Today, a covered calls position was established in Western Digital Corporation (ticker symbol WDC) with an Apr2016 expiration. This is the first position established with an April 2016 options expiration in the current Covered Calls Advisor Portfolio. All other positions have a Mar2016 expiration (this Friday). This WDC covered calls position includes consideration of an upcoming $.50 quarterly dividend with an ex-div date of Mar 30th. 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 $45.00 below the stock purchase price of $48.23.
As detailed below, two potential return-on-investment results for this position are:
If Dividend Capture: +3.5%
absolute return (equivalent to +38.2% annualized return over the next 33
days) if the stock is assigned at the Apr2016 expiration on April 15th.
1. Western Digital Corporation (WDC) -- New Covered Calls Position
The transactions were:
03/14/2016 Bought 300 WDC shares @ $48.23
03/02/2016 Sold 3 WDC Apr2016 $45.00 Call options @ $4.43
Note: a simultaneous buy/write transaction was executed.
03/30/2016 Upcoming ex-dividend of $.50 per share
Two possible overall performance results (including commissions) for this Western Digital covered calls position are as follows:
Stock Purchase Cost: $14,476.95
= ($48.23*300+$7.95 commission)
(a) Options Income: +$1,326.75
= ($4.43*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 WDC assigned at Apr2016 expiration): +$150.00
= ($.50 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 very attractive return-on-investment result for this
investment. These returns will be achieved as long as the stock is
above the $45.00 strike price at assignment. If the stock declines
below the strike price at expiration, the breakeven price of $43.30 ($48.23 -$.50 -$4.43)
provides 10.2% 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 Western Digital Corporation position, all eleven criteria were achieved.