Today, a new covered calls position was established in Potash Corp of Saskatchewan Inc. (ticker symbol POT) with an Oct2015 expiration. The Potash stock was purchased at $20.31 and the Oct2015 Call options were simultaneously sold (i.e. a single buy-write transaction was made) at the $20.00 strike price for $.73 each.
This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (Oct 8th) prior to the October 16th options expiration date. Details of this position is provided below.
1. Potash Corp of Saskatchewan Inc. (POT)
Either early assignment or assignment at the Oct2015 options expiration date (Oct 16th) would provide excellent return-on-investment results:
If Dividend Capture: +3.5% absolute return (equivalent to +74.2% annualized return over the next 17 days) if the stock is assigned at Oct2015 expiration on October 16th.
The transactions are:
09/30/2015 Bought 200 POT shares @ $20.31
09/30/2015 Sold 2 POT Oct2015 $20.00 Call options @ $.73
10/08/2015 Upcoming ex-dividend of $.38 per share
Two possible overall performance results (including commissions) for this Potash Corp covered calls position are as follows:
Stock Purchase Cost: $4,070.95
= ($20.31*200+$8.95 commission)
(a) Options Income: +$135.55
= ($.73*200 shares) - $10.45 commissions
(b) Dividend Income (If option exercised early on business day prior to Oct 8th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Oct2015 expiration): +$76.00
= ($.38 dividend per share x 200 shares)
Either outcome would provide an excellent return. These returns will be achieved if the stock is above the $20.00 strike price at the Oct2015 options expiration.