Today, a Covered Calls position was established in Occidental Petroleum Corp. (ticker symbol OXY) with a September 20, 2019 expiration and at the $40.00 strike price. This position has an expected upcoming quarterly ex-dividend on September 9th of $.79 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the Sept 20th, 2019 options expiration date. At the $40.00 strike price, the annual dividend yield is a very high 7.9%. Quarterly earnings were reported recently, so the next earnings report will not be until November. Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, a slightly in-the-money Covered Calls position was established.
As detailed below, a potential return-on-investment result is +1.4% absolute return (equivalent to +33.1% annualized
return for the next 15 days) if the stock is assigned early (business day
prior to September 9th ex-date); OR +3.4%
absolute return (equivalent to +47.2% annualized return over the next 26
days) if the stock is assigned on the September 20th options expiration date.
Occidental Petroleum Corp. (OXY) -- New Covered Calls Position
Although unlikely, if the
current time value (i.e. extrinsic value) of $.55 [$2.56 options premium -($42.01 stock price - $40.00 strike price) remaining in the four short Call
options decays substantially (down to about $.15 or less) by Sept 6th (the business day prior to the ex-dividend date), there is
a possibility that the Call options owner would exercise early and
therefore call the 400 Occidental Petroleum shares away to capture the dividend payment.
The transactions were:
08/26/2019 Bought 400 Occidental Petroleum shares @ $42.01
08/26/2019 Sold 4 OXY 09/20/2019 $40.00 Call options @ $2.56
Note: A simultaneous buy/write transaction was executed. The Open Interest in these Calls was 174 contracts and the Implied Volatility was very attractive at 40.3 considering the large size and relative predictability of Oxy's business.
09/09/2018 Upcoming quarterly ex-dividend of $.79 per share
Two possible overall performance results (including commissions) for this Occidental Petroleum Covered Calls position are as follows:
Covered Calls Cost Basis: $15,787.63
= ($42.01 - $2.56) *400 shares + $7.63 commissions
Net Profit Components:
(a) Options Income: +$1,024.00
= ($2.56 *400 shares)
(b) Dividend Income (If option exercised early on Sept 6th, the business day prior to Sept 9th ex-div date): +$0.00;
or
(b) Dividend Income (If Occidental Petroleum shares assigned at Sept 20th, 2019 expiration): +$316.00
= ($.79 dividend per share x 400 shares)
(c) Capital Appreciation (If OXY assigned early on Sept 6th): -$808.95
+($40.00 -$42.01) *400 shares - $4.95 commissions; or
(c) Capital Appreciation (If OXY assigned at $40.00 strike price at options expiration): -$808.95
+($40.00 -$42.01) *400 shares - $4.95 commissions
1. Total Net Profit [If option exercised on Sept 6th (business day prior to Sept 9th ex-dividend date)]: +$215.05
= (+$1,024.00 +$0.00 -$808.95); or
2. Total Net Profit (If Occidental Petroleum shares assigned at $40.00 at Sept 20th, 2019 expiration): +$531.05
= (+$1,024.00 +$316.00 -$808.95)
1. Absolute Return [If OXY option exercised on Sept 6th (business day prior to ex-dividend date)]: +1.4%
= +$215.05/$15,787.63
Annualized Return (If option exercised early): +33.1%
= (+$273.71/$13,224.95)*(365/15 days); or
2. Absolute Return (If Occidental Petroleum shares assigned at $40.00 at Sept 20, 2019 expiration): +3.4%
= +$531.05/$15,787.63
Annualized Return (If OXY stock assigned at $67.50 at Dec 21, 2018 expiration): +47.2%
= (+$531.05/$15,787.63)*(365/26 days)
Either
outcome would provide an excellent return-on-investment result. These returns will be achieved as long as the stock is
above the $40.00 strike price at assignment. If the stock declines
below the strike price, the breakeven price of $38.66 ($42.01 -$2.56 -$.79)
provides 8.0% downside protection below today's purchase
price.
The Covered Calls Advisor has established a set of eleven criteria to evaluate potential Covered Calls using a dividend capture strategy. The minimum threshold desired to establish a position is that at least nine of these eleven criteria must be achieved. As shown in the table below, ten of the eleven criteria are achieved for this Occidental Petroleum Corp. Covered Calls position.
The transactions to-date are as follows:
