Closed Out the Covered Calls Position in JPMorgan Chase & Co. Inc.

At last Friday's options expiration date, two April 8th, 2022 Covered Calls in JPMorgan Chase & Co. Inc. (JPM) expired with the stock price below the $135.00 strike price.  At market open this morning, I decided to close out the position by selling the 200 JPM shares at $133.12.  The primary motivation for selling out of this position was that JPM's Q1 2022 earnings will be reported before market open this Wednesday and I prefer to avoid the volatility that accompanies quarterly earnings reports for companies I am invested in. 

As detailed below, the return-on-investment results for this JPMorgan Chase & Co. Inc. position is: +0.1% absolute return in 14 days (equivalent to a +3.0% annualized return-on-investment).  This return includes JPM's $1.00 ex-dividend of April 5th.

 

JPMorgan Chase & Co. (JPM) -- Covered Calls Position Closed

The simultaneous buy/write transaction was:
3/28/2022 Bought 200 JPM shares @ $138.60
3/28/2021 Sold 2 JPM April 8th, 2022 $135.00 Call options @ $4.64 per share
4/05/2022 Quarterly ex-dividend at $1.00 per share
4/08/2022 Two JPM $135.00 Call options expired out-of-the-money since JPM stock closed below the strike price at $133.49. Therefore, 200 JPM shares remain in the Covered Calls Advisor Portfolio.
4/11/2022 JPM position closed out by selling 200 shares at the market open today at $133.12 per share.

The overall performance results (including commissions) for this JPM Covered Calls position was as follows:
Stock Purchase Cost: $26,793.34
= ($138.60 - $4.64) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$926.66
= ($4.64 *200 shares) - $1.34 commission
(b) Dividend Income (Ex-dividend captured on April 5th, 2022): +$200.00
= ($1.00 dividend per share x 200 shares)

(c) Capital Appreciation (JPM share sold on 4/11/2022 at $133.12 per share): -$1,096.00
+($133.12 - $138.60) * 200 shares

 

Total Net Profit (JPM Covered Calls position closed out): +$30.66

= (+$926.66 options income +$200.00 dividend income -$1,096.00 capital appreciation)
 

Absolute Return-on-Investment: +0.1%

= +$30.66/$26,793.34

Annualized Return-on-Investment: +3.0%

= (+$30.66/$26,793.34) * (365/14 days)

Established Cash-Secured Puts Position in Owens Corning

This morning, a one week 100% Cash-Secured Put options position was established in Owens Corning (ticker OC) at the April 14th, 2022 options expiration date and the $80.00 strike price.  Two Puts were sold at $.80 per share when the stock price was $83.27 (4.1% above the strike price).  

The Implied Volatility of these Puts was 40.6 when this position was established.  Establishing positions where the Implied Volatility is greater than that of the S&P 500 Index (i.e. VIX), which is currently at 23.0, is strongly preferred by the Covered Calls Advisor.  It is the fifth of the twelve investing "edges" (see here) I utilize that helps to achieve outperformance in comparison with that of the benchmark S&P 500 Index. 

The probability of assignment at options expiration on April 14th was 74.0%.  Cash-Secured Puts were established rather than Covered Calls since the Puts provided a slightly higher potential annualized-return-on-investment if assigned at expiration when this position was established.  As desired, the next earnings report on April 27th is after the April 14th options expiration date. 

Micron's valuation is very attractive at its current price.  For FY2022, Owens Corning's earnings per share is expected to increase to about $10.64 which would be 21.2% above last year's actual result.  This corresponds to a P/E ratio of only 7.8.  In addition, Owens Corning appeared on three of my primary stock screeners: (1) Mid-Cap Value+Profitability+Growth; (2) Shareholders Yield; and (3) Acquirers Multiple.  Finally, brokerage analysts' average target price for OC is $118.81 (+42.7% above today's price).     

As detailed below for this Owens Corning 100% Cash-Secured Puts position, there is potential for a +1.0% absolute return in 8 days (equivalent to a +45.7% annualized return-on-investment). 

Owens Corning (OC) -- New 100% Cash-Secured Puts Position

The transaction today was as follows:
04/7/2022  Sold 2 Owens Corning April 14th, 2022 $80.00 100% Cash-Secured Put options @ $.80 per share.

The Covered Calls Advisor does not use margin, so the detailed information on this position and the potential result detailed below reflect that this position was established using 100% cash securitization for the two Owens Corning Put options sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $15,838.66
= ($80.00 - $.80) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$158.66
= ($.80 * 200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Owens Corning stock is above the $80.00 strike price at the April 14th options expiration): +$0.00
= ($80.00 - $80.00) * 200 shares

Total Net Profit (If Owens Corning stock price is out-of-the-money (above $80.00 strike price) at options expiration): +$158.66
= (+$158.66 options income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return-on-Investment: (If stock is above $80.00 strike price at the April 14th, 2022 options expiration) : +1.0%
= +$158.66/$15,838.66
Annualized Return-on-Investment: +45.7%
= (+$158.66/$15,838.66) * (365/8 days)

The downside 'breakeven price' at expiration is at $79.20 ($80.00 - $.80), which is 4.9% below the current market price of $83.27.


Regards and Godspeed,
Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net

Early Assignment of Comcast Corporation Covered Calls

Early this morning, the Covered Calls Advisor was notified by my broker (Schwab) that the four Comcast Corporation April 14th, 2022 $45.00 Call options were exercised yesterday (the last business day prior to today's 4/5/2022 ex-dividend date).  The Comcast stock price has increased from its purchase price of $46.60 to $48.11 at the market close yesterday.  

This early exercise (on the day prior to Comcast's ex-dividend date) of the four Call options was expected by the Covered Calls Advisor since these Call options had no remaining time value at yesterday's close--so the owners of the Call options elected to purchase the 400 shares at the $45.00 strike price and thus also capture today's $.27 per share ex-dividend.  Despite not capturing today's dividend, this is a desirable outcome for the Covered Calls Advisor since the resulting +27.3% annualized return-on-investment (aroi) achieved slightly exceeds the +25.0% maximum potential aroi that might have been achieved on the April 14th options expiration date (if the stock remains above the $45.00 strike price on that expiration date). 

The transactions and detailed results for this position are as follows:

Comcast Corporation (CMCSA) -- Early Assignment of this Covered Calls Position

The buy/write transaction was as follows:
03/23/2022 Bought 400 shares of Comcast Corporation @ $46.60 per share 
03/23/2022 Sold 4 Comcast April 14th, 2022 $45.00 Call options @ $2.04 per share.  The Implied Volatility of these Call options was 23.2 when this transaction was executed.
04/5/2022 Four Comcast 4/14/2022 $45.00 Calls were exercised early (on the day prior to the 4/5/2022 ex-dividend date), so the Calls expired and the 400 Comcast shares were sold at the $45.00 strike price.

The overall performance results (including commissions) were as follows:
Covered Calls Cost Basis: $17,826.68
= ($46.60 - $2.04) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$813.32
= ($2.04 * 400 shares) - $2.68 commission
(b) Dividend Income (Comcast shares assigned on day prior to ex-dividend date): +$0.00
(c) Capital Appreciation (Early Assignment): -$640.00
= ($45.00 sale price - $46.60 purchase price) * 400 shares

Total Net Profit (Comcast shares assigned early): +$173.32
= (+$813.32 options income +$0.00 dividend income -$640.00 capital appreciation)

Absolute Return-on-Investment: +1.0%
= +$173.32/$17,826.68
Equivalent Annualized Return-on-Investment: +27.3%
= (+$173.32/$17,826.68) * (365/13 days)

Continuation of Covered Calls Position in iShares China Large-Cap ETF

This past Friday, the February 1st, 2022 Covered Calls position in iShares China Large-Cap ETF (ticker FXI) closed out-of-the-money, so the Calls expired and 600 FXI shares remained in the Covered Calls Advisor Portfolio.  This morning, the Covered Calls position was continued by selling 6 April 14th, 2022 $35.00 Calls at $.38 per share when FXI's price was $34.06. 

iShares China Large-Cap ETF (FXI) -- Continuation of Covered Calls Position

The original Buy/Write transaction was as follows:
2/18/2022 Bought 600 shares of iShares China Large-Cap ETF shares @ $36.69 per share 
2/18/2022 Sold 6 FXI March 4th, 2022 $35.00 Call options @ $2.02 per share.
3/04/2022 6 FXI Calls expired out-of-the-money so the 600 shares remained in the Covered Calls Advisor Portfolio.
3/22/2022 Continued this iShares China Large-Cap ETF Covered Calls position by selling 6 FXI April 1st, 2022 $35.00 Call options @ $.42 per share.  The FXI share price was $33.415 when these Calls were sold.
4/01/2022 6 FXI Calls expired out-of-the-money so the 600 shares remained in the Covered Calls Advisor Portfolio.
04/04/2022 Continued this iShares China Large-Cap ETF Covered Calls position by selling 6 FXI April 14th, 2022 $35.00 Call options @ $.38 per share.  The FXI share price was $34.06 when these Calls were sold and the Implied Volatility of these Calls was 30.7.

Two possible overall performance results (including commissions) for this iShares China Large-Cap ETF Covered Calls position are as follows:
Stock Purchase Cost: $20,806.02
= ($36.69 - $2.02) * 600 shares + $4.02 commission

Net Profit:
(a) Options Income: +$1,679.94
= ($2.02 + $.42 + $.38) * 600 shares - $12.06 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 600 iShares China Large-Cap ETF shares price unchanged at $34.06 at the 4/14/2022 options expiration): -$1,578.00
+($34.06 - $36.69) * 600 shares; OR
(c) Capital Appreciation (If 600 iShares China Large-Cap ETF shares assigned at $35.00 strike price at expiration): -$1,014.00
+($35.00 - $36.69) * 600 shares

1. Total Net Profit (If 600 iShares China Large-Cap ETF shares price unchanged at $34.06 at the April 14th, 2022 options expiration): +101.94
= (+$1,679.94 options income +$0.00 dividend income -$1,578.00 capital appreciation); OR
2. Total Net Profit (If 600 iShares China Large-Cap ETF shares assigned at $35.00 strike price at expiration): +$665.94
= (+$1,679.94 options income +$0.00 dividend income -$1,014.00 capital appreciation)

1. Absolute Return-on-Investment (If 600 iShares China Large-Cap ETF shares price unchanged at $34.06 at the April 14th, 2022 options expiration): +0.5%
= +$101.94/$20,806.02
Annualized Return-on-Investment: +3.1%
= (+$101.94/$20,806.02) * (365/57 days); OR
2. Absolute Return-on-Investment: (If 600 iShares China Large-Cap ETF shares assigned at $35.00 strike price at expiration) +3.2%
= +$665.94/$20,806.02
Annualized Return-on-Investment: +20.5%
= (+$665.94/$20,806.02) * (365/57 days)