Today, a covered calls position was established in Delta Air Lines Inc. (ticker symbol DAL) with a Feb2016 expiration. This position includes consideration of an upcoming $.135 quarterly dividend with an ex-div date of Feb 12th. Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, a conservative in-the-money covered call position was established with the strike price of $41.00 below the stock purchase price of $43.46.
As detailed below, two potential return-on-investment results for this position are:
If Dividend Capture: +1.2%
absolute return (equivalent to +28.2% annualized return over the next 16
days) if the stock is assigned at the Feb2016 expiration on February 19th.
1. Delta Air Lines Inc. (DAL) -- New Covered Calls Position
The transactions were:
02/04/2016 Bought 400 Delta Air Lines shares @ $43.46
02/04/2016 Sold 4 DAL Feb2016 $41.00 Call options @ $2.91
Note: a simultaneous buy/write transaction was executed.
02/12/2016 Upcoming dividend of $.135 per share
Two possible overall performance results (including commissions) for this Delta Air Lines covered calls position are as follows:
Stock Purchase Cost: $17,391.95
= ($43.46*400+$7.95 commission)
(a) Options Income: +$1,153.05
= ($2.91*400 shares) - $10.95 commissions
(b) Dividend Income (If option exercised early on business day prior to Feb 12th ex-dividend date): +$0.00; or
(b) Dividend Income (If DAL assigned at Feb2016 expiration): +$54.00
= ($.135 dividend per share x 400 shares)
Either outcome would provide a very attractive return-on-investment result for this investment. These returns will be achieved as long as the stock is above the $41.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $40.55 ($43.46 -$2.91) provides 6.7% downside protection below today's purchase price.