Today, a new covered calls position was established in International Paper (ticker symbol IP) with an Aug2015 expiration. The International Paper stock was purchased at $47.30 and the Aug2015 Call options were simultaneously (i.e. a single buy-write transaction was made) sold at the $46.00 strike price for $1.59 each.
This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (Aug 12th) prior to the August 21st options expiration date. Details of this position is provided below.
1. International Paper (IP)
As shown below, two potential return-on-investment results for this position are:
If Dividend Capture: +1.3 absolute return (equivalent to +24.1% annualized return over the next 19 days) if the stock is assigned at Aug2015 expiration on August 21st.
08/03/2015 Bought 200 IP shares @ $47.30
08/03/2015 Sold 2 IP Aug2015 $46.00 Call options @ $1.59
08/12/2015 Upcoming ex-dividend of $.40 per share
Two possible overall performance results (including commissions) for this International Paper (IP) covered calls position are as follows:
Stock Purchase Cost: $9,468.95
= ($47.30*200+$8.95 commission)
(a) Options Income: +$307.55
= ($1.59*200 shares) - $10.45 commissions
(b) Dividend Income (If option exercised early on day prior to Aug 11th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Aug2015 expiration): +$80.00
= ($.40 dividend per share x 200 shares)
Either outcome would provide a very good return. These returns will be achieved as long as the stock is above the $46.00 strike price at assignment.