Continuation of Covered Calls Position in Target Corporation

The Covered Calls Advisor Portfolio has a Covered Calls position in Target Corporation (ticker TGT) with 200 shares and 2 Call options at the $150.00 strike price scheduled to expire today.  Early in this afternoon's trading when the stock was at $145.48, my net credit limit order at $2.16 per share was executed to roll-down-and-out the Covered Calls to the $148.00 strike price and at the June 21st, 2024 monthly options expiration date.  

As detailed below, a potential outcome for this Target Corp. investment if the stock is in-the-money and therefore assigned on the options expiration date is +2.1% absolute return-on-investment over 45 days (equivalent to +17.4% annualized-return-on-investment) if the stock closes above the $148.00 strike price on the June 21st, 2024 options expiration date.  The transactions history of this Target Covered Calls position so far along with a potential return-on-investment result if the stock is assigned on the June 21st options expiration date is as follows:

Target Corporation (TGT) -- Continuation of Covered Calls Position
The buy/write transaction was:
5/7/2024 Bought 200 Target Corporation shares @ $160.06.
5/7/2024 Sold 2 TGT 5/24/2024 $150.00 Call options @ $11.99 per share.
5/14/2024 Ex-dividend of $1.10 per share.

5/24/2024 Continued this Target Corporation Covered Calls position with a rollout transaction by simultaneously buying-to-close 2 Target 5/24/2024 $150.00 Calls at $.01 per share and selling-to-open 2 6/21/2024 $148.00 Calls at $2.17 per share when the stock price was $145.48.

A possible overall performance result (including commission) for this Covered Call position is as follows:
Covered Calls Net Investment: $29,615.34
= ($160.06 - $11.99) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$2,827.32
= ($11.99 -$.01 + $2.17) * 200 shares - $2.68 commissions
(b) Dividend Income: $220.00

= ($1.10 per share x 200 shares)
(c) Capital Appreciation (If shares assigned at $148.00 strike price at the 6/21/2024 options expiration date): -$2,412.00
+($148.00 strike price - $160.06 stock purchase price) * 200 shares

Total Net Profit (If stock shares assigned at $148.00 strike price at the 6/21/2024 options expiration date): +$635.32

= (+$2,827.32 options income +$220.00 dividend income -$2,412.00 capital appreciation)

Potential Absolute Return-on-Investment (if assigned on the 6/21/2024 options expiration date): +2.1%

= +$635.32/$29,615.34

Potential Annualized Return-on-Investment: +17.4%

= (+$635.32/$29,615.34) * (365/45 days)

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

 

Covered Calls Position Established in Lear Corporation

Early this afternoon, my buy/write limit order for Lear Corporation (ticker LEA) was executed.  My net debit limit price of $118.72 was executed when two hundred shares were purchased at $123.92 and two June 21st, 2024 Call options were sold at $5.20 per share at the $120.00 strike price.  The potential time value profit was $1.28 per share = [$120.00 strike price - ($123.92 stock purchase price - $5.20 Call options price)].   There is also a $.77 ex-dividend (2.5% annual dividend yield) on June 6th which is prior to the June 21st options expiration date, so this dividend is included in the potential return-on-investment results shown below. 

Given my current "Neutral" stock market outlook, a slightly in-the-money Covered Calls position was established with a 71.2% probability that the stock will be in-the-money and therefore assigned on its June 21st, 2024 options expiration date.  The Implied Volatility of the Calls was 18.0 when this position was established and, as I prefer, there is no earnings report prior to the June 21st options expiration date since the next earnings report is on August 6th, 2024.  Also, the Beta (1-Year) for Lear Corporation is 1.03.  

Lear Corporation supplies automotive seating and electric power management systems to global vehicle manufacturers.  LSEG (Refinitiv) has an average rating of nine (out of a maximum of 10) for Lear and the average target price by the 13 analysts that follow the company is now $164.31 (+32.6% above today's stock purchase price).   As desired, the next quarterly earnings report on August 6th is after the June 21st, 2024 options expiration date.

As shown in the chart below, Lear meets all 21 filters of my Acquirer's Multiple stock screener.

As detailed below, two potential return-on-investment results for this Lear Corporation Covered Calls position are as follows: (a) +1.1% absolute return-on-investment (equivalent to +28.0% annualized return-on-investment) for the next 14 days if the stock is assigned early on the day prior to the June 6th ex-dividend date; or (b) +1.7% absolute return-on-investment (equivalent to +21.7% annualized return-on-investment) for the next 29 days if the stock is instead assigned on its June 21st, 2024 options expiration date.

Lear Corporation (LEA) -- New Covered Calls Position
The buy/write transaction was:
5/23/2024 Bought 200 Lear Corporation shares @ $123.92.
5/23/2024 Sold 2 LEA 6/21/2024 $120.00 Call options @ $5.20 per share.
6/6/2024 Ex-dividend of $.77 per share.

Two possible overall performance results (including commission) for this Covered Calls position are as follows:
Covered Calls Net Investment: $23,745.34
= ($123.92 - $5.20) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,038.66
= ($5.20 * 200 shares) - $1.34 commission
(b) Dividend Income: $154.00

= ($.77 per share x 200 shares)
(c) Capital Appreciation (If shares assigned at $120.00 strike price at the 6/6/2024 options expiration date): -$784.00
+($120.00 strike price - $123.92 stock purchase price) * 200 shares

1. Total Net Profit (If stock shares assigned at $120.00 strike price on the day prior to the June 6th ex-dividend date): +$254.66

= (+$1,038.66 options income +$0.00 dividend income - $784.00 capital appreciation); or

2. Total Net Profit (If stock shares assigned at $120.00 strike price at the 6/21/2024 options expiration date): +$408.66

= (+$1,038.66 options income +$154.00 dividend income -$784.00 capital appreciation)

1. Potential Absolute Return-on-Investment (if assigned early on the day prior to the 6/6/2024 ex-dividend): +1.1%

= +$254.66/$23,745.34

Potential Annualized Return-on-Investment: +28.0%

= (+$254.66/$23,745.34) * (365/14 days); or

2. Potential Absolute Return-on-Investment (if assigned on the 6/21/2024 options expiration date): +1.7%

= +$408.66/$23,745.34

Potential Annualized Return-on-Investment: +21.7%

= (+$408.66/$23,745.34) * (365/29 days)

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  As shown below, all nine criteria are achieved for this Lear Corporation Covered Calls position.

Established Covered Calls Position in KraneShares CSI China Internet ETF

This afternoon a Covered Calls position was established in KraneShares CSI China Internet ETF (ticker KWEB).  One thousand shares were purchased at $31.90 and ten June 21st, 2024 monthly Call options were sold at the $30.00 strike price at $2.44 per share--a buy/write net debit transaction of $29.46 per share which provides a maximum $.54 per share time value profit potential.  The probability of the Calls being in-the-money on the options expiration date was 73.7% when this transaction occurred. 

As you know, I normally prefer establishing Covered Call positions of two to three weeks duration.  I will be on vacation touring throughout Italy beginning in another week and therefore will not be doing any of my normal stock research and trading activities until after I return on June 10th.  Therefore, the fewer than normal number of Covered Calls positions I am establishing now will not expire until the June 21st, 2024 monthly options expiration date.  So, most of my available investing funds will be held during the next month in a Schwab Money Market Fund (SWVXX) with a current annual yield of slightly above 5.0%.    

As detailed below, a potential result is +1.8% absolute return-on-investment (equivalent to +20.6% annualized return-on-investment for the next 32 days) if the KWEB share price is in-the-money (i.e. above the $30.00 strike price) and therefore assigned on its June 21st, 2024 options expiration date.

 
KraneShares CSI China Internet ETF (KWEB) -- New Covered Calls Position 

The Buy/Write transaction was as follows:
5/20/2024 Bought 1,000 shares of CSI China Internet ETF @ $31.90 per share.  
5/20/2024 Sold 10 KWEB June 21st, 2024 $30.00 Call options @ $2.44 per share.  The Implied Volatility of the Calls was 31.2 when this position was established.  

A possible overall performance result (including commissions) for this CSI China Internet ETF Covered Calls position is as follows: 

KWEB Covered Calls Net Investment: $29,466.70

= ($31.90 - $2.44) * 1,000 shares + $6.70 commission

Net Profit:
(a) Options Income: +$2,433.30
= ($2.44 * 1,000 shares) - $6.70 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 1,000 CSI China Internet ETF shares assigned at $30.00 strike price at expiration): -$1,900.00
+($30.00 strike price - $31.90 shares purchase price) * 1,000 shares

Total Net Profit Potential (If 1,000 CSI China Internet ETF shares assigned at $30.00 strike price at expiration): +$533.30
= (+$2,433.30 options income + $0.00 dividend income - $1,900.00 capital appreciation)

Potential Absolute Return-on-Investment: +1.8%
= +$533.30/$29,466.70
Potential Annualized Return-on-Investment: +20.6%
= (+$533.30/$29,466.70) * (365/32 days)

Monthly Options Expiration Results through May 17th, 2024

Each month 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 April 19th, 2024 options expiration through yesterday's May 17th, 2024 monthly options expiration date.  

During this past month, the Covered Calls Advisor Portfolio held a total of eighteen positions that were closed out.  Thirteen positions were closed out at a profit and five positions were closed at a loss.   

The specific results for each position are summarized as follows: 

• Three Covered Calls positions expired in-the-money (stock price above the strike price) on yesterday's May 17th, 2024 monthly options expiration date as follows:

1. Capital One Financial Corporation -- +1.2% absolute return-on-investment in 14 days (equivalent to a +31.1% annualized return-on-investment). 
2. Las Vegas Sands Corporation -- +2.1% absolute return-on-investment in 21 days (equivalent to a +36.3% annualized return-on-investment). 
3. Oracle Corporation -- +0.8% absolute return-on-investment in 45 days (equivalent to a +6.7% annualized return-on-investment). 

• Four Covered Calls positions expired in-the-money on their respective Weekly options expiration dates during the past month as follows:

1. Citigroup Inc. -- +1.3% absolute return-on-investment in 11 days (equivalent to a +43.9% annualized return-on-investment).
2. iShares 20+ Year Treasury Bond ETF -- +1.2% absolute return-on-investment in 15 days (equivalent to a +30.0% annualized return-on-investment).
3. JD.com Inc. -- +8.5% absolute return-on-investment in 44 days (equivalent to a +70.8% annualized return-on-investment).
4. Netease Inc. -- +0.4% absolute return-on-investment in 47 days (equivalent to a +2.9% annualized return-on-investment).

• Two Covered Calls positions were closed out by early assignment on the last trading day prior to their ex-dividend dates as follows: 

1. IBM Corporation -- +0.9% absolute return-on-investment in 8 days (equivalent to a +40.6% annualized return-on-investment).
2. Oshkosh Corporation -- +1.3% absolute return-on-investment in 10 days (equivalent to a +46.1% annualized return-on-investment).

• Nine Covered Calls positions were closed out by early decision as follows:

1. APA Corporation -- -8.3% absolute return-on-investment in 36 days (equivalent to a -84.7% annualized return-on-investment).
2. Aptiv PLC -- +2.6% absolute return-on-investment in 53 days (equivalent to a +18.2% annualized return-on-investment).
3. Amdocs Limited -- -2.3% absolute return-on-investment in 33 days (equivalent to a -25.0% annualized return-on-investment).
4. Euronet Worldwide -- +2.9% absolute return-on-investment in 34 days (equivalent to a +33.4% annualized return-on-investment).
5. Globe Life Inc. -- -26.0% absolute return-on-investment in 22 days (equivalent to a -431.6% annualized return-on-investment).
6. Halozyme Therapeutics Inc. -- +0.8% absolute return-on-investment in 40 days (equivalent to a +6.9% annualized return-on-investment).
7. Match Group Inc. -- -1.7% absolute return-on-investment in 34 days (equivalent to a -18.0% annualized return-on-investment).
8. Mondelez International Inc. -- -1.9% absolute return-on-investment in 34 days (equivalent to a -20.0% annualized return-on-investment).
9. Yum China Holdings Inc. -- +0.1% absolute return-on-investment in 19 days (equivalent to a +1.7% annualized return-on-investment).

During the past year (last 12 months) 121 of 137 positions (88.3%) in the Covered Calls Advisor Portfolio (CCAP) were closed out at a profit.  The Covered Calls Advisor Portfolio weighted average annualized-return-on-investment was +8.5% during the past year and the average holding period for these 137 closed positions was 21.5 days.  In comparison, the benchmark S&P 500 has returned +29.1% during the same prior one-year period. 

This Covered Calls Advisor blog is available to anyone interested in learning about implementing a successful Covered Calls investing strategy.  As always, I also encourage you to email me at partlow@cox.net any time you would like my feedback on your Covered Call position ideas or your questions on anything related to the Covered Calls investing strategy.

 

Best Wishes,

Jeff Partlow
Covered Calls Advisor
partlow@cox.net