Today, a new covered calls position was established in Exxon Mobil Corporation (ticker symbol XOM) with an Aug2015 expiration. The Exxon Mobil stock was purchased at $78.96 after today's disappointing earnings release when the stock price had declined by almost 5% from yesterday's closing price. The Aug2015 Call options were simultaneously (i.e. a single buy-write transaction was made) sold at the $78.00 strike price for $1.80 each.
This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend with an ex-dividend date (Aug 11th) prior to the August 21st options expiration date. Details of this position is provided below.
1. Exxon Mobil Corp. (XOM)
As shown below, two potential return-on-investment results for this position are:
Friday, July 31, 2015
07/31/2015 Bought 200 XOM shares @ $78.96
07/31/2015 Sold 2 XOM Aug2015 $78.00 Call options @ $1.80
Note: the price of XOM was $78.96 today when these Call options were sold.
08/11/2015 Upcoming ex-dividend of $.73 per share
Two possible overall performance results (including commissions) for this Exxon Mobil Corp. (XOM) covered calls position are as follows:
Stock Purchase Cost: $15,800.95
= ($78.96*200+$8.95 commission)
(a) Options Income: +$349.55
= ($1.80*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): +$146.00
= ($.73 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 $78.00 strike price at assignment.