Today, a covered calls positions was established in Devon Energy Corp (ticker symbol DVN) at the $42.50 strike price and with a Dec2015 expiration. Devon was purchased at $45.325 and the Call options were sold for $4.05. This investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date on December 11th (prior to the Dec 18th options expiration date). Details of this position is provided below.
If Dividend Capture: +3.0% absolute return (equivalent to +36.7% annualized return over the next 30 days) if the stock is assigned at Dec2015 expiration on December 18th.
11/19/2015 Bought 200 DVN shares @ $45.325
11/19/2015 Sold 2 DVN Dec2015 $42.50 Call options @ $4.05
12/11/2015 Upcoming ex-dividend of $.24 per share
Two possible overall performance results (including commissions) for this Devon covered calls position are as follows:
Stock Purchase Cost: $9,073.95
= ($45.325*200+$8.95 commission)
(a) Options Income: +$799.55
= ($4.05*200 shares) - $10.45 commissions
(b) Dividend Income (If option exercised early on day prior to Dec 11th ex-div date): +$0.00; or
(b) Dividend Income (If stock assigned at Dec2015 expiration): +$48.00
= ($.24 dividend per share x 200 shares); or
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 attractive return-on-investment. These returns will be achieved as long as the stock is above the $42.50 strike price at assignment. If the stock declines below the strike price, the breakeven price of $41.275 ($45.325 -$4.05) provides a substantial 8.9% downside protection from today's purchase price.