PENG — Capital Extraction vs Regular Covered Call

This case study compares a standard covered call vs a deep ITM capital extraction call on PENG. The objective is simple: if you’re satisfied with 15–20% targeted yield on economic tied-up capital, you can trade occasional upside spikes for strong downside protection and more day-1 float.

Concrete threshold vs probability: the regular covered call’s best-case effective sale price ($26.50 = $22.50 + $4.00) only happens if PENG finishes at/above $22.50. That’s a higher hurdle and therefore less “concrete.” Capital extraction sets a lower hurdle: as long as PENG finishes at/above $15.00, the effective sale price is $22.59 (= $15.00 + $7.59), while your break-even drops to about $12.21.

Current price: $19.60. Cost basis: $19.80. Shares: 400. Expiry: Jan 15, 2027. Dividend: No.

Strategy Strike Premium (Total) Break-even Max Profit (Total) Premium APR*
Regular Covered Call $22.50 $1,600 $15.80 $2,680 20.20%
Deep ITM Capital Extraction $15.00 $3,036 $12.21 $1,116 38.33%
*Premium APR is a simple scaling of premium/initial capital by months to expiry (12 mo). It excludes price moves.
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Lower hurdle = more “concrete” outcome: With capital extraction, the $2.79/share profit is achieved as long as PENG finishes at/above $15.00 (lower success threshold). With the regular covered call, the higher stock-appreciation outcome ($2.70/share from $22.50 − $19.80) only occurs if PENG finishes at/above $22.50 (higher threshold).

Why this works

The regular covered call caps upside at $22.50, but that upside is only realized if the stock finishes high enough. Capital extraction takes a different approach: it targets a more “concrete” success threshold (stock simply staying above $15.00) and pulls more float on day one.

Day-1 Float (Regular)

$1,600

Day-1 Float (Extraction)

$3,036

Extra Float

$1,436

Months to Expiry

12 mo
Downside buffer: Regular break-even is $15.80 versus extraction break-even $12.21. That is $3.59 more cushion per share with extraction.
Economic tied-up return: If called away at $15.00, extraction profit is $2.79/share. On net tied-up capital (cost − premium = $12.21), that’s about 22.85% over the contract.
Assignment note: No dividend reduces early assignment incentives; deep ITM assignment can still happen, but it’s typically less “forced” without an ex-div trigger.
When regular starts winning: If expiry price is above $18.59, the regular covered call usually produces more profit (because it retains more upside participation below $22.50). This case study assumes you’re comfortable giving up that occasional upside in exchange for larger float + protection.

Float Compounding on $3,036 Released

Monthly RateFuture Value @ 12 moFloat Gain
1.00% $3,421.04 $385.04
1.50% $3,629.90 $593.90
2.00% $3,850.38 $814.38
3.00% $4,328.61 $1,292.61

Premium-Funded Share Add (Optional)

Shares purchasable (Regular premium only) @ $19.60 81 shares
Shares purchasable (Extraction premium only) @ $19.60 154 shares
Extra shares enabled by extraction 73 shares
Risk control: If you add shares, keep the additional exposure within your position-size guardrails (e.g., 2% cap). The engine advantage is the option to redeploy float — not the obligation to lever up.

Drawdown Reset Advantage (Engine Restart)

Suppose after one year PENG trades at $10.00 and both calls expire worthless. Your basis reduction is purely the premium you already banked: regular basis becomes $15.80, while extraction basis becomes $12.21. If you then write a new 1-year call at $16.00, the recovery profit potential differs dramatically.

Path Effective Basis Recovery Room to $16.00 Advantage
Regular CC $15.80 $0.20/sh —
Deep ITM Extraction $12.21 $3.79/sh +$3.59/sh (Total +$1,436)
Interpretation: extraction creates a lower effective basis, so the next cycle can “recover” faster with less price movement.
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Disclaimer: Educational illustration only; not investment advice. Options involve risk, including assignment risk. Returns are not guaranteed. Use valuation discipline and risk controls.