Today, a covered calls positions were established in Big Lots Inc. (ticker symbol BIG) with a Mar2017 expiration and at the $50.00 strike price. This position has an upcoming quarterly ex-dividends on March 15th of $.25 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 +0.5% absolute return (equivalent to +39.1% annualized
return for the next 5 days) if the stock is assigned early (business day
prior to Mar 15th ex-date); OR +1.0%
absolute return (equivalent to +46.7% annualized return over the next 8
days) if the stock is assigned at the Mar2017 expiration on March 17th.
Big Lots Inc. (BIG) -- New Covered Calls Position
The transactions were:
03/10/2017 Bought 500 BIG shares @ $51.12
03/10/2017 Sold 5 BIG Mar2017 $50.00 Call options @ $1.42
Note: a simultaneous buy/write transaction was executed.
03/15/2017 Upcoming ex-dividend of $.25 per share
Two possible overall performance results (including commissions) for this Big Lots Inc. covered calls position are as follows:
Stock Purchase Cost: $25,564.95
= ($51.12*500+$4.95 commission)
(a) Options Income: +$701.80
= ($1.42*500 shares) - $8.20 commissions
(b) Dividend Income (If option exercised early on business day prior to Mar 15th ex-div date): +$0.00; or
(b) Dividend Income (If BIG shares assigned at Mar2017 expiration): +$125.00
= ($.25 dividend per share x 500 shares)
this instance, assignment at options expiration provides a slightly 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 $50.00 strike price at assignment. If the stock declines
below the strike price at expiration, the breakeven price of $49.45 ($51.12 -$.25 -$1.42)
provides 3.3% downside protection below today's purchase
'crossover price' at expiration is $52.29 ($51.12 - $.25 + $1.42). This is the
price above which it would have been more profitable to simply
buy-and-hold Big Lots 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 Big Lots position, ten of eleven criteria were achieved.