Established Covered Calls Position in iShares China Large-Cap ETF

A short-term Covered Calls position was established in iShares China Large-Cap ETF (ticker FXI) with a July 15th, 2022 options expiration date.   Five hundred shares of iShares China Large-Cap ETF were purchased at $33.21 and five 7/15/2022 Call options were sold at the $32.00 strike price at $1.62 per share--a net debit transaction of $31.59 per share which provides a $.41 per share time value. The Implied Volatility of these Calls was 39.4 and the Delta was 71.7 when this transaction was executed.

As detailed below, a potential return-on-investment result is +1.3% absolute return (equivalent to +42.4% annualized return for the next 11 days) if the stock price is in-the-money (i.e. above the $32.00 strike price) and therefore assigned on the July 15th options expiration date.

 
iShares China Large-Cap ETF (FXI) -- New Covered Calls Position 
The Buy/Write transaction was as follows:
7/5/2022 Bought 500 shares of iShares China Large-Cap ETF shares @ $33.21 per share 
7/5/2022 Sold 5 FXI July 15th, 2022 $32.00 Call options @ $1.62 per share

A possible overall performance result (including commissions) for this iShares China Large-Cap ETF Covered Calls position is as follows:
Stock Purchase Cost: $15,798.35
= ($33.21 - $1.62) * 500 shares + $3.35 commission

Net Profit:
(a) Options Income: +$806.65
= ($1.62 * 500 shares) - $3.35 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 500 iShares China Large-Cap ETF shares assigned at $32.00 strike price at expiration): -$605.00
+($32.00 - $33.21) * 500 shares

Total Net Profit (If 500 iShares China Large-Cap ETF shares assigned at $32.00 strike price at expiration): +$201.65
= (+$806.65 options income +$0.00 dividend income -$605.00 capital appreciation)

Absolute Return-on-Investment: +1.3%
= +$201.65/$15,798.35
Annualized Return-on-Investment: +42.4%
= (+$201.65/$15,798.35) * (365/11 days)

July 1st, 2022 Options Expiration Results

The Covered Calls Advisor Portfolio had three positions with July 1st, 2022 options expiration dates.  Two positions (iShares Large-Cap China ETF and Warner Brothers Discovery Inc.) were closed out at their July 1st options expiration date.  The third position in the Energy Select Sector SPDR Fund ETF was a Covered Calls position that closed out-of-the-money.  The results for each position were as follows:

1. Energy Select Sector SPDR Fund ETF (XLE) Covered Calls -- Three hundred shares were out-of-the-money since the closing price yesterday of $72.58 was below the $75.00 strike price.  So, the Call options expired and 300 XLE shares now remain in the Covered Calls Advisor Portfolio.  A decision will be made early next week to either sell these shares or, more likely, to continue this Covered Calls position by selling future XLE Call options against the shares currently held. 

2. iShares Large-Cap China ETF (FXI) Covered Calls --  -0.9% absolute return (equivalent to -2.5% annualized return-on-investment) for the 134 days of this investment. The most recent post detailing all transactions for this position is here. 

The cash now available from the assignment (i.e. closing) of this position will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  Given the Covered Calls Advisor's currently Bearish Overall Market outlook, new positions will be hedged by continuing to establish Covered Calls at in-the-money strike prices with good downside protection. 

3. Warner Brothers Discovery Inc. (WBD) Cash-Secured Puts -- Five Cash-Secured Puts expired since the $14.25 closing price was above the $13.00 strike price.  The results were: +3.7% absolute return (equivalent to +71.5% annualized return-on-investment) for the 19 days of this investment. The post detailing this position when it was originally established is here.

Please email me at the address shown below with questions you might have related to information on this blog or anything related to the Covered Calls investing strategy.

Best Wishes and Godspeed,

Jeff Partlow
The Covered Calls Advisor
partlow@cox.net

Early Assignment of Covered Calls Position in JPMorgan Chase & Co.

Early this morning, the Covered Calls Advisor was notified by Schwab that the two JPMorgan Chase & Co. July 15th, 2022 $105.00 Call options were exercised yesterday (the last business day prior to next Tuesday's July 5th ex-dividend date).   JPMorgan stock has increased from its purchase price of $112.44 to $114.05 at the market close yesterday.  When this Covered Calls position was established, the time value (i.e. extrinsic value) was $1.22 per share [$8.66 Call options premium - ($112.44 stock purchase price - $105.00 strike price)].  The original $1.22 time value had declined on yesterday's market close to only $.02 and the owner of the Calls exercised their option to buy the 200 shares at the $105.00 strike price in order to receive the $1.00 per share dividend.

For any Covered Calls position where there is an ex-dividend date prior to the options expiration date, the Covered Calls Advisor usually prefers to have the stock called away (assigned) early, normally on the last business day prior to the ex-div date (as it was in this case).  The reason early assignment is preferred is that the Covered Calls Advisor's Dividend Capture Strategy spreadsheet was designed to identify positions where the annualized return-on-investment (aroi) from early assignment is greater than what might be achieved if the stock was instead assigned at its options expiration date--which was the case for this JPMorgan Chase position.  

As detailed below, the early assignment for this JPMorgan position provided a return-on-investment result for the Covered Calls Advisor Portfolio of +1.2% absolute return-on-investment (equivalent to +35.6% annualized roi for the 12 days this position was held).  This result exceeded the maximum potential annualized roi of +33.8% if the stock would instead be assigned on its July 15th, 2022 options expiration date.

 

JPMorgan Chase & Co. (JPM) -- Covered Calls Position Closed by Early Assignment
The transactions were:
6/23/2022 Bought 200 JPM shares @ $112.44
6/23/2022 Sold 2 JPM April 15th, 2022 $105.00 Call options @ $8.66 per share
7/01/2022 2 JPM Call options exercised early (on the last business day prior to the ex-dividend date), so the JPMorgan Covered Calls position was closed out by early assignment--the 2 Call options expired and the 200 JPM shares were sold at the $105.00 strike price.

The overall performance results (including commissions) for this JPM Covered Calls position were as follows:
Stock Purchase Cost Basis: $20,757.34
= ($112.44 - $8.66) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,730.66
= ($8.66 *200 shares) - $1.34 commission
(b) Dividend Income (Call options exercised early on July 1st, the business day prior to the July 5th ex-div date): +$0.00
(c) Capital Appreciation (JPM assigned early): -$1,488.00
+($105.00 -$112.44) * 200 shares

Total Net Profit: +$242.66

= (+$1,730.66 options income +$0.00 dividend income -$1,488.00 capital appreciation)

 

Absolute Return-on-Investment: +1.2%

= +$242.66/$20,757.34

Annualized Return-on-Investment: +35.6%

= (+$242.66/$20,757.34) * (365/12 days)

Covered Call Established in Meta Platforms Inc.

This morning at 11:05am, my Covered Call net debit limit order was executed.  A position was established in Meta Platforms Inc. (formerly Facebook Inc.) when 100 shares were purchased at $155.16 and 1 July 15th, 2022 Call option was sold at $12.98 at the $145.00 strike price.  The corresponding extrinsic value (i.e. time value) was $2.82 per share [$12.98 Call options premium - ($155.16 stock purchase price - $145.00 strike price)].  The $2.82 per share will be profit if the stock remains above the $145.00 strike price (and therefore assigned) on the July 15th options expiration date.

Given the Covered Calls Advisor's current Bearish Overall Market Meter outlook, a moderately in-the-money Covered Calls position was established -- the Delta was 75.2, which closely approximates a 75.2% probability that the Call option will be in-the-money on the options expiration date.  In addition, the Implied Volatility of the Calls was high at 54.6 when the position was established (well above the current VIX of 28.1), so the options premium received for selling this Call was very attractive.  Also, the next earnings report on July 27th is after the July 15th options expiration date.

Meta Platforms has declined by more than 50% since its peak last October to a level that I believe is a good entry point for establishing this Covered Call position.  The trailing twelve months (TTM) P/E ratio has declined to below 12.0, it's cheapest P/E ever, which is amazing for a company with over $40 billion cash and both the operating profit margins and the return on invested capital above 30%; and they have done this despite spending tens of billions of dollars on their metaverse initiatives for future growth.  In short, the growth opportunity relative to the current valuation makes today's stock price very compelling.   

Some key numbers for this Meta Platforms Inc. Covered Call position are:
Covered Call Cost Basis: $14,217.33
Profit if Assigned on Expiration Date: $281.33
Days Until July 15th, 2022 Options Expiration: 15
Absolute Return-on-Investment if Assigned at Expiration: +2.0%
Annualized Return-on-Investment if Assigned at Expiration: +48.2%

Best Wishes to All,

Jeff Partlow (The Covered Calls Advisor)
partlow@cox.net