Continuation of Position in Micron Technology Inc.

Last Thursday, the five April 14th $72.50 Micron Technology Inc. 100% Cash-Secured Put options expired in-the-money (the stock closed at $70.13 which was below the $72.50 strike price).  This morning, Micron's stock opened higher and when its stock price was $71.68, the Covered Calls Advisor continued by establishing a Covered Calls position by selling five May 6th, 2022 $73.00 Call options at $2.28 per share against the 500 Micron shares owned.  As preferred by the Covered Calls Advisor, the next earnings report on June 30th, 2022 is after the May 6th, 2022 options expiration date.  

If you want to understand some of the rationale for my bullish outlook on Micron, you can read it in the post made on March 31st when the original Micron Cash-Secured Puts position was established (see here).

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

•  +3.3% absolute return (equivalent to +33.1% annualized return for 36 days) if the stock price is unchanged from today's price of $71.68 on the May 6th, 2022 options expiration date; OR 

• +5.1% absolute return (equivalent to +51.6% annualized return for 36 days) if the stock is in-the-money and therefore assigned at the $73.00 strike price on the May 6th, 2022 options expiration date.

 

Micron Technology Inc. (MU) -- Continuation of Micron Position as Covered Calls

The original transaction was as follows:
03/31/2022  Sold 5 Micron April 14th, 2022 $72.50 100% Cash-Secured Put options @ $.92 per share.
04/14/2022 5 Micron $72.50 Puts expired in-the-money (stock price below the strike price), so 500 shares were purchased at $72.50 in the Covered Calls Advisor Portfolio
04/18/2022 Continued Micron position by selling 5 May 6th, 2022 $73.00 Call options @ $2.28 per share against the 500 Micron shares owned to establish a Micron Covered Calls position.  The Implied Volatility of these Calls was 43.4 and the Delta was 44.5 when these Calls were sold.

Two possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Puts Cost Basis: $36,246.65
= ($72.50 - $.92) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$1,593.30
= ($.92 + $2.28) * 500 shares - $6.70 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Micron stock price is unchanged at $71.68 at the May 6th, 2022 options expiration date): -$410.00
= ($71.68 - $72.50 original Put strike price) * 500 shares; OR
(c) Capital Appreciation (If Micron stock is above the $73.00 strike price at the May 6th options expiration): +$250.00
= ($73.00 - $72.50) * 500 shares

1. Total Net Profit (If Micron stock price is unchanged at $71.68 at options expiration): +$1,183.30
= (+$1,593.30 options income +$0.00 dividend income -$410.00 capital appreciation); OR
2. Total Net Profit (If Micron stock price is above the $73.00 strike price at options expiration): +$1,843.30
= (+$1,593.30 options income +$0.00 dividend income +$250.00 capital appreciation)
 

1. Absolute Return-on-Investment (If Micron stock is unchanged at $71.68 at the options expiration date of May 6th, 2022) : +3.3%
= +$1,183.30/$36,246.65
Annualized Return-on-Investment: +33.1%
= (+$1,183.30/$36,246.65)*(365/36 days); OR
2. Absolute Return-on-Investment (If Micron stock is above $73.00 strike price at the May 6th, 2022 options expiration date) : +5.1%
= +$1,843.30/$36,246.65
Annualized Return-on-Investment: +51.6%
= (+$1,843.30/$36,246.65)*(365/36 days)

Closed Covered Calls Positions in American Eagle Outfitters Inc., Fifth Third Bancorp, and Lennar Corporation

The Covered Calls positions in American Eagle Outfitters Inc. (ticker AEO), Fifth Third Bancorp (FITB), and Lennar Corporation (LEN) closed out-of-the-money at last Thursday's April monthly options expiration date.  All three positions are currently at substantial losses and I decided to close out the positions early in this morning's trading session.  For American Eagle and Lennar, I have been attempting to repair declining stock positions to move back closer to a breakeven result, but these stocks have continued their price declines and at a rate of decline greater than that of the overall market.  For Fifth Third Bank, they report their quarterly earnings before market open tomorrow morning and I decided to follow my preferred approach of not holding positions in companies through their quarterly earnings reports.  In addition, many banks have reported their earnings during the past week with mixed earnings and revenue results followed by only tepid stock price reactions.

In general, my market outlook remains cautious (Slightly Bearish on my Overall Market Meter).  Only about 7% of companies have reported their earnings from the first quarter this year and a flood of companies will be issuing their quarterly results during the next five weeks.  My plan is to gradually add new positions as I await more information from these upcoming earnings reports (and the stock market reaction to them) before deciding which companies to establish new positions in.

The results for these three companies are detailed below.

1. American Eagle Outfitters Inc. (AEO) -- Covered Calls Position Closed
The original transaction was as follows:
11/24/2021 Bought 500 American Eagle Outfitters Inc. shares @ $27.43
11/24/2021 Sold 5 AEO 12/17/2021 $26.00 Call options @ $2.11
12/09/2021 Quarterly ex-dividend of $.18 per share
12/17/2021 5 Call options expired out-of-the-money and 500 shares of AEO retained in the Covered Calls Advisor Portfolio.
12/23/2021 Sold 5 AEO 12/31/2021 $24.00 Call options @ $.22 per share when the stock price was $23.23 per share.
12/30/2021 Rolled-Up-and-Out: Bought-to-Close the 12/31/2021 $24.00 Calls for $1.92 and simultaneously Sold-to-Open the 1/7/2022 $26.00 Calls at $.77.  The AEO stock price was $25.90 when this debit spread transaction was executed.
1/07/2021 Rolled-Down-and-Out: Bought-to-Close the 1/07/2022 $26.00 Calls for $.01 and simultaneously Sold-to-Open the 1/14/2022 $25.00 Calls at $.44.  The AEO stock price was $23.99 when this credit spread transaction was executed.
1/14/2022 5 AEO Calls expired out-of-the-money so the 500 shares remain in the Covered Calls Advisor Portfolio.
1/24/2022 Continued the American Eagle Covered Calls position by rolling it out to the February 18th, 2022 $23.00 strike by selling 5 AEO Calls at $.70 per share.
2/18/2022 5 AEO Calls expired out-of-the-money so the 500 shares remained in the Covered Calls Advisor Portfolio.
2/22/2022 Continued this American Eagle Covered Calls position by selling 5 March 18th, 2022 $23.00 Call options @ $.82 per share.
3/18/2022 5 AEO Calls expired out-of-the-money so the 500 shares remained in the Covered Calls Advisor Portfolio.
3/22/2022 Continued this American Eagle Covered Calls position by selling 5 April 14th, 2022 $20.00 Call options @ $.38 per share.  The American Eagle shares were $18.66 when these Calls were sold.
04/14/2022 5 AEO Calls expired out-of-the-money so the 500 shares remain in the Covered Calls Advisor Portfolio.
04/18/2022 Closed out this American Eagle Covered Calls position by selling the 500 shares at $17.51 per share.

The overall performance results (including commissions) for this American Eagle Outfitters Inc. Covered Calls position were as follows:
Covered Calls Cost Basis: $12,663.35
= ($27.43 - $2.11) * 500 shares + $3.35 commissions

Net Profit Components:
(a) Options Income: +$1,734.90
= ($2.11 + $.22 - $1.92 +$.77 - $.01 +$.44 + $.70 +$.82 + $.38) * 500 shares - $16.75 commissions
(b) Dividend Income: +$90.00
= $.18 per share x 500 shares
(c) Capital Appreciation (American Eagle shares sold at $17.51 per share): -$4,960.00
= +($17.51 - $27.43) * 500 shares

Total Net Profit (American Eagle shares sold at $17.51 per share): -$3,135.10

= (+$1,734.90 options income +$90.00 dividend income - $4,960.00 capital appreciation)

 

Absolute Return-on-Investment: -24.8%

= -$3,135.10/$12,663.35

Annualized Return-on-Investment: -62.3%

= (-$2,560.10/$12,663.35) * (365/145 days)

2. Fifth Third Bancorp (FITB) -- Covered Calls Position Closed
The transactions were:
3/23/2022 Bought 300 Fifth Third Bancorp shares @ $45.69
3/23/2022 Sold 3 FITB 4/14/2022 $44.00 Call options @ $2.36 per share.
Note: the Implied Volatility of these Call options was 31.2 when this position was established.
3/30/2022 Upcoming quarterly ex-dividend of $.30 per share
04/14/2022 3 FITB Calls expired out-of-the-money so the 300 shares remain in the Covered Calls Advisor Portfolio.
04/18/2022 Closed out this Fifth Third Bancorp Covered Calls position by selling the 300 shares at $17.51 per share.

The overall performance results (including commissions) for this
Fifth Third Bancorp Covered Calls position were as follows:
Covered Calls Cost Basis: $13,001.01
= ($45.69 - $2.36) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$708.00
= ($2.36 * 300 shares)
(b) Dividend Income: +$90.00
= ($.30 dividend per share x 300 shares)
(c) Capital Appreciation (FITB shares sold at $39.3637 per share): -$1,897.89
+($39.3637 stock selling price - $45.69 original stock purchase price) * 300 shares

Total Net Profit (Fifth Third Bancorp shares sold at $39.3637 per share): -$1,099.89

= (+$708.00 options income +$90.00 dividend income -$1,897.89 capital appreciation); or

Absolute Return-on-Investment: -8.5%

= -$1,099.89/$13,001.01

Annualized Return-on-Investment: -102.9%

= (-$1,099.89/$13,001.01) * (365/30 days)

3. Lennar Corporation (LEN) -- Covered Calls Position Closed
The original simultaneous buy/write transaction was:
1/13/2022 Bought 200 Lennar Corp. shares @ $107.76
1/13/2022 Sold 2 LEN 2/04/2022 $103.00 Call options @ $6.18
Note: the Implied Volatility of the Call options was 29.3 when this position was transacted and the Delta (approximately the probability of assignment at expiration) was 72.2.
1/26/2022 Upcoming quarterly ex-dividend of $.375 per share
2/4/2022 Two Call options expired out-of-the-money and 200 shares of Lennar stock retained in the Covered Calls Advisor Portfolio.
2/07/2022 Rolled-Down-and-Out by selling two 2/11/2022 $93.50 Calls at $1.90.
2/11/2022 Two LEN $93.50 closed out-of-the-money at $91.54, so the options expired and two hundred Lennar shares remain in the Covered Calls Advisor Portfolio.
02/14/2022 Continued this Lennar Covered Calls position by selling 2 3/18/3033 Calls @ $3.71 per share at the $95.00 strike price when the stock was selling at $91.96.
3/18/2022 Two LEN Calls expired out-of-the-money so the 200 shares remained in the Covered Calls Advisor Portfolio.
3/22/2022 Continued this Lennar Corporation Covered Calls position by selling 2 April 14th, 2022 $92.00 Call options @ $2.20 per share.  The Lennar shares were $89.30 when these Call options were sold.
04/14/2022 2 Lennar Calls expired out-of-the-money so the 200 shares remain in the Covered Calls Advisor Portfolio.
04/18/2022 Closed out this Lennar Corporation Covered Calls position by selling the 200 shares at $17.51 per share.

The overall performance results (including commissions) for this Lennar Corp. Covered Calls position were as follows:
Covered Calls Cost Basis: $20,317.34
= ($107.76 - $6.18) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$2,793.98
= ($6.18 + $1.90 + $3.71 + $2.20) * 200 shares - $4.02 commissions
(b) Dividend Income: +$75.00
= $.375 per share x 200 shares
(c) Capital Appreciation (Lennar shares sold at $77.24 per share): -$6,098.00
= +($77.24 - $107.73) * 200 shares

 Total Net Profit (Lennar shares sold at $77.24 per share): -$3,229.02

= (+$2,793.98 + $75.00 - $6,098.00)

 Absolute Return-on-Investment: -15.9%

= -$3,229.02/$20,317.34

Annualized Return-on-Investment: -61.1%

= (-$823.02/$20,317.34) * (365/95 days)

Monthly Options Expiration Results through April 14th, 2022

Each month on the day after the monthly options expiration date, this summary report provides the results on all positions that have been closed out during the past month (i.e. since the prior month's options expiration date). So this post covers the period from the day after last month's March 18th, 2022 options expiration through yesterday's April 14th, 2022 monthly options expiration date. During this past month, the Covered Calls Advisor Portfolio held a total of thirteen positions.   Eight positions were closed out at a profit and five are continuing positions that expired out-of-the-money.  A summary of results for all thirteen positions is provided below:

• Two positions expired in-the-money (stock price above the strike price) on their April 14th, 2022 monthly options expiration dates with the following results: 

1. Micron Technology Inc. (MU) Covered Calls -- +2.6% absolute return in 21 days (equivalent to +44.7% annualized return-on-investment).  
2. Owens Corning (OC) 100% Cash-Secured Puts -- +1.0% absolute return in 8 days (equivalent to +45.7% annualized return-on-investment).

• Three deep-in-the-money Covered Calls positions were closed by Early Assignment on the day prior to their ex-dividend dates with the following results:

1. State Street Corporation (STT) -- +2.2% absolute return in 13 days (equivalent to +60.5% annualized return-on-investment).
2. Comcast Corporation (CMCSA) --  +1.0% absolute return in 13 days (equivalent to +27.3% annualized return-on-investment).
3. EOG Resources Inc. (EOG) -- +1.7% absolute return in 16 days (equivalent to +39.3% annualized return-on-investment).

 

• Two Covered Calls positions were closed early based on a decision by the Covered Calls Advisor to close out the positions with the following results:

1. KeyCorp Inc. (KEY) -- +2.3% absolute return in 26 days (equivalent to +32.8% annualized return-on-investment).
2. JPMorgan Chase & Co. (JPM) --  +0.1% absolute return in 14 days (equivalent to +3.0% annualized return-on-investment).

 

• One Covered Calls position expired in-the-money on its Weekly options expiration date with the following results:

1. Kraft Heinz Company (KHC) -- +2.6% absolute return in 26 days (equivalent to +38.0% annualized return-on-investment).

• Five Covered Calls positions expired out-of-the-money on yesterday's April 14th, 2022 options expiration date.  In each case, the shares remain in the Covered Calls Advisor Portfolio and are currently held at an unrealized loss.  These positions are shown in the right sidebar of this blog as follows:  (1) 500 shares of American Eagle Outfitters Inc.;  (2) 300 shares of Fifth Third Bancorp ;  (3) 600 shares of iShares China Large-Cap ETF;   (4) 200 shares of Lennar Corporation; and (5) 500 shares of Micron Technology Inc.   In the upcoming week, decisions will be made to either sell these shares or to continue them as Covered Calls positions by selling future Call options against the shares currently held.

During the past year (last 12 months) 118 of 126 positions (93.7%) in the Covered Calls Advisor Portfolio (CCAP) were closed out at a profit, which exceeded by a wide margin the Covered Calls Advisor's objective that at least two-thirds (66.7%) of positions be closed profitably.  The Covered Calls Advisor Portfolio weighted average annualized-return-on-investment (aroi) was +31.3% during the past year and the average holding period for these 126 closed positions was 20.6 days.  In comparison, the benchmark S&P 500 returned +6.5% during the same prior one-year period.  This 24.8 percentage points outperformance (31.3% actual annualized-return-on-investment return minus 6.5% aroi of the S&P 500 benchmark) during the past year by the Covered Calls Advisor Portfolio exceeds that which can normally be expected using the Covered Calls investing strategy.  As indicated in this post made earlier this year on this blog site (Link) -- "by exploiting our Covered Calls investing "edges", we can expect to achieve (over a period of several years) an average annualized-return-on-investment above the S&P 500 benchmark index of approximately 3 to 5 percentage points annually".

My preference is to identify opportunities to utilize my Dividend Capture Strategy (with ex-dividend dates prior to the options expiration dates) for relatively low-growth dividend-paying companies within these lower-growth Sectors -- Consumer Staples, Energy, Financials, Industrials, Materials, Real Estate, and Utilities.  Higher growth companies in Sectors with fewer dividend-paying companies includes the Communication Services, Consumer Discretionary, Healthcare, and Information Technology Sectors.  There is a greater likelihood that Covered Calls or Cash-Secured Puts positions in these higher-growth Sectors will be established without utilizing the Dividend Capture Strategy (i.e. without ex-dividend dates prior to their options expiration dates).  

As shown in the right sidebar, there are currently five open positions in the Covered Calls Advisor Portfolio.  Future transactions and return-on-investment results for these positions plus the details of all future newly established positions will be posted on this blog site on the same day the transactions occur.  New positions will be focused on companies that, at a minimum, have the following characteristics: (1) good valuation metrics (such as high free cash flow yield); (2) appear in at least one of the many stock screeners that have been developed over the years by the Covered Calls Advisor; (3) estimated next year earnings-per-share above that of their actual prior year; and (4) analysts' average target price at least 10% above the current stock price. 

This Covered Calls Advisor blog is a free service available to anyone interested in learning about Covered Calls.  As always, I welcome your emails whenever you have any comments or questions related to this post or anything related to Covered Calls investing.

Best Wishes and Godspeed,
Jeff Partlow
Covered Calls Advisor
partlow@cox.net

Early Assignment of Covered Calls Position in EOG Resources Inc.

Early Wednesday morning, the Covered Calls Advisor was notified by my broker (Schwab) that the two EOG Resources Inc. April 22nd, 2022 $113.00 Call options were exercised yesterday (the last business day prior to the 4/13/2022 ex-dividend date).  The EOG stock price had increased from its purchase price of $120.36 to $123.92 at the market close on 4/12/2022.  

This early exercise (on the day prior to EOG's ex-dividend date) of the two Call options was expected by the Covered Calls Advisor since these Call options were deep-in-the-money and had no remaining time value at Tuesday's market close.  The time value had declined from $1.92 when the Covered Calls position was established to $0.00 on at market close on the day prior to the ex-dividend date.  So, the owners of the Call options elected to purchase the 200 shares at the $113.00 strike price and thus also capture the $.75 per share ex-dividend.  Despite not capturing today's dividend, this is a desirable outcome for the Covered Calls Advisor since the resulting +39.3% annualized return-on-investment (aroi) achieved exceeds the +33.7% maximum potential aroi that might have been achieved on the April 22nd options expiration date (if the stock remains above the $113.00 strike price on that expiration date). 

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

EOG Resources Inc. (DVN) -- New Covered Calls Position
The buy/write transaction today was as follows:
3/28/2022 Bought 200 EOG Resources Inc. shares @ $120.36
3/28/2022 Sold 2 EOG 4/22/2022 $113.00 Call options @ $9.28 per share.
4/12/2022 Two EOG 4/22/2022 $113.00 Call options exercised early, so Calls expired and the 200 shares of EOG were sold by the Covered Calls Advisor at the $113.00 strike price to close out the Covered Calls position.

The overall performance results (including commissions) for this EOG Resources Covered Calls position were as follows:
Covered Calls Cost Basis: $22,217.34
= ($120.36 - $9.28) * 200 shares + $1.34 commissions

Net Profit Components:
(a) Options Income: +$1,854.66
= ($9.28 * 200 shares) - $1.34 commissions
(b) Dividend Income (Call options exercised early on the business day prior to the April 13th ex-div date): +$0.00
(c) Capital Appreciation: -$1,472.00
+($113.00 - $120.36) * 200 shares ;

Total Net Profit [Two EOG Call options exercised on April 12th (last business day prior to the April 13th ex-dividend date)]: +$382.66

= (+$1,854.66 options income +$0.00 dividend income - $1,472.00 capital appreciation)

Absolute Return-on-Investment: +1.7%

= +$382.66/$22,217.34

Annualized Return-on-Investment: +39.3%

= (+$382.66/$22,217.34) * (365/16 days); or