Roll-Up-and-Out Abbvie Inc. Covered Calls

Abbvie Inc. (ticker symbol ABBV) goes ex-dividend tomorrow at $1.41 per share.  With the stock trading today at $142.50, the existing Covered Calls position at the October 21st, 2022 $130.00 strike price had $0.00 remaining time value.  Rather than have these Calls exercised later today and the stock assigned (i.e. sold) at the $130.00 strike price, I decided to roll-up-and-out one week to the October 27th, 2022 $137.00 strike price at a net debit of $5.80 per share. The transaction was: Bought-to-Close the 10/21/2022 $130.00 Calls for $12.55 and simultaneously Sold-to-Open the 10/28/2022 $137.00 Calls at $6.75. 

This remains a conservative in-the-money Covered Calls position since the Delta for these new Calls when this rollout transaction was executed was 74.8 which closely approximates the probability of assignment at options expiration (i.e. 74.8% probability). The Q3 2022 quarterly earnings report for Abbvie is before market open on the new October 28th options expiration date, so because of the uncertainty and accompanying volatility immediately after earnings releases, it is likely that this Covered Calls position will be unwound (i.e. closed out) prior to the Oct. 28th expiration date.

As detailed below, a potential return-on-investment result for this Abbvie Inc. position is +3.1% absolute return in 29 days (equivalent to a +38.9% annualized return-on-investment) if the stock closes above the $137.00 strike price at the October 28th, 2022 options expiration.  This potential +38.9% exceeds the +29.9% annualized return that would have been achieved if the original Abbvie Covered Calls position had instead been assigned early later today (i.e. the day prior to tomorrow's ex-dividend date).

Abbvie Inc. (ABBV) -- New Covered Calls Position
The simultaneous buy/write transaction was as follows:
9/30/2022 Bought 200 shares of Abbvie Inc. stock @ $136.86 per share 
9/30/2022 Sold 2 ABBV October 21st, 2022 $130.00 Call options @ $8.24 per share.  The Implied Volatility of these Calls was 31.4 when this position was established.
10/12/2022 Rolled-Up-and-Out: Bought-to-Close the 10/21/2022 $130.00 Calls for $12.55 and simultaneously Sold-to-Open the 10/28/2022 $137.00 Calls at $6.75.
10/13/2022 Abbvie quarterly ex-dividend of $1.41 per share

A possible overall performance results (including commissions) would be as follows:
Covered Calls Net Investment: $25,725.34
= ($136.86 - $8.24) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$485.32
= ($8.24 - $12.55 + $6.75) * 200 shares - $2.68 commission
(b) Dividend Income (If Abbvie shares assigned at the October 28th, 2022 options expiration): +$282.00
= $1.41 per share x 200 shares
(c) Capital Appreciation (If ABBV shares assigned with stock above $137.00 strike price on the Oct. 28th, 2022 options expiration): +$28.00
= ($137.00 strike price - $136.86 stock purchase price) * 200 shares

Potential Net Profit (If ABBV price is above $137.00 strike price at October 28th options expiration): +$795.32
= (+$485.32 options income +$282.00 dividend income + $28.00 capital appreciation)

Absolute Return-on-Investment (If Abbvie price is above $137.00 strike price at the October 28th options expiration date): +3.1%
= +$795.32/$25,725.34
Equivalent Annualized Return-on-Investment (If assigned on the 10/21/2022 options expiration date): +38.9%
= (+$795.32/$25,725.34) * (365/29 days)

Established Covered Calls in DraftKings Inc.

This afternoon, an October 28th, 2022 Covered Calls buy/write limit order was executed today in DraftKings Inc. (ticker DKNG) at a net debit price of $12.33 per share.  Eight hundred shares were purchased at $14.34 and eight Oct. 28th, 2022 $13.00 strike price Call options were sold at $2.01 per share.  The corresponding extrinsic value (i.e. time value) was $.67 per share [$2.01 Call options premium - ($14.34 stock purchase price - $13.00 strike price)].   

Normally, I avoid highly speculative companies (such as DraftKings), but I do occasionally allow myself to establish one such position in the Covered Calls Advisor Portfolio.  On the downside, DraftKings' continues to lose money in each quarterly earnings, largely because of the huge marketing expense required to attract new customers in the U.S. States that are continuing to approve online sports gambling.  But they have now established themselves as one of the few likely long-term winners in the growing sports betting business.  

Their Trailing Twelve Months Price-to-Enterprise Value multiple has now declined to an attractive level now below 4.0.  The Implied Volatility of the DraftKings Calls was very high today at 98.0 when this position was established, so the options premium received (and therefore also the 103.3% potential annualized-return-on-investment) are very attractive.  The current average target price of the 30 Wall Street analysts currently covering DraftKings is $25.87 (+80.4% above today's purchase price).  The probability that the position will be assigned at expiration is approximately 70.5%.  There is no ex-dividend and no earnings report prior to the options expiration date.

Some key numbers for this DraftKings Inc. Covered Calls position are:
Covered Calls Net Investment: $9,869.36
Profit if Assigned on Expiration Date: $530.64
Days Until October 28th, 2022 Options Expiration: 19
Absolute Return-on-Investment if Assigned at Expiration: +5.4%
Annualized Return-on-Investment if Assigned at Expiration: +103.3%

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

October 7th, 2022 Options Expiration Results

Yesterday, the Covered Calls position in Suncor Energy Inc. (ticker SU) was closed out on its September 7th, 2022 options expiration date.  The strike price was $31.00 and Suncor closed in-the-money at market closing yesterday (the Suncor stock price was $32.80).  So, the 400 Suncor shares were assigned (i.e. sold) at the $31.00 strike price.  As detailed below, the return-on-investment (ROI) result was  +0.6% absolute return (equivalent to +5.0% annualized return-on-investment for the 44 days holding period).
 

Suncor Energy Inc. (SU) -- Covered Calls Position Assigned on the October 7th Options Expiration Date
The original simultaneous buy/write transactions was as follows:
08/25/2022 Bought 400 shares of Suncor stock @ $34.77 per share 
08/25/2022 Sold 4 Suncor Sept. 16th, 2022 $32.50 Call options @ $2.62 per share
09/01/2022 Ex-dividend at $.3573 per share
9/16/2022 Four Suncor Call options expired out-of-the-money and 400 Suncor shares remain in the Covered Calls Advisor Portfolio.
9/19/2022 Continued Suncor Covered Calls position by selling four October 7th, 2022 $31.00 Call options @ $1.00 per share.
10/7/2022 Four SU $31.00 Calls expired in-the-money (Suncor stock was $32.80 at market close on Friday, 10/7/2022) and the 400 Suncor shares were sold at the $31.00 strike price.

The overall performance result (including commissions) was as follows:
Covered Calls Net Investment: $12,865.36
= ($34.77 - $2.62) * 400 shares + $5.36 commission

Net Profit Components:
(a) Options Income: +$1,442.64
= ($2.62 + $1.00) * 400 shares - $5.36 commission
(b) Dividend Income: $142.92
= $.3573 per share x 400 shares
(c) Capital Appreciation (Suncor stock was above $31.00 strike price and therefore assigned on its Oct. 7th options expiration): -$1,508.00
= ($31.00 - $34.77) * 400 shares

Total Net Profit: +$77.56
= (+$1,442.64 options income +$142.92 dividend income -$1,508.00 capital appreciation)

Absolute Return-on-Investment: +0.6%
= +$77.56 net profit/$12,865.36 net investment
Equivalent Annualized Return-on-Investment: +5.0%
= (+$77.56/$12,865.36) * (365/44 days)

Covered Calls Established in Qualcomm Inc.

An October 21st, 2022 Covered Calls buy/write limit order was executed today in Qualcomm Inc. (ticker QCOM) at 10:03a.m. at a net debit price of $112.96 per share.  Two hundred shares were purchased at $121.77 and two Oct. 21st, 2022 $115.00 strike price Call options were sold at $8.81 per share.  The corresponding extrinsic value (i.e. time value) was $2.04 per share [$8.81 Call options premium - ($121.77 stock purchase price - $115.00 strike price)].   The Implied Volatility of the Calls was high at 49.0 and the approximate probability of assignment at options expiration was 72.9% when this transaction was executed.  There is no ex-dividend and, as I prefer, no earnings report prior to the options expiration date.

When this position was established it was 5.9% in-the-money which is consistent with my current cautious Covered Calls approach during a bearish market environment.  Like most semiconductor industry companies, Qualcomm's stock price has  declined substantially (-35% for Qualcomm) so far this year, but their current valuation is attractive--for example, their trailing twelve months P/E ratio is now 10.2. In addtion, analysts' current average target price is $183.95 (+51.1% above today's purchase price).  

Some key numbers for this Qualcomm Inc. Covered Calls position are:
Covered Calls Net Investment: $22,594.68
Profit if Assigned on Expiration Date: $405.32
Days Until October 21st, 2022 Options Expiration: 15
Absolute Return-on-Investment if Assigned at Expiration: +1.8%
Annualized Return-on-Investment if Assigned at Options Expiration: +43.7%