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Thursday, March 28, 2024

Covered Calls Established in Netease Inc. ADR

This afternoon my buy/write Covered Calls position was transacted in Netease Inc. ADR (ticker NTES) at a net debit limit order price of $97.72 per share.  Two hundred shares were purchased at $103.50 and two April 19th, 2024 Call options were sold at the $100.00 strike price at $5.78 per share.  This provides a time value profit potential of $2.28 per share [$5.78 Call options premium - ($103.50 stock purchase price - $100.00 strike price)].  The Delta was 66.6 which approximates a 66.6% probability of closing in-the-money on the options expiration date.  Although I am primarily a fundamental, valuation-oriented investor, Netease's short-term price action became oversold today [i.e. RSI(2) = 19.9] since, on a technical analysis basis, it was in what is commonly considered oversold territory (below 30.0).  As preferred, the next earnings report on May 30th is after the April 19th options expiration date.  

Netease began as a Chinese internet portal in the late 1990s but has now become the second largest mobile game company in the world.  It owns one of the most well-known massively multiplayer franchises in China -- Fantasy Westward Journey.  The firm's other investments in music streaming, online education, and e-commerce also have long-term potential.  Although primarily in China, they also offer services in Japan, U.S., Europe, and SE Asia.

The ten analysts that cover Netease have an average target price of $135.27 (+30.7% above today's purchase price) and the discounted cash flow margin-of-safety is 22%.  Every analyst has either a Strong Buy or Buy rating on the company -- none have a Hold, Sell, or Strong Sell rating.  Netease also appeared today in my Stock Rover Overall stock screener (see chart below) where it met all 15 screener filters.  I was also pleased to see that LSEG (Refinitiv) gives Netease its top rating of 10 for both its Average Score and its Optimized Score, which puts it in the top 5% of companies monitored by Refinitiv.

As detailed below, a potential return-on-investment result is +2.3% absolute return-on-investment (equivalent to +38.6% annualized return-on-investment for the next 22 days) if the Netease Inc. share price is in-the-money (i.e. above the $100.00 strike price) and therefore assigned on its April 19th, 2024 options expiration date.

 
Netease Inc. ADR (NTES) -- New Covered Calls Position 

The Buy/Write transaction was as follows:
3/28/2024 Bought 200 shares of Netease Inc. @ $103.50 per share.  
3/28/2024 Sold 2 NTES April 19th, 2024 $100.00 Call options @ $5.78 per share.  The Implied Volatility of these Call options was 35.6 today when this transaction was executed and its Beta (1-year) is 1.02. 

A possible overall performance result (including commissions) for this Netease Inc. ADR Covered Calls position is as follows:
Covered Calls Net Investment: $19,545.34
= ($103.50 - $5.78) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,154.66
= ($5.78 * 200 shares) - $1.34 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If 200 Netease Inc. shares assigned at $100.00 strike price at the options expiration date): -$700.00
+($100.00 - $103.50) * 200 shares

Total Net Profit Potential (If 200 Netease Inc. shares assigned at $100.00 strike price at the options expiration date): +$454.66
= (+$1,154.66 options income +$0.00 dividend income -$700.00 capital appreciation)

Potential Absolute Return-on-Investment: +2.3%
= +$454.66/$19,545.34
Potential Annualized Return-on-Investment: +38.6%
= (+$454.66/$19,545.34) * (365/22 days)

Wednesday, March 27, 2024

Established Covered Calls Position in Globe Life Inc.

Early in this morning's trading session, my buy/write limit order was executed in Globe Life Inc. (ticker GL) to buy 200 shares and simultaneously sell 2 Call options at the April 19th, 2024 monthly options expiration date and at the $110.00 strike price. The net debit limit price for my order was $107.80 which was executed when 200 shares were purchased at $116.50 and 2 April 19th, 2024 Call options were sold for $8.70 per share.  Therefore, a maximum potential time value profit of $2.20 per share = [$8.70 Call options premium - ($116.50 stock price - $110.00 strike price)] is possible for this position.  

Given that the Beta (1-year) for Globe Life is only 0.53, I am pleased that the Implied Volatility of the Calls was higher than expected at 31.8 when this position was transacted which, as preferred, is substantially higher than the 13.3 of the S&P 500 Volatility Index (i.e. VIX).  The Delta for these Call options was approximately 72.0 when this position was established which approximates the probability of 72.0% that the position will be in-the-money at market close on the options expiration date.  Also, importantly to the Covered Calls Advisor, there is no quarterly earnings report prior to the options expiration date since the next earnings report on May 8th, 2024 is after the April 19th options expiration date.  Globe Life is now the only holding in my Covered Calls Advisor Portfolio in the Financial Sector, now having replaced the U.S. Bancorp position that had an early assignment this morning.     

This position uses the Covered Calls Advisor's Dividend Capture Strategy (see here) since Globe Life Inc. has an upcoming quarterly ex-dividend of $.24 per share (0.8% annual dividend yield) eight days from today on April 4th which is prior to the April 19th options expiration date.  I am encouraged by the 6.7% increase in their annual dividend and this dividend is included in the detailed return-on-investment calculations below.  Although an early assignment on the day prior to the ex-dividend date is unlikely, either an early assignment on April 3rd (the last trading day prior to the April 4th ex-dividend date) or on the April 19th options expiration date would provide a nice annualized-return-on-investment result for this position.   

Globe Life Inc. is an insurance company with core operations in life insurance, supplemental health insurance, and annuities and their primary customers are U.S. middle-income families.  According to LSEG (Refinitiv), there are 9 analysts covering Globe Life and their current average Target Price is $136.42 which is +17.1% above today's stock purchase price, and Globe Life receives Refinitiv's highest Average Score of 10 which puts them in the top 5% of all North American stocks they cover.  Another reason for establishing this position was that it is highly ranked in my "Future 5-Year PEG Ratio" stock screener since it met all 15 filters (see chart below where I circled the 5-Year Forward PEG Ratio filter of 0.78 -- a very attractive valuation metric).  This is calculated as the trailing twelve months P/E Ratio of 11.6 divided by the projected next 5 years compounded annual EPS growth rate (i.e. CAGR) of 14.9%.  In addition, Globe Life also met all filters in both my Basic Filters stock screener and my Earnings Growers stock screener. 


 
As detailed below, two potential return-on-investment results for this Globe Life Inc. in-the-money Covered Calls position are: 

  •  +2.0% absolute return-on-investment (equivalent to +92.8% annualized return-on-investment for the next 8 days) if the stock is assigned early (on the last business day prior to the April 4th ex-dividend date); or  
  • +2.3% absolute return-on-investment (equivalent to +35.8% annualized return-on-investment over the next 23 days) if the stock is assigned on the April 19th, 2024 options expiration date.

Globe Life Inc. (GL) -- New Covered Calls Position
The buy/write transaction was:
3/27/2024 Bought 200 Globe Life shares @ $116.50.
3/27/2024 Sold 2 GL 4/19/2024 $110.00 Call options @ $8.70 per share.  
4/4/2024 Upcoming annual ex-dividend of $.24 per share.

Two possible overall performance results (including commissions) for this Globe Life Covered Calls position are as follows:
Covered Calls Net Investment: $21,561.34
= ($116.50 - $8.70) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,738.66
= ($8.70 * 200 shares) - $1.34 commission
(b) Dividend Income (If Globe Life Call options exercised early on April 3rd, 2024, the last business day prior to the April 4th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at the April 19th, 2024 options expiration date): +$48.00
= ($.24 dividend per share x 200 shares)
(c) Capital Appreciation (If Globe Life's Call options assigned early on April 3rd): -$1,300.00
+($110.00 strike price - $116.50 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $110.00 strike price at the April 19th options expiration): -$1,300.00
+($110.00 - $116.50) * 200 shares

1. Total Net Profit [If option exercised early (business day prior to the April 4th ex-dividend date)]: +$438.66
= (+$1,738.66 options income +$0.00 dividend income -$1,300.00 capital appreciation); or
2. Total Net Profit (If Globe Life's shares assigned at $110.00 at the April 19th, 2024 expiration): +$486.66
= (+$1,738.66 options income +$48.00 dividend income -$1,300.00 capital appreciation)

1. Potential Absolute Return-on-Investment [If option exercised on business day prior to the April 4th, 2024 ex-dividend date]: +2.0%
= +$438.66/$21,561.34
Potential Annualized Return-on-Investment (If option exercised early): +92.8%
= (+$438.66/$21,561.34) * (365/8 days); or
2. Potential Absolute Return-on-Investment (If Globe Life's shares assigned on the April 19th options expiration date): +2.3%
= +$486.66/$21,561.34
Potential Annualized Return-on-Investment (If shares are assigned at $110.00 at the April 19th, 2024 options expiration date): +35.8%
= (+$486.66/$21,561.34) * (365/23 days)

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


Early Assignment of Covered Calls Position in U.S. Bancorp

I was notified this morning that the five U.S. Bancorp (ticker USB) April 12th, 2024 $40.00 Call options were exercised yesterday.  Because the U.S. Bancorp stock price increased from $42.15 when this position was established to $43.53 at yesterday's market close, the original $.29 time value in the Calls when the position was established had declined on yesterday's market close to $0.00, so the owner of these USB Calls exercised their option to buy the 500 shares at the $40.00 strike price in order to receive today's $.49 per share ex-dividend.  The +32.5% annualized-return-on-investment (aroi) achieved by early assignment is slightly greater than the +29.6% aroi that might have been achieved if this position was instead assigned on its April 12th options expiration date.   

The post when this U.S. Bancorp Covered Calls position was originally established is here.  As detailed below, the return-on-investment result for this U.S. Bancorp Covered Calls position was +0.7% absolute return in 8 days (equivalent to a +32.5% annualized return-on-investment).

U.S. Bancorp (USB) -- Early Assignment of Covered Calls Position
The buy/write transaction was:
3/19/2024 Bought 500 U.S. Bancorp shares @ $42.15.
3/19/2024 Sold 5 USB 4/12/2024 $40.00 Call options @ $2.44 per share.
Note: Implied Volatility (IV) of the Call options was at 23.1 when this position was transacted which, as I prefer, is above the current VIX of 13.8.   
3/27/2024 USB Call options owner exercised their five Call options, so the Covered Calls position was closed out early. The five GPC Call options expired worthless and the 500 U.S. Bancorp shares were sold at the $40.00 strike price.

The overall performance results (including commissions) for this U.S. Bancorp Covered Calls position are as follows:
Covered Calls Net Investment: $19,858.35
= ($42.15 - $2.44) * 500 shares + $3.35 commission

Net Profit Components:
(a) Options Income: +$1,216.65
= ($2.44 * 500 shares) - $3.35 commission
(b) Dividend Income (U.S. Bancorp Call options exercised early on March 26th, 2024, the last business day prior to the March 27th ex-div date): +$0.00
(c) Capital Appreciation: -$1,075.00
+($40.00 strike price - $42.15 stock purchase price) * 500 shares

Total Net Profit: +$141.65
= (+$1,216.65 options income +$0.00 dividend income -$1,075.00 capital appreciation)

Absolute Return-on-Investment: +0.7%
= +$141.65/$19,858.35
Annualized Return-on-Investment: +32.5%
= (+$141.65/$19,858.35) * (365/8 days)

Tuesday, March 26, 2024

Covered Calls Position Established in Schlumberger Ltd.

With less than one minute remaining in today's trading, my Covered Calls net debit limit order in Schlumberger Ltd. (now named SLB and also ticker symbol SLB) was transacted.  Three hundred shares were purchased at $54.08 and three April 19th, 2024 Call options were sold at $2.48 per share at the $52.50 strike price. So, the corresponding potential time value (aka extrinsic value) profit potential is $.90 per share = [$2.48 Call options premium - ($54.08 stock purchase price - $52.50 strike price)].  Just prior to entering this position, I compared these Calls with their comparable Puts and found that the Calls provided $.20 per share higher time value, so this Covered Calls position was significantly more advantageous than a Cash-Secured Puts position would have been on an annualized-return-on-investment basis. 

An in-the-money Covered Calls position was established with the Delta of the Calls at 68.2 when this buy/write limit order transaction was executed, which approximates a 68.2% probability of assignment on the April 19th, 2024 options expiration date.  There is no ex-dividend prior to the options expiration date.  Their next quarterly earnings report is before market open on the April 19th, 2024 options expiration date, so to avoid normal earnings report stock price volatility, I will be looking for a fortuitous opportunity to close out this position prior to the 4/19 options expiration date.

Schlumberger Ltd. is the world's leading oilfield services company, supplying technology, information solutions and integrated project management services that optimize reservoir performance.  Pertaining to portfolio diversification, I already had Covered Calls positions in six Sectors but none in Energy -- so this SLB Energy Sector position further diversifies my current holdings.
  
As shown below, SLB meets all twenty-one filters in my Large-Cap Value+Profitability+Growth stock screener.  I have circled in green three filter results that I found especially attractive.  SLB also met all filters for three more of my stock screeners, namely Earnings Growers, Future 5-Year PEG Ratios, and Quality+Value+Growth.  


Schlumberger Ltd. (SLB) -- New Covered Calls Position
The net debit buy/write limit order was executed as follows:
3/26/2024 Bought 300 shares of SLB stock @ $54.08 per share.  
3/26/2024 Sold 3 SLB April 19th, 2024 $52.50 Call options @ $2.48 per share.  Note: the Implied Volatility of the Calls was 26.3 when this position was established.  

A possible overall performance result (including commissions) for this position if it is in-the-money on the options expiration date is as follows:
Covered Calls Net Investment: $15,482.01
= ($54.08 - $2.48) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$741.99
= ($2.48 * 300 shares) - $2.01 commission
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If SLB stock is above the $52.50 strike price at the April 19th options expiration date): -$474.00
= ($52.50 strike price - $54.08 stock purchase price) * 300 shares

Potential Total Net Profit (If SLB is in-the-money and therefore assigned at expiration): +$267.99
= (+$741.99 options income + $0.00 dividend income - $474.00 capital appreciation)

Potential Absolute Return-on-Investment (If stock price is in-the-money and therefore assigned on the 4/19/2024 options expiration date): +1.7% = +$267.99/$15,482.01

Potential Equivalent Annualized-Return-on-Investment: +26.3%
= (+$267.99/$15,482.01) * (365/24 days)