Friday, May 23, 2014
Established HollyFrontier Corporation Covered Calls -- Example of Possible Early Assignment or Dividend Capture
5/23/2014 Bought 300 HFC shares @ $49.32
5/23/2014 Sold 3 HFC Jun2014 $47.00 Call Options @ $2.65
Note: the price of HFC was $49.38 today when these options were sold.
5/28/2014 Ex-dividend for special dividend of $.50 per share
6/4/2014 Ex-dividend of $.32 for quarterly dividend of $.32 per share
If Early Assignment: +1.5% absolute return (equivalent to +47.0% annualized return for the next 12 days) if the stock is assigned early (day prior to June 4th ex-div date); OR
If Both Dividends Captured: +2.2% absolute return (equivalent to +26.7% annualized return over the next 30 days) if the stock is assigned at Jun2014 expiration on June 20th.
As is often the case, early assignment provides a higher annualized return, so this is the Covered Calls Advisor's preferred outcome; but any of these three outcomes would provide a very good return on investment result. These returns will be achieved as long as the stock is above the $47.00 strike price at Jun2014 expiration.
In summary, this covered calls investment provides a very nice annualized ROI potential for a conservative (hedged with substantial downside protection and the next earnings announcement is after the Jun2014 options expiration date) investment.
Three possible overall performance results (including commissions) for this HollyFrontier Corp (HFC) covered calls position are as follows:
Stock Purchase Cost: $14,804.95
= ($49.32*300+$8.95 commission)
(a) Options Income: +$783.80
= ($2.65*300 shares) - $11.20 commissions
(b) Dividend Income (If option exercised early on day prior to May 28th ex-div date): +$0.00; or
(b) Dividend Income (If option exercised early on day prior to June 4th ex-div date): +$150.00 = $.50*300 shares; or
(b) Dividend Income (If stock assigned on Jun2014 options expiration date): +$246.00
= ($.50 + $.32) dividends per share x 300 shares)