Wednesday, October 22, 2014
Established Boeing Co. Covered Calls -- Example of Early Assignment or Dividend Capture Strategy
10/22/2014 Bought 100 BA shares @ $122.579
10/22/2014 Sold 1 BA Nov2014 $120.00 Call Option @ $4.60
Note: the price of BA was $122.90 today when this Call option was sold.
11/05/2014 Ex-dividend of $.73 per share
If Dividend Capture: +2.1% absolute return (equivalent to +24.6% annualized return over the next 31 days) if the stock is assigned at Nov2014 expiration on November 21st.
As is often the case, early assignment provides a higher annualized return, so this is the Covered Calls Advisor's preferred outcome; but either outcome would provide a very good return. These returns will be achieved as long as the stock is above the $120.00 strike price at assignment -- a 2.1% of downside protection. Alternatively, if the stock declines below the strike price, the breakeven price of $117.249 ($122.579-$.73-$4.60) provides a nice 4.3% downside protection.
In summary, this covered calls investment provides a very nice annualized ROI potential for such a conservative (hedged with good downside protection and with no upcoming earnings announcement prior to Nov2014 options expiration) investment.
Two possible overall performance results (including commissions) for this Boeing Co. (BA) covered calls position are as follows:
Stock Purchase Cost: $12,266.85
= ($122.579*100+$8.95 commission)
(a) Options Income: +$450.30
= ($4.60*100 shares) - $9.70 commissions
(b) Dividend Income (If option exercised early on day prior to Nov 5th ex-div date): +$0.00
(b) Dividend Income (If stock assigned at Nov2014 expiration): +$73.00
= ($.73 dividend per share x 100 shares); or