Today, a new covered calls position was established in Chevron (ticker symbol CVX) with an Aug2015 expiration. The Chevron stock was purchased at $85.24 and the Aug2015 Call options were simultaneously (i.e. a single buy-write transaction was made) sold at the $84.00 strike price for $1.75 each.
This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (Aug 17th) prior to the August 21st options expiration date. Details of this position is provided below.
1. Chevron Corp. (CVX)
As shown below, either early assignment this Friday or assignment at the Aug2015 options expiration date (a week from this Friday) will provide excellent return-on-investment results.
These two potential return-on-investment results for this Chevron covered calls position are:
If Dividend Capture: +1.7% absolute return (equivalent to +63.5% annualized return over the next 10 days) if the stock is assigned at Aug2015 expiration on August 21st.
08/12/2015 Bought 200 CVX shares @ $85.24
08/12/2015 Sold 2 CVX Aug2015 $84.00 Call options @ $1.75
08/17/2015 Upcoming ex-dividend of $1.07 per share
Two possible overall performance results (including commissions) for this Chevron (CVX) covered calls position are as follows:
Stock Purchase Cost: $17,056.95
= ($85.24*200+$8.95 commission)
(a) Options Income: +$339.55
= ($1.75*200 shares) - $10.45 commissions
(b) Dividend Income (If option exercised early on business day prior to Aug 17th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Aug2015 expiration): +$214.00
= ($1.07 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 $84.00 strike price at assignment.