Today, a covered calls position was established in Bank of America Corporation (ticker symbol BAC). Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, an in-the-money covered call position was established with a March 2016 $12.00 strike price below today's stock purchase price of $12.21. This position also includes consideration of a $.05 quarterly dividend with an upcoming ex-div date of March 2nd.
The Covered Calls Advisor believes that Bank of America is very underpriced with the current stock price fully 30% below its tangible book value. With the recent dramatic decline in Bank of America's stock price, another benefit of selling these Call options now is that their implied volatility is high, so the return-on-investment potential, as detailed below, is very attractive.
As detailed below, a potential return-on-investment result is +2.9%
absolute return (equivalent to +43.0% annualized return over the next 25
days) if the stock is assigned at the Mar2016 expiration on March 18th.
1. Bank of America Corporation (BAC) -- New Covered Calls Position
The transactions were:
02/23/2016 Bought 700 Bank of America Corporation shares @ $12.21
02/23/2016 Sold 7 BAC Mar2016 $12.00 Call options @ $.55
Note: a simultaneous buy/write transaction was executed.
03/02/2016 Upcoming dividend of $.05 per share
The overall performance result (including commissions) for this Bank of America covered calls position if the stock closes above the $12.00 strike price at expiration is as follows:
Stock Purchase Cost: $8,554.95
= ($12.21*700+$7.95 commission)
(a) Options Income: +$371.80
= ($.55*700 shares) - $13.20 commissions
(b) Dividend Income: +$35.00
= ($.05 dividend per share x 700 shares)