Established Covered Calls Position in HP Inc. Using the Dividend Capture Strategy

A Covered Calls position was established in HP Inc. (ticker symbol HPQ) when the Covered Calls Advisor's buy/write limit order was executed -- 300 shares were purchased at $29.26 and 3 June 18th, 2021 Call options were sold at $1.52 per share at the $28.00 strike price.   Given the Covered Calls Advisor's current cautious Overall Market Meter outlook, a moderately in-the-money Covered Calls position was established -- the Delta was 74.5, which closely approximates the probability that the Call options will be in-the-money on the options expiration date. 

HP has a quarterly ex-dividend of $.1938 per share on June 8th (a 2.6% annual dividend yield). Potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the June 18th options expiration date.

HP Inc. just released quarterly earnings after the market close yesterday. Sales and earnings per share expectations were exceeded and HP also increased its guidance for current fiscal year EPS to $3.40-$3.50 per share. Despite this positive report, the stock had declined by 8.8% from yesterday's closing price of $32.10 to $29.26 this morning when the Covered Calls Advisor's buy/write limit order of $27.74 was executed. At this $29.26 purchase price, the P/E ratio based on the $3.45 midpoint of this year's EPS guidance would be only 8.5, a very attractive valuation for this leading technology hardware company. Also, HP was on the Covered Calls Advisor's 'Watchlist' since it appeared in the top 7% of S&P 500 companies as identified in the Covered Calls Advisor's 'S&P 500 Value and Profitability' stock screener.      

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

•  +0.9% absolute return (equivalent to +31.1% annualized return-on-investment for the next 11 days) if the stock is assigned early (business day prior to the June 8th ex-dividend date); OR 

• +1.6% absolute return (equivalent to +27.1% annualized return over the next 22 days) if the stock is assigned on the June 18th options expiration date. 
  

HP Inc. (HPQ) -- New Covered Calls Position
The buy/write transaction was:

05/28/2021 Bought 300 HP Inc. HP Inc. shares @ $29.26
05/28/2021 Sold 3 HP Inc. 6/18/2021 $28.00 Call options @ $1.52
Note 1: the Implied Volatility of the Calls was 26.4 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.26 per share = [$1.52 Call options premium - ($29.26 stock price - $28.00 strike price)]
06/08/2021 Upcoming quarterly dividend of $.1938 per share

Two possible overall performance results (including commissions) for this HP Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $8,324.01
= ($29.26 - $1.52) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$456.00
= ($1.52 * 300 shares)
(b) Dividend Income (If options exercised early on June 7th, the business day prior to the June 8th ex-div date): +$0.00; or
(b) Dividend Income (If HPQ stock assigned at June 18th, 2021 expiration): +$58.14
= ($.1938 dividend per share x 300 shares)

(c) Capital Appreciation (If HP Inc. Call options assigned early on June 8th): -$378.00
+($28.00 - $29.26) * 300 shares; or
(c) Capital Appreciation (If HP Inc. shares assigned at $28.00 strike price at June 18th options expiration): -$378.00
+($28.00 - $29.26) * 300 shares

1. Total Net Profit [If options exercised on June 7th (business day prior to June 8th ex-dividend date)]: +$78.00

= (+$456.00 options income +$0.00 dividend income -$378.00 capital appreciation); or

2. Total Net Profit (If 300 HP Inc. shares assigned at $28.00 strike price at June 18th, 2021 expiration): +$136.14

= (+$456.00 +$58.14 -$378.00)

1. Absolute Return (If three HP Inc. Call options exercised early on June 8th, 2021): +0.9%

= +$78.00/$8,324.01

Annualized Return (If options assigned early): +31.1%

= (+$78.00/$8,324.01)*(365/11 days); or

2. Absolute Return (If HPQ shares assigned at $28.00 at June 18th, 2021 options expiration): +1.6%

= +$136.14/$8,324.01

Annualized Return (If HPQ shares assigned at $28.00 at June 18th, 2021 expiration): +27.1%
= (+$136.14/$8,324.01)*(365/22 days)

Either outcome provides a satisfactory return-on-investment result for this HP Inc. investment.  These returns will be achieved as long as the stock is above the $28.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $27.5462 ($29.26 -$1.52 -$.1938) provides 5.9% downside protection below today's stock purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position.  As shown below with this HP Inc. position, all nine criteria were met.

Established Covered Calls in LyondellBasell Industries N.V. Using Dividend Capture Strategy

Today, a Covered Calls position was established in LyondellBasell Industries N.V.(ticker LYB) with the purchase of 200 shares at $112.54 per share and two June 18th, 2021 Call options were sold for $3.82 per share at the $110.00 strike price.  This transaction occurred at simultaneous buy/write transaction at a net debit of $108.72 per share.  The corresponding time value (aka extrinsic value) in the Call options was $1.28 per share = [$3.82 Call options premium received - ($112.54 stock purchase price - $110.00 options strike price)].  A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at approximately 66.2 when this buy/write transaction was executed, which approximates the probability of assignment on the June 18th, 2021 options expiration date. 

LyondellBasell Industries made their quarterly dividend announcement this morning; it will go ex-dividend at $1.13 per share (4.0% annualized dividend yield at the current stock price which is an increase of +7.6% above the prior quarterly dividend amount) on June 4th which is prior to the June 18th options expiration date, so this dividend is included in the potential return-on-investment results shown below.  Also shown below, all nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and, as preferred by the Covered Calls Advisor, the next quarterly earnings report on July 30th, 2021 is after the June 18th options expiration date. 

LyondellBasell's revenue is exploding this fiscal year and will almost double last year's pandemic-depressed level. Earnings are also expected to explode higher to perhaps above $14.00 per share this year (a historically very attractive P/E ratio of only 7.7) with expected Q2 earnings of $4.59 versus $.71 last year. The stock is close to its prior 3-year high, but the Covered Calls Advisor believes it remains a good value at its current price.

As shown below, two potential return-on-investment result are: (1) +1.2% absolute return in 7 days (equivalent to a +61.1% annualized return-on-investment if LYB stock is assigned at $110.00 on the day prior to the June 4th ex-dividend date; OR (2) +2.2% absolute return in 22 days (equivalent to a +36.7% annualized return-on-investment if assigned at the June 18th expiration.

LyondellBasell Industries N.V. (LYB) -- New Covered Calls Position
The buy/write transaction was as follows:
05/28/2021 Bought 200 shares of LyondellBasell stock @ $112.54 per share 
05/28/2021 Sold 2 LyondellBasell June 18th, 2021 $110.00 Call options @ $3.82 per share
Note: the Implied Volatility of the Call options was 22.0.
06/04/2021 Upcoming ex-dividend of $1.13 per share

Two possible overall performance results (including commissions) would be as follows:
Covered Calls Cost Basis: $21,745.34
= ($112.54 - $3.82) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$762.66
= ($3.82 * 200 shares) - $1.34 commission
(b) Dividend Income (If LyondellBasell stock assigned on day prior to June 4th ex-dividend date): +$0.00; OR
(b) Dividend Income (If LyondellBasell stock assigned on June 18th options expiration date): $226.00
= $1.13 dividend per share x 200 shares
(c) Capital Appreciation (If LYB stock is assigned at $110.00 on the day prior to the June 4th ex-dividend date): -$508.00
= ($110.00 - $112.54) * 200 shares; OR
(c) Capital Appreciation (If LyondellBasell stock is above $110.00 strike price at the June 18th expiration): -$508.00
= ($110.00 - $112.54) * 200 shares

1.  Total Net Profit (If LyondellBasell stock assigned on day prior to June 4th ex-dividend date): +$254.66
= (+$762.66 options income +$0.00 dividend income -$508.00 capital appreciation): OR
2.  Total Net Profit (If LYB stock assigned on June 18th options expiration date): +$480.66
= (+$762.66 options income +$226.00 dividend income -$508.00 capital appreciation)

1.  Absolute Return (If LYB stock assigned on day prior to June 4th ex-dividend date): +1.2%
= +$254.66/$21,745.34
Equivalent Annualized Return: +61.1%
= (+$254.66/$21,745.34) * (365/7 days); OR
2.  Absolute Return (If LyondellBasell stock assigned on June 18th options expiration date): +2.2%
= +$480.66/$21,745.34
Equivalent Annualized Return: +36.7%
= (+$480.66/$21,745.34)*(365/22 days)


Either outcome would provide a very good return-on-investment result.  These returns will be achieved as long as the stock is above the $110.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $107.59 ($112.54 -$3.82 -$1.13) provides 4.4% downside protection below today's purchase price.

The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a Dividend Capture Strategy.  The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved which is the case for this LyondellBasell Industries N.V. position, and all nine criteria were met in this case (as shown in the chart below).

Roll Up-and-Out Twilio Inc. Cash-Secured Put Position

On May 17th, the Covered Calls Advisor established a 100% Cash-Secured Put position in Twilio Inc. at the June 18th, 2021 $270.00 strike price.  Twilio shares have spiked higher from $289.04 when this position was established to $332.60 today, so the Covered Calls Advisor decided to roll-up-and-out from the $270.00 strike price to the $300.00 strike price at the June 25th, 2021 options expiration date.  A vertical credit spread transaction was executed at a net credit of $4.42 ($5.40 - $.98) per share.  There was only $.98 time value remaining in the $270.00 Calls for the next 24 days and trading up to the $300.00 Put added $4.42 to the remaining time value.

A potential return-on-investment result for this Twilio Inc. Cash-Secured Put position is +5.5% absolute return in 40 days (equivalent to a +50.0% annualized return-on-investment) if the stock price closes above the $300.00 strike price on the June 25th options expiration date. 
By rolling up the original position, this result would exceed the +3.8% absolute return (+41.8% annualized) that was the maximum potential of the original Cash-Secured Put position at the $270.00 strike price.  The blog post detailing this original position is here.   The detailed transactions and a potential result are provided below.    

Twilio Inc. (TWLO) -- New 100% Cash-Secured Put Position
The original transaction was as follows:
05/17/2021  Sold 1 Twilio Inc. June 18th, 2021 $270.00 100% Cash-Secured Put options @ $9.85 per share.
Note: the Implied Volatility of this Put option was 52.3 when this position was transacted.
05/26/2021 Roll up transaction executed:
Bought-to-Close 1 TWLO 6/18/2021 $270.00 Put option @ $.98 per share and simultaneously Sold-to-Open 1 TWLO 6/25/2021 $300.00 Put option @ $5.40 per share
Note: The estimated probability that this $300.00 Put option closes out-of-the-money (stock price above the strike price) on the June 18th options expiration date was approximately 80% when this roll up transaction was executed.

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 one Put option sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $26,015.67
= ($270.00 - $9.85) * 100 shares + $.67 commission

Net Profit:
(a) Option Income: +$1,424.99
= ($9.85 - $.98 + $5.40) * 100 shares - $2.01 commissions
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If Twilio stock is above $300.00 strike price at the June 25th expiration): +$0.00
= ($300.00 - $300.00) * 100 shares

Total Net Profit (If Twilio stock price is out-of-the-money (above $300.00 strike price) on the June 25th options expiration date): +$1,424.99
= (+$1,424.99 option income +$0.00 dividend income + $0.00 capital appreciation)

Absolute Return (If Twilio is above $300.00 strike price at the June 25th, 2021 options expiration) : +5.5%
= +$1,424.99/$26,015.67
Annualized Return: +50.0%
= (+$1,424.99/$26,015.67) * (365/40 days)

Established Cash-Secured Put Position in Regeneron Pharmaceuticals Inc.

Today, one 100% Cash-Secured Put option was sold in Regeneron Pharmaceuticals Inc. (ticker REGN) at the June 18th, 2021 $480.00 strike price at $6.80 per share when the stock price was $494.75 (3.0% above the strike price). This out-of-the-money Put position had a Delta of 69.3 which approximates the probability of assignment at the options expiration date.

Regeneron is a biopharmaceutical company focused on treatments for eye diseases, cancer, dermatitis,and rheumatoid arthritis.  The average target price of 25 analysts covering Regeneron is $628.36 (+27.0% above the current stock price).  Eighteen analysts rate it as a 'Strong Buy' or 'Buy', seven rate it a 'Hold', and none rate it as 'Underperform' or 'Sell'.   Given Regeneron's potential, the Covered Calls Advisor believes it represents a very good value at its current price and at its current relatively modest P/E ratio of 14.2 and only 10.6 based on this year's estimated earnings.  

The 25.1 Implied Volatility for the Put option was attractive to the Covered Calls Advisor since it is well above the current S&P 500 Volatility Index (VIX) of 18.5.  Important to the Covered Calls Advisor, there is no earnings report prior to the June 18th, 2021 options expiration date. 

As detailed below for this Regeneron 100% Cash-Secured Put position, there is potential for a +1.4% absolute return in 25 days (equivalent to a +21.0% annualized return-on-investment). 

 

Regeneron Pharmaceuticals Inc. (REGN) -- New 100% Cash-Secured Put Position
The transaction today was as follows:
05/25/2021  Sold 1 Regeneron June 18th, 2021 $480.00 100% Cash-Secured Put option @ $6.80 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 one Put option sold.

A possible overall performance result (including commissions) would be as follows:
100% Cash-Secured Put Cost Basis: $47,320.67
= ($480.00 - $6.80) * 100 shares + $.67 commission

Net Profit:
(a) Options Income: +$679.33
= ($6.80 * 100 shares) - $.67 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If REGN stock is above $480.00 strike price at the June 18th expiration): +$0.00
= ($480.00 - $480.00) * 100 shares

Total Net Profit (If Regeneron stock price is above $480.00 strike price at options expiration): +$679.33
= (+$679.33 option income +$0.00 dividend income +$0.00 capital appreciation)

Absolute Return (If Regeneron is above $480.00 strike price at the June 18th, 2021 options expiration) : +1.4%
= +$679.33/$47,320.67
Equivalent Annualized Return: +21.0%
= (+$679.33/$47,320.67)*(365/25 days)