Today, a covered calls positions were established in PulteGroup, Inc. (ticker symbol PHM) with a Mar2017 expiration and at the $22.00 strike price. This position has an upcoming quarterly ex-dividends on March 8th of $.09 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the March 17th options expiration date. Given the Covered Calls Advisor's current Slightly Bearish overall market outlook, a slightly in-the-money covered calls position was established.
As detailed below, potential return-on-investment result is +1.1% absolute return (equivalent to +78.3% annualized
return for the next 5 days) if the stock is assigned early (business day
prior to Mar 8th ex-date); OR +1.5%
absolute return (equivalent to +36.0% annualized return over the next 15
days) if the stock is assigned at the Mar2017 expiration on March 17th.
PulteGroup, Inc. (PHM) -- New Covered Calls Position
The transactions were:
03/03/2017 Bought 1,000 PHM shares @ $22.23
03/03/2017 Sold 10 PHM Mar2017 $22.00 Call options @ $.48
Note: a simultaneous buy/write transaction was executed.
03/08/2017 Upcoming ex-dividend of $.09 per share
Two possible overall performance results (including commissions) for this PulteGroup, Inc. covered calls position are as follows:
Stock Purchase Cost: $22,234.95
= ($22.23*1,000+$4.95 commission)
Note: In the category of "I never thought I'd see the day that...", effective today, Schwab stock commission decreases from $6.95 to $4.95 (and to $.65 per option contract).
(a) Options Income: +$473.50
= ($.48*1,000 shares) - $6.50 commissions
(b) Dividend Income (If option exercised early on business day prior to Mar 8th ex-div date): +$0.00; or
(b) Dividend Income (If PHM shares assigned at Mar2017 expiration): +$90.00
= ($.09 dividend per share x 1,000 shares)
this instance, early assignment provides higher annualized return,
so that outcome is preferable -- but either
outcome would provide a very good return-on-investment result. These returns will be achieved as long as the stock is
above the $22.00 strike price at assignment. If the stock declines
below the strike price at expiration, the breakeven price of $21.66 ($22.23 -$.09 -$.48)
provides 2.6% downside protection below today's purchase
'crossover price' at expiration is $22.62 ($22.23 - $.09 + $.48). This is the
price above which it would have been more profitable to simply
buy-and-hold Pulte stock until the Mar2017 options expiration date
rather than selling these Put options.
The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls investments using a potential for 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 PulteGroup position, ten of eleven criteria were achieved.