Today, a covered calls position was established in Foot Locker Inc. (ticker symbol FL) with a July 21, 2017 expiration and at the $48.00 strike price. This position has an upcoming quarterly ex-dividend on July 12th of $.31 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the July 21st options expiration date. Given the Covered Calls Advisor's current overall market outlook, an in-the-money covered calls position was established. A Covered Calls positions was preferable to its comparable short Put options position in this instance since the maximum potential income of $.71 ($.31 ex-div plus $.40 time value) for the Covered Calls was $.04 per share greater than the $.67 that was then available for selling 100% cash-secured Put options.
As detailed below, a potential return-on-investment result is +0.75% absolute return (equivalent to +54.9% annualized
return for the next 5 days) if the stock is assigned early (business day
prior to July 12th ex-date); OR +1.4%
absolute return (equivalent to +33.5% annualized return over the next 15
days) in the much more likely event that the stock is assigned on the July 21, 2017 options expiration date.
Foot Locker Inc. (FL) -- New Covered Calls Position
The transactions were:
07/07/2017 Bought 500 FL shares @ $49.72
07/07/2017 Sold 5 FL July 21,2017 $48.00 Call options @ $2.12
Note: a simultaneous buy/write transaction was executed.
07/12/2017 Upcoming quarterly ex-dividend of $.31 per share
Two possible overall performance results (including commissions) for this Foot Locker covered calls position are as follows:
Stock Purchase Cost: $24,864.95
= ($49.72*500+$4.95 commission)
(a) Options Income: +$1,051.80
= ($2.12*500 shares) - $8.20 commissions
(b) Dividend Income (If option exercised early on July 11th, the business day prior to July 12th ex-div date): +$0.00; or
(b) Dividend Income (If FL assigned at July 21st, 2017 expiration): +$155.00
= ($.31 dividend per share x 500 shares)
outcome provides an excellent return-on-investment result for this
investment. These returns will be achieved as long as the stock is
above the $48.00 strike price at assignment. If the stock declines
below the strike price, the breakeven price of $47.29 ($49.72 -$2.12 -$.31)
provides 4.9% downside protection below today's purchase
The Covered Calls Advisor has established a set of eleven criteria to evaluate potential covered calls using a dividend capture strategy. The minimum threshold desired to establish a position is that at least nine of these eleven criteria must be achieved. As shown in the table below, all eleven criteria are achieved for this Foot Locker Inc. position.