AAPL, AXP, CAT, CSCO, FDX, HON, ICE, OPRA, TJX Covered Calls Update #1
By Donald E. L. Johnson
Cautious Speculator
- CAT, CSCO, FDX, and TJX are buys on Barchart.com.
- AAPL, AXP, HON and OPRA are sells.
- High implied volatility favors sellers of covered calls and cash secured puts.
- A low IV favors buyers of call options LEAPs.
- How I got a 50% annualized return on a CSCO covered calls trade.
Back on June 30 I wrote about nine stocks that had high buy ratings on Barchart.com.
Click on images and zoom in for better views of the data.
This is how their buy ratings looked on June 30. 100% buy and sell ratings may indicate that the stocks are over bought or over sold. AAPL was over bought at the end of June and is correcting. Cisco Systems Inc. (CSCO) was a 100% buy and still is.
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This is what the buy ratings were as of Friday’s close of trading. Caterpillar (CAT) , Cisco Systems (CSCO), FedEx (FDX) and TJX Co. (TJX) still look like pretty good buys on dips.
Intercontinental Exchange (ICE) is a hold.
Apple (AAPL) , American Express (AXP) , Honeywell International Inc. (HON) and Opera Ltd. ADR (OPRA) are sells, according to the Barchart ratings.
This is how the stocks have performed during the last one, three and twelve months.
AAPL is trading below its 10- and 50-day moving averages and above its 150-DMA.
CAT closed Friday at $285.22, down from its 52-week high of $293.88 and up from its 52-week low of $160.60. It is an 88% buy and gets a 3.62 average analyst rating, or a moderate buy. The first resistance level is $284.62, which is interesting to day traders. Its third resistance is important for investors selling covered calls. First support is $283.21 and second support is $281.19, which might be a strike price for sellers of two- or three-week cash secured puts.
OPRA, CSCO an TJX have high implied volatility ratios. That means their options prices are high, which is important to sellers of covered calls and cash secured puts.
Implied volatilities are low for ICE, AAPL, HON, AXP and CAT. That makes their puts and calls attractive to people who want to short the stocks by selling puts and to investors who are considering buying LEAPs call stock options that expire in one or two years.
On June 30, I bought CSCO for $51.77. On July 27, when CSCO was at $52.98, I sold CSCO 8.18.23 (22 days) $55 strike (delta. 29, OTM 72.8%, IV 27.7%) for $0.59 per 100-share option.
Today, CSCO opened at about $53.87. The calls are $0.76 bid, $0.80 ask. CSCO reports second quarter earnings Wednesday, August 16, after the close. The earnings are expected to be a “mixed bag” with stronger results in the second half of the year.
CSCO is at a 100% buy, which means it is close to over sold and a dip if the earnings disappoint the market. The implied volatility is 25.7%, compared with 17.22% historic volatility.
The delta on these calls is .37, which means there is about a 37% chance that on 8.18.23 the stock will close above the $55 strike and the calls will be called with a gain. The out of the money probability that the calls will expire worthless with the stock under $55 on Friday’s close is about 65%.
Analysts think CSCO is a “moderate buy” and their average rating on the stock is 3.57 out of a possible 5. The highest analyst target price is $73, the mean target price is $55.94 and the low target is $45, according to Barchart.com.
I can hold on to CSCO and my covered calls position and hope for the best.
The “mixed bag” prediction for earnings makes me a bit nervous.
So before the earnings are announced, I might buy back the calls at a loss and sell the stock at a $2.65 per share net profit.
Well, I just convinced myself to buy back the calls at $0.79. I sold the stock for $53.83. I made $2.65 per share on the 46-day trade. That give me a 19.26% AROR on the 18-day covered calls trade plus a 3.98% gain on the stock, or about 31% annualized return if I can get the same results on 46-day trades about eight times in the next 12 months. That is, 19% plus 31% produces about a 50% AROR. I collect the 3.04% annualized dividend on July 5.
After the earnings come out, I will decide what to do with CSCO.
The average stock on this watch list has a price to free cash flow ratio of a moderately high 18.9 and price to cash flow ratio of 14. The average cash free flow yield is 5.3% and the average cash flow yield is 7.1%. The shorts as a percent of the stock float is low on all of these stocks, according to StockRover.com
If I do any trades on these stocks, I’ll report the trades in the comments section below.
Between my portfolio updates, I report my thoughts and trades in the comments section of this and other posts.
I respond to comments on the comments section where readers’ comments are posted. That is, if you have a question about this article or other comments, I'll discuss your questions with you in the comments section below this article.
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On the date of publication, Donald E.L. Johnson did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
