ $44.82 
07/12/2018 Sold 4 HAL July 20th, 2018 $45.00 Call options @ $.65 per share
Note: this was a simultaneous Buy/Write transaction and the Implied Volatility of these Call options was 24.0 

Two possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $17,675.63
= ($44.82 - $.65)* 400 shares + $7.63 commission

Net Profit Components:
(a) Options Income: +$260.00
= ($.65* 400 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If HAL is unchanged at $44.82 purchase price at July 20th expiration): +$0.00
= ($44.82 -$44.82)* 400 shares; OR
(c) Capital Appreciation (If HAL is above $45.00 strike price at Jul 20th expiration): +$67.05
= ($45.00 -$44.82)* 400 shares - $4.95 commission

(a) Total Net Profit (If HAL price unchanged at $44.82 at expiration): +$260.00
= (+$260.00 options income +$0.00 dividend income -$0.00 capital appreciation); OR
(b) Total Net Profit (If HAL shares assigned at expiration): +$327.05
= (+$260.00 options income +$0.00 dividend income +$67.05 capital appreciation)

(a) Absolute Return (If HAL price unchanged at expiration): +1.5%
= +$260.00/$17,675.63
Equivalent Annualized Return: +59.7%
= (+$260.00/$17,675.63)*(365/9 days); OR
(b) Absolute Return (If HAL shares assigned at expiration): +1.9%
= +$327.05/$17,675.63
Equivalent Annualized Return: +75.0%
= (+$327.05/$17,675.63)*(365/9 days)

The downside 'breakeven price' at expiration is at $44.17 ($44.82 price per share - $.65 options income), which is 1.5% below the current market price of $44.82.