Today, a covered calls position was established in Bristol-Myers Squibb Co. (ticker symbol BMY) with an Apr2016 expiration. This Bristol-Myers covered calls position includes consideration of an upcoming $.38 quarterly dividend with an ex-div date of Mar 30th. Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, an in-the-money covered call position was established with the strike price of $62.50 below the stock purchase price of $63.63.
As detailed below, two potential return-on-investment results for this position are:
If Dividend Capture: +2.1%
absolute return (equivalent to +24.1% annualized return over the next 32
days) if the stock is assigned at the Apr2016 expiration on April 15th.
1. Bristol-Myers Squibb Co. (BMY) -- New Covered Calls Position
The transactions were:
03/15/2016 Bought 300 BMY shares @ $63.63
03/15/2016 Sold 3 BMY Apr2016 $62.50 Call options @ $2.13
Note: a simultaneous buy/write transaction was executed.
03/30/2016 Upcoming ex-dividend of $.38 per share
Two possible overall performance results (including commissions) for this Bristol-Myers covered calls position are as follows:
Stock Purchase Cost: $19,096.95
= ($63.63*300+$7.95 commission)
(a) Options Income: +$636.75
= ($2.13*300 shares) - $2.25 commissions
(b) Dividend Income (If option exercised early on business day prior to Mar 30th ex-div date): +$0.00; or
(b) Dividend Income (If BMY assigned at Apr2016 expiration): +$114.00
= ($.38 dividend per share x 300 shares)
this instance, early assignment provides a higher annualized return,
so early assignment is preferable; but either
outcome would provide a good return-on-investment result, especially when considering the historically relatively low volatility for Bristol-Myers stock. These returns will be achieved as long as the stock is
above the $62.50 strike price at assignment. If the stock declines
below the strike price at expiration, the breakeven price of $61.12 ($63.63 -$.38 -$2.13)
provides 3.9% downside protection below today's purchase
The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls investments using a dividend capture strategy. The minimum threshold to establish a position is that at least nine of these eleven criteria must be achieved. As detailed below, for this Bristol-Myers position, all eleven criteria were achieved.