March 29th, 2019 Options Expiration Result -- Medtronic PLC Covered Calls Position Closed

The Covered Calls Advisor Portfolio (CCAP) contained one position (Medtronic PLC) with a March 29th, 2019 options expiration.  Today, with the stock price closing price of $91.09, the two $91.00 Call options expired in-the-money; so the 200 shares of MDT stock were assigned (i.e. sold) at the $91.00 strike price and the maximum potential return-on-investment (ROI) result of  +0.9% absolute return (equivalent to +32.0% annualized return for the 10 days holding period) was achieved. 

This position was a rare one for the Covered Calls Advisor since it was established with weekly options and for a very short (10 days total duration).  Almost all Covered Calls Advisor positions are with monthly expirations and with durations of between two and six weeks (with the average duration being one month).  As I described in the post when this Medtronic position was established, I viewed it as an "experiment" in order to gain experience with the pros and cons of weekly options (i.e. "weeklies") compared with monthlies.  The advantage of weeklies is the somewhat higher implied volatility of the weekly options, so they provide an opportunity for a somewhat higher annualized return-on-investment.  This advantage is partially offset by the greater trading costs caused by: (a) less desirable order fill prices because of fewer open contracts on weeklies and thus higher bid/ask spreads on their options; and (b) more frequent trading (four positions per month instead of one), which is very time consuming.  Also, unlike monthlies, weeklies do not allow either sufficient time to repair a position when the stock has a short-term price decline or allow adequate time for the stock price to mean revert.  So, going forward, I am likely to continue to use monthlies almost exclusively and only take weekly positions in special situations (like the dividend capture situation with this Medtronic position).  

Medtronic PLC (MDT) -- Covered Calls Position Closed

The transactions were was as follows:
03/20/2019  Bought 200 shares of MDT @ $92.08
03/20/2019 Sold 2 MDT March 29th, 2019 $91.00 Call options @ $1.40
Note: this was a simultaneous Buy/Write transaction.
03/21/2019 Ex-dividend of $.50 per share x 200 shares = $100.00
03/29/2019 The two MDT Mar 29th $91.00 Call options closed in-the-money (the $91.08 stock price above the $91.00 strike price), so 200 shares of Medtronic stock sold at $91.00 strike price

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $18,142.29
= ($92.08 - $1.40) * 200 shares + $6.29 commission

Net Profit:
(a) Options Income: +$280.00
= ($1.40 * 200 shares)
(b) Dividend Income: +$100.00
= $.50 per share * 200 shares
(c) Capital Appreciation (MDT shares are above $91.00 strike price at March 29th expiration): -$220.95
= ($91.00 - $92.08) * 200 shares - $4.95 commission

Total Net Profit: +$159.05
= (+$280.00 options income +$100.00 dividend income -$220.95 capital appreciation)

Absolute Return: +0.9%
= +$159.05/$18,142.29
Annualized Return: +32.0%
= (+$159.05/$18,142.29)*(365/10 days)

Established Covered Call Position in UnitedHealth Group Inc.

Today, a new position was established in UnitedHealth Group Inc.(ticker UNH) by purchasing 100 shares at $239.44 and selling one April 18th, 2019 Call option at the $230.00 strike price. 

The implied volatility of the Apr 18th $230.00 Call options has increased recently to a level of 32.3 when this position was established; so the $13.39 options income per share received when this Call option was sold is a good premium to receive for this moderately in-the-money option.  This implied volatility level is much higher than would be expected for a company like UnitedHealth Group, whose earnings are significantly more predictable than the average for other companies with this implied volatility level. This level is higher than normal for UNH since: (1) the next earnings report is on April 16th, just prior to the April 18th options expiration date; and (2) the recent steep decline in UNH's stock was, as expected, accompanied by an increase in implied volatility of UNH's options. It is likely that this position will be closed prior to the April 16th earnings release. An in-the-money strike was selected given the Covered Calls Advisor's current Overall Market Meter sentiment (see right sidebar) of "Slightly Bearish". 

UnitedHealth Group was identified today by the Covered Calls Advisor's 'Multifactor' screener, which considers a variety of quality, value, and growth metrics. UNH was in the top 1% of all companies evaluated by this screener and was also the only company in the health care sector identified by the screen. In addition, it is also currently very highly rated by analysts:
- 26 rate it as either Buy or Outperform
- 2 rate it as Hold
- None rate it as Underperform or Sell

As detailed below, for this position there is potential for a +1.7% absolute return in 23 days (equivalent to a +27.4% annualized return-on-investment).

UnitedHealth Group Inc. (UNH) -- New 100% Covered Call Position
The transaction today was as follows:
03/27/2019  Bought 100 shares UnitedHealth Group @ $239.44
03/27/2019 Sold 1 UNH April 18, 2019 $230.00 Call option @ $13.39
Note: this was a simultaneous Buy/Write transaction.

A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $22,610.62
= ($239.44 - $13.39) * 100 shares + $5.62 commission

Net Profit:
(a) Option Income: +$1,339.00
= ($13.39 * 100 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If UnitedHealth Group Inc. shares are above $230.00 strike price at April 18th expiration): -$948.95
= ($230.00-$239.44) * 100 shares - $4.95 commission

Total Net Profit (If UnitedHealth Group stock price is above $230.00 strike price at Apr 18th options expiration): +$390.05
= (+$1,339.00 option income +$0.00 dividend income -$948.95 capital appreciation)

Absolute Return (If UnitedHealth Group stock price is above $230.00 strike price at Apr 18th options expiration): +1.7%
= +$390.05/$22,610.62
Annualized Return: +27.4%
= (+$390.05/$22,610.62 )*(365/23 days)

The downside 'breakeven price' at expiration is at $226.05 ($239.44 - $13.39), which is 5.6% below the current market price of $239.44.

The probability of making a profit (if held until the April 18, 2019 options expiration) for this UnitedHealth Group Inc. Covered Call position is 70.4%. This compares with a probability of profit of 50.2% for a buy-and-hold of UnitedHealth Group shares over the same time period.  Using this probability of profit of 70.4%, the expected value annualized return-on-investment (if held until expiration) is +19.3% (+27.4% * 70.4%), a good risk/reward profile for this relatively conservative investment.   

Covered Calls Established in Baidu Inc. and Medtronic PLC

Today, two new positions were established:

•  Baidu Inc. (ticker BIDU) by purchasing 100 shares at $168.69 and selling one April 18th, 2019 Call option at the $165.00 strike price; and
• Medtronic PLC (ticker MDT) by purchasing 200 shares at $92.08 and selling two March 29th, 2019 Call options at the $91.00 strike price. 

The open interest in the Baidu Call option was 881 contracts and its implied volatility (IV) was 26.3 when this position was established. This IV level is attractive given the current low level of the S&P 500's Volatility Index as well as Baidu's next earnings report not being until April 25th (i.e. after the April 18th options expiration date).  An in-the-money strike was selected given the Covered Calls Advisor's current Overall Market Meter sentiment (see right sidebar) of "Slightly Bearish".

Medtronic goes ex-dividend tomorrow (March 21st) at $.50 per share and a short-term expiration of March 29th provides the opportunity to achieve a good return-on-investment if the stock is above the $91.00 strike price at next Friday's options expiration.  The Covered Calls Advisor rarely establishes Covered Calls of short duration, almost always preferring next-month durations, but I decided to experiment on this dividend capture situation with this high quality medical equipment and services company.

As detailed below, potential return on investment results are:

• Baidu Inc.: +2.2% absolute return (equivalent to +27.2% annualized roi) for the next 30 days; and
• Medtronic PLC: +0.9% absolute return in 10 days (equivalent to a +32.0% annualized return-on-investment).

1. Baidu Inc. (BIDU) -- New Covered Call Position
The transaction today was as follows:
03/20/2019  Bought 100 shares of BIDU @ $168.69
03/20/2019 Sold 1 BIDU April 18, 2019 $165.00 Call option @ $7.35
Note: this was a simultaneous Buy/Write transaction.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $16,128.38
= ($168.69 - $7.35) * 100 shares + $5.62 commission

Net Profit:
(a) Options Income: +$735.00
= ($7.35 * 100 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Baidu shares are above $165.00 strike price at April 18th expiration): -$373.95
= ($165.00 - $168.69) * 100 shares - $4.95 commission

Total Net Profit (If Baidu stock price is above $165.00 strike price at April 18th options expiration): +$361.05
= (+$735.00 options income +$0.00 dividend income -$373.95 capital appreciation)

Absolute Return (If Baidu stock price is above $165.00 strike price at April 18th options expiration): +2.2%
= +$361.05/$16,128.38
Annualized Return: +27.2%
= (+$361.05/$16,128.38)*(365/30 days)

The downside 'breakeven price' at expiration is at $161.34 ($168.69 - $7.35), which is 4.4% below the current market price of $168.69.

The probability of making a profit (if held until the April 18, 2019 options expiration) for this Baidu Inc. Covered Calls position is 63.7%. This compares with a probability of profit of 50.3% for a buy-and-hold of Baidu shares over the same time period. Using this probability of profit of 63.7%, the expected value annualized return-on-investment (if held until expiration) is +17.3% (+27.2% * 63.7%), a satisfactory risk/reward profile for this relatively conservative investment.  


2. Medtronic PLC (MDT) -- New Covered Calls Position

The transaction today was as follows:
03/20/2019  Bought 200 shares of MDT @ $92.08
03/20/2019 Sold 2 MDT March 29th, 2019 $91.00 Call options @ $1.40
Note: this was a simultaneous Buy/Write transaction.

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $18,142.29
= ($92.08 - $1.40) * 200 shares + $6.29 commission

Net Profit:
(a) Options Income: +$280.00
= ($1.40 * 200 shares)
(b) Dividend Income: +$100.00
= $.50 per share * 200 shares
(c) Capital Appreciation (If MDT shares are above $91.00 strike price at March 29th expiration): -$220.95
= ($91.00 - $92.08) * 200 shares - $4.95 commission

Total Net Profit (If Medtronic stock price is above $91.00 strike price at March 29th options expiration): +$159.05
= (+$280.00 options income +$100.00 dividend income -$220.95 capital appreciation)

Absolute Return (If Medtronic stock price is above $91.00 strike price at April 18th options expiration): +0.9%
= +$159.05/$18,142.29
Annualized Return: +32.0%
= (+$159.05/$18,142.29)*(365/10 days)

March 15th, 2019 Options Expiration Results

The Covered Calls Advisor Portfolio had nine positions with March 15th, 2019 options expirations as follows:

• Three positions were closed early (i.e. prior to the March 15th expiration date).  The detailed results for each position were posted previously on the dates each position was closed:

1. Marathon Petroleum Corp. -- Closed Early -- See link
2. Delta Air Lines Inc. -- Early Assignment -- See link
3. BlackRock Group L.P. -- Early Assignment -- See link

• On the March 15th expiration date, two core holdings [Alibaba Group Holding Ltd. (Position #1) and Alphabet Inc.) were rolled out to April 18th, 2019 Covered Call positions.  The detailed transactions-to-date for these positions are provided in Section A below.


• The remaining four positions (Alibaba Group Holding Ltd. (Position #2), Applied Materials Inc., Fedex Corp., and Micron Technology Inc.) closed in-the-money at the March 15th, 2019 options expiration, so those shares were assigned (sold) at their respective strike prices.  The return-on-investment results for these four positions are detailed in Section B below.  The cash now available in the Covered Calls Advisor Portfolio from the closing of these four assigned positions will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.    

All 23 positions that have been closed out so far in 2019 achieved a profit.   As shown in the right sidebar, there are now four Covered Calls positions (all with April 18th, 2019 expirations) in the Covered Calls Advisor Portfolio.  Any new position(s) established will be posted on this site on the same day the transactions occur.  As always, please email me at the address shown in the right sidebar with any questions or comments related to this Covered Calls Advisor blog.

Section A -- Roll Out and Up Positions -- (Alibaba Position #1 and Alphabet Inc.)

1.  Alibaba Position #1 (BABA) -- Continuing Covered Calls Position

The transactions were as follows:
01/01/2019 200 BABA shares owned at $137.07 per share
01/07/2019 2 Jan 18, 2019 $145.00 short Call options sold at $2.09 per share
01/18/2019 Bought-to-Close 2 Jan 18th $145.00 Calls @ $11.22
01/18/2019 Sold-to-Open 2 Feb 15th, 2019 $155.00 Calls @ $7.47
Note: the price of BABA stock was $156.24 when this roll out and up transaction occurred.
02/15/2019 Bought-to-Close 2 Feb 15th $155.00 Calls @ $11.15
02/15/2019 Sold-to-Open 2 Mar 15th, 2019 $160.00 Calls @ $9.05
Note: the price of BABA stock was $166.10 when this roll out and up transaction occurred.
03/15/2019 Bought-to-Close 2 Mar 15th $160.00 Calls @ $20.34
03/15/2019 Sold-to-Open 2 Apr 18th, 2019 $170.00 Calls @ $12.51
Note: the price of BABA stock was $180.29 when this roll out and up transaction occurred.

A possible overall performance result (including commissions) if this in-the-money position is assigned at the April 18th expiration is as follows:
Cost Basis: $27,414.00
= $137.07 per share value at end of December, 2018 * 200 shares

Net Profit Components:
(a) Options Income: -$2,347.21
= ($2.09 - $11.22 + $7.47 - $11.15 + $9.05 -$20.34 +$12.51) * 200 shares - $29.21 commissions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If BABA stock is above $170.00 strike price at April 18th expiration): +$6,581.05
= ($170.00 -$137.07) * 200 shares - $4.95 commission

Total Net Profit: +$4,233.84
= (-$2,347.21 options income +$0.00 dividend income +$6,581.05 capital appreciation)

Absolute Return: +15.4%
= +$4,233.84/$27,414.00
Equivalent Annualized Return: +76.2%
= (+$4,233.84/$27,414.00)*(365/74 days)

2.  Alphabet Inc. (GOOGL) -- Continuing Covered Call Position

The transactions have been as follows:
01/01/2019 100 GOOGL shares owned at $1,044.96 per share
01/01/2019 1 Jan 18th, 2019 $1,085.00 short Call option valued at $19.80 per share
01/18/2019  Bought-to-Close 1 Jan 18th $1,085.00 Call option @ $19.25
01/18/2019 Sold-to-Open 1 Feb 15th, 2019 $1,095.00 Call @ $41.70
Note: the price of GOOGL stock was $1,104.73 when this roll out and up transaction occurred.
02/15/2019 Bought-to-Close 1 Feb 15th $1,095.00 Call @ $22.40
02/15/2019 Sold-to-Open 1 Mar 15th, 2019 $1,090.00 Call @ $44.50
Note: the price of GOOGL stock was $1,117.25 when this roll out and down transaction occurred.
03/15/2019 Bought-to-Close 1 Mar 15th $1,090.00 Call @ $98.82
03/15/2019 Sold-to-Open 1 April 18th, 2019 $1,130.00 Call @ $69.72
Note: the price of GOOGL stock was $1,188.50 when this roll out and up transaction occurred.

A possible overall performance result (including commissions) if this in-the-money position is assigned at the April 18th expiration is as follows:
Cost Basis: $104,496.00
= $1,044.96 per share value at end of December, 2018 * 100 shares

Net Profit Components:
(a) Options Income: +$3,506.08
= (+$19.80 - $19.25 + $41.70 - $22.40 + $44.50 -$98.82 +$69.72) * 100 shares - $18.92 commissions
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (If GOOGL stock is above $1,130.00 strike price at April 18th expiration): +$8,499.05
= ($1,130.00 -$1,044.96) * 100 shares - $4.95 commission

Total Net Profit: +$12,005.13
= (+$3,506.08 options income +$0.00 dividend income +$8,499.05 capital appreciation)

Absolute Return: +11.5%
= +$12,005.13/$104,496.00
Equivalent Annualized Return: +56.7%
= (+$12,005.13/$104,496.00)*(365/74 days)

Section B -- Covered Calls Positions Assigned (Closed Out) at March 15th Options Expiration

1.  Alibaba Group Holding Ltd. (Position #2) -- Covered Calls Position Closed
The transactions were:
1/1/2019 200 Alibaba (Position #2) shares market value was $137.07
1/7/2019 Sold 2 BABA February 15, 2019 $145.00 Call options @ $6.40
Note: Price of BABA shares was $140.94 today when these Call options were sold
1/30/2019 Bought-to-Close 2 BABA Feb 15, 2019 $145.00 Call options @ $21.83
1/30/2019 Sold-to-Open 2 BABA March 15, 2019 $155.00 Call options @ $14.88
Note: this was a simultaneously executed roll-out-and-up transaction executed when BABA was at $166.19 per share.
03/15/2019 2 BABA Mar 15th, 2019 $155.00 Call options exercised, so 200 shares of BABA stock sold at $155.00 strike price

The overall performance result (including commissions) for this Alibaba Covered Calls position is as follows:
Covered Calls Cost Basis: $27,414.00
= $137.07 per share *200 shares

Net Profit Components:
(a) Option Income: -$116.29
= ($6.40 -$21.83 +$14.88) * 200 shares - $6.29 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (BABA shares above $155.00 strike price at Mar 15th expiration): +$3,581.05
= ($155.00 -$137.07) * 200 shares - $4.95 commission

Total Net Profit (BABA shares assigned at expiration): +$3,464.76
= (-$116.29 options income +$0.00 dividend income +$3,581.05 capital appreciation)

Absolute Return: +12.6%
= +$3,464.76/$27,414.00
Equivalent Annualized Return: +62.3%
= (+$3,464.76/$27,414.00)*(365/74 days)


2.  Applied Materials Inc. (AMAT) -- Covered Calls Position Closed
The transactions were:
02/15/2019 Bought 300 AMAT shares @ $39.12
02/15/2019 Sold 3 AMAT March 15, 2019 $37.00 Call options @ $2.54 per share
Note: a simultaneous buy/write transaction was executed.
02/20/2019 Quarterly ex-dividend of $.20 per share
03/15/2019 3 AMAT Mar 15th, 2019 $37.00 Call options exercised, so 300 shares of AMAT stock sold at $37.00 strike price

The overall performance result (including commissions) for this Applied Materials Covered Calls position are as follows:
Covered Calls Cost Basis: $10,978.95
= ($39.12 - $2.54) *300 shares + $4.95 commission

Net Profit Components:
(a) Options Income: +$759.99
= ($2.54*300 shares) - $2.01 commissions
(b) Dividend Income (AMAT assigned at Mar 15th, 2019 expiration): +$60.00
= ($.20 dividend per share x 300 shares)

(c) Capital Appreciation (AMAT shares assigned at $37.00 strike price at options expiration): -$640.95
+($37.00-$39.12)*300 shares - $4.95 commissions

Total Net Profit (Applied Materials shares assigned at $37.00 at March 15th, 2019 expiration): +$179.04

= (+$759.99 options income +$60.00 dividend income -$640.95 capital appreciation)

Absolute Return: +1.6%

= +$179.04/$10,978.95

Annualized Return: +20.5%

= (+$179.04/$10,978.95)*(365/29 days)

3.  Fedex Corp. (FDX) -- Covered Call Position Closed

The transactions were:
02/15/2019 Bought 100 Fedex shares @ $178.60
02/15/2019 Sold 1 FDX 3/15/2019 $170.00 Call option @ $10.44
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was 380 contracts and the Implied Volatility was 26.0 when this transaction was executed.
03/08/2019 Quarterly ex-dividend of $.65 per share
03/15/2019 1 FDX Mar 15th, 2019 $170.00 Call option exercised, so 100 shares of FDX stock sold at $170.00 strike price

The overall performance result (including commissions) for this Fedex Covered Call are as follows:
Covered Call Cost Basis: $16,820.95
= ($178.60 - $10.44) *100 shares + $4.95 commission

Net Profit Components:
(a) Options Income: +$1,043.33
= ($10.44*100 shares) - $.67 commissions
(b) Dividend Income (Fedex shares assigned at Mar 15th, 2018 expiration): +$65.00
= ($.65 dividend per share x 100 shares)

(c) Capital Appreciation (Fedex assigned at $170.00 strike price at options expiration): -$864.95
+($170.00-$178.60)*100 shares - $4.95 commissions

Total Net Profit (FDX shares assigned at $170.00 at March 15, 2019 expiration): +$243.38

= (+$1,043.33 options income +$65.00 dividend income -$864.95 capital appreciation)

Absolute Return: +1.4%

= +$243.38/$16,820.95

Annualized Return: +18.2%

= (+$243.38/$16,820.95)*(365/29 days)

4. Micron Technology Inc. (MU) -- Covered Calls Position Closed
The transactions were:
02/08/2019  Bought 500 shares MU @ $37.91
02/08/2019 Sold 5 MU March 15, 2019 $35.00 Call options @ $4.20
Note: this was a simultaneous Buy/Write transaction.
03/15/2019 5 MU Mar 15th, 2019 $35.00 Call options exercised, so 500 shares of MU stock sold at $35.00 strike price

The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $16,863.33
= ($37.91 - $4.20) * 500 shares + $8.30 commission

Net Profit:
(a) Options Income: +$2,100.00
= ($4.20 * 500 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (Micron Technology Inc. shares were above $35.00 strike price at March 15th expiration): -$1,459.95
= ($35.00-$37.91) * 500 shares - $4.95 commission

Total Net Profit (Micron stock price was above $35.00 strike price at March 15th options expiration): +$640.05
= (+$2,100.00 options income +$0.00 dividend income -$1,459.95 capital appreciation)

Absolute Return: +3.8%
= +$640.05/$16,863.33
Annualized Return: +38.5%
= (+$640.05/$16,863.33)*(365/36 days)