Previous case studies in this StockMarket-FIRE.com series dealt with one-year periods of active covered call trading for stocks that overall trended upward with a great deal of volatility (with Arch Resources, from the energy sector) and overall trended downward with some spurts of upward movement (with AirBNB, in the technology and travel sectors). This case study deals with use of covered call options for a volatile underlying that had periods within the one year depicted in which the share price experienced both substantial appreciation and depreciation, thereby resulting in an almost unchanged price at the end of the one-year time period for the case study.
For the first overall upward trending stock, the case study illustrated the use of covered calls (and to a lesser extent cash-secured puts and long call options) as an insurance policy that protected the position in the event of a sharp ongoing downturn while also avoiding any material diminution of enjoyment of what amounted to unexpected substantial capital appreciation in the underlying stock. For the second overall downward trending stock, the case study illustrated the use of covered calls to generate a considerable percentage yield equivalent in premium income in such a way as to compensate for the large unrealized decline in underlying share value in a well-capitalized growth company deemed to have promising longer-term prospects.
This case study, by contrast, shows the use of the covered call strategy to generate a moderate degree of premium options income to effectively reward the shareholder even as the underlying stock did not result in any significant enduring unrealized capital gains. Effectively, the use of the covered call strategy, as illustrated below, allows the investor to tap the underlying volatility for the stock and generate monetary value from that volatility, even as the share price movement failed to sustain a lasting upward trend.
The subject of this sideways-oriented case study is Uber Technologies (Ticker Symbol: UBER). Uber has been publicly traded since its much-heralded IPO on 5/6/2019. Since that time, it has actually declined in its share price, from 41.57 on opening day down to 31.46 as of the writing of this article, a decline of almost 25%. Since the IPO, the share price initially declined before experiencing a resurgence that temporarily saw it rise to $60 per share (well above the IPO price) during early 2021 in the midst of the COVID-19 pandemic, only to sink to a low of around $21 per share in June 2022. Since then Uber’s stock price has trended slightly upward, though with considerable volatility along the way. and without having yet achieved its previous high levels from early in the pandemic.
For my own personal stock portfolio, I initially purchased shares of Uber on its IPO date in May 2019 and have gradually added more shares during periods of decline since then, to the point of currently owning 700 shares of Uber stock. This averaging down of my cost basis has somewhat ameliorated the declining share price in assessing overall price performance. As of the time of the writing of this article, my overall unrealized loss for the stock of Uber is only approximately 5% (and only approximately 3.5% from the one-year time period depicted in this case study) rather than the nominal decline of nearly 25%. Additionally, with the high degree of volatility in either direction, Uber has been a great stock for trading covered call options. The premium generated from these covered calls has nicely enhanced the overall performance of the investment in Uber to the point where a slight unrealized loss actually amounts to a net moderately substantial gain.
The time period covered by this covered call option case study for Uber is 4/1/2022 to 4/1/2023. This one-year period consists primarily of the terrible Bear Market of 2022 but is supplemented by the first quarter of 2023 with its partial recovery, thereby demonstrating options and stock performance for Uber over a generally negative but somewhat diverse set of overall stock market conditions. During this time, the stock of Uber itself started at 35.98 per share and ended at 31.19. In between the start and end dates, the stock price experienced fundamentally-related ups and downs, including concerns over government regulations affecting the independent contractor status of its drivers, its ongoing movement towards company profitability, the cost of its efforts to attract sufficient drivers to accommodate elevated demand, its efforts to balance its freight and food delivery business with its core rides business, the continuing frustration in experiments geared towards self-driving vehicles, and its growing edge against competitor Lyft.
My initial holding at the start of this period was 500 shares, which I increased on two occasions since that time by acquiring two separate additional 100 share lots, ultimately resulting in a holding of 700 shares of Uber as of the end of the depicted one-year time period.
The below table illustrates all covered call transactions during the one-year period in question, from 4/1/2022 to 4/1/2023, indicating the date of each transaction, the amount generated, the daily stock closing price for the date of any transaction, the running tally of the total period gain or loss for the underlying Uber stock, and the total period gain or loss generated from covered call options premium.
| DATE | ACTION TAKEN | AMOUNT GENERATED | STOCK DAILY CLOSING PRICE | TOTAL STOCK PERIOD GAIN/LOSS | TOTAL OPTIONS PERIOD GAIN/LOSS |
| 4/12/2022 | STO Call 34 5/27/22 x 5 | $963.74 | 31.99 | 0.00 | 963.74 |
| 5/4/2022 | BTC Call 34 5/27/22 x 5 | ($88.25) | 28.10 | (1945) | 875.49 |
| 5/13/2022 | STO Call 26 7/1/22 x 5 | $971.73 | 24.39 | (3800) | 1847.22 |
| 5/24/2022 | BTC Call 26 7/1/22 x 5 | ($323.25) | 21.55 | (5220) | 1523.97 |
| 5/25/2022 | STO Call 22.5 7/15/22 x 5 | $1056.73 | 22.04 | (4975) | 2580.70 |
| 6/29/2022 | BTC Call 22.5 7/15/22 x 5 | ($353.25) | 21.47 | (5260) | 2227.45 |
| 7/1/2022 | STO Call 22.5 8/19/22 x 5 | $786.73 | 21.34 | (5325) | 3014.18 |
| 8/2/2022 | BTC Call 22.5 8/19/22 x 5 | ($2903.25) | 29.25 | (1370) | 110.93 |
| 8/2/2022 | STO Call 22.5 9/16/22 x 5 | $3071.68 | 29.25 | (1370) | 3182.61 |
| 8/16/2022 | BTC Call 22.5 9/16/22 x 5 | ($4728.25) | 32.38 | 195 | (1545.64) |
| 8/16/2022 | STO Call 22.5 10/21/22 x 5 | $4846.64 | 32.38 | 195 | 3301.00 |
| 10/11/2022 | BTC Call 22.5 10/21/22 x 5 | ($1603.25) | 24.66 | (3665) | 1697.75 |
| 10/12/2022 | STO Call 24 11/25/22 x 5 | $1771.71 | 25.98 | (3005) | 3469.46 |
| 10/28/2022 | Purchase 100 Shares | ($2685.69) | 27.50 | (2245) | 3469.46 |
| 11/1/2022 | STO Call 30 12/16/22 x 1 | $291.34 | 29.75 | (895) | 3760.80 |
| 11/8/2022 | BTC Call 30 12/16/22 x 1 | ($96.65) | 27.44 | (2281) | 3664.15 |
| 11/10/2022 | STO Call 28 12/23/22 x 1 | $273.34 | 28.85 | (1435) | 3937.49 |
| 11/15/2022 | BTC Call 24 11/25/22 x 5 | ($3658.25) | 31.57 | 197 | 279.24 |
| 11/15/2022 | STO Call 25 1/20/23 x 5 | $3496.67 | 31.57 | 197 | 3775.91 |
| 12/06/2022 | BTC Call 28 12/23/22 x 1 | ($90.65) | 26.92 | (2593) | 3685.26 |
| 12/14/2022 | BTC Call 25 1/20/23 x 5 | ($1638.25) | 27.47 | (2263) | 2047.01 |
| 12/14/2022 | STO Call 27.5 3/17/23 x 6 | $1826.06 | 27.47 | (2263) | 3873.07 |
| 3/10/2023 | BTC Call 27.5 3/17/23 x 6 | ($2673.90) | 31.11 | (79) | 1199.17 |
| 3/20/2023 | Purchase 100 Shares | ($3174.50) | 31.93 | 412 | 1199.17 |
| 3/21/2023 | STO Call 32.5 6/16/23 x 1 | 314.34 | 32.86 | 377 | 1513.51 |
| 3/28/2023 | BTC Call 30 6/16/23 x 6 | ($1977.90) | 30.07 | (1576) | (464.39) |
| 3/28/2023 | BTC Call 32.5 6/16/23 x 1 | ($200.65) | 30.07 | (1576) | (665.04) |
| 3/30/2023 | STO Call 30 6/16/23 x 7 | $2655.43 | 31.19 | (792) | 1990.39 |
As the above table illustrates, the strike prices used in the covered call options during the time period depicted covered a considerable range of prices. The strike prices were as low as 22.5 and as high as 34. The underlying Uber share price went as low as about 21 and as high as about 36. During this time the investment initially was 500 shares valued at $17,990 and ended as 700 shares valued at $21,833. As an approximate “synthetic dividend” yield computation, the covered call options premium during this one-year period totaled $1,990.39, which amounted to approximately 9.1% of the period-end total underlying stock investment. (The effective percentage yield could be considered even higher if only taking into account the value of the initial 500 shares of underlying Uber stock, but options premium for each 100-share lot after the subsequent share acquisitions was not separately accounted for.) This effective yield was derived from a stock that does not currently pay an actual dividend. The “synthetic dividend” achieved by the covered call strategy also more than overrode the amount of the unrealized underlying stock loss during the time period depicted.
At least from my own perspective, it is believed that Uber stock has solid future business and financial prospects, which may well lead to an expectation of future capital appreciation in the value of the underlying shares. If this expectation comes to fruition, then the currently unrealized loss will be erased and turned into an unrealized (and likely future realized) capital gain. However, the options premium generated in the meantime is a welcome means of leveraging the stock in the meantime and generating actual cash gains from the derivative investment of covered call options.
As always, the views expressed in this article are intended solely for educational and informational purposes only, and are not intended as individualized investment, inancial, tax, legal, or any other type of advice. Before taking any investment or trading action, any reader should consider consulting with professional advisors in these areas and should not rely on any information or commentary in this article or otherwise on this website.
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