Today, a new covered calls position was established in General Motors Co. (ticker symbol GM) with a Sept2015 expiration. The General Motors stock was purchased at $30.93 and the Sep2015 Call options were simultaneously (i.e. a single buy-write transaction was made) sold at the $30.00 strike price for $1.45 each.
This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (likely on Sept 7th) prior to the September 18th options expiration date. Details of this position is provided below.
1. General Motors Co (GM)
As shown below, two potential return-on-investment results for this position are:
If Dividend Capture: +2.6% absolute return (equivalent to +24.6% annualized return over the next 39 days) if the stock is assigned at Sep2015 expiration on Sept 18th.
08/11/2015 Bought 300 GM shares @ $30.93
08/11/2015 Sold 3 GM Sep2015 $30.00 Call options @ $1.45
09/10/2015 Upcoming ex-dividend of $.36 per share
Two possible overall performance results (including commissions) for this General Motors (GM) covered calls position are as follows:
Stock Purchase Cost: $9,287.95
= ($30.93*300+$8.95 commission)
(a) Options Income: +$423.80
= ($1.45*300 shares) - $11.20 commissions
(b) Dividend Income (If option exercised early on day prior to Sept 7th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Sep2015 expiration): +$108.00
= ($.36 dividend per share x 300 shares)
Either outcome would provide a good return on investment. These returns will be achieved as long as the stock is above the $30.00 strike price at expiration.