As detailed below, two potential return-on-investment results are:
- A +1.15% absolute return (equivalent to +52.3% annualized return for the next 8 days) if the stock is assigned early (business day prior to August 3rd ex-div date); OR
- A +1.96% absolute return (equivalent to +29.7% annualized return over the next 24 days) if the stock is assigned on the August 18, 2017 options expiration date.
Given the Covered Calls Advisor's current overall market outlook, an in-the-money covered calls position was established. As shown in the chart below, a Covered Calls positions was established since the potential return-on-investment results are preferable in comparison to its comparable short Put options position in this instance:
Also in the chart above is a column called "Intervening Ex-Div" and "YES" with an indication that "If 'YES' then complete Dividend Capture Strategy spreadsheet". This means that Intel will go ex-dividend sometime between today and the options expiration date and the Covered Calls Advisor's Dividend Capture Strategy spreadsheet should be completed to determine if the pre-determined criteria are met to justify establishing a covered calls position for Intel. 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, ten of the eleven criteria are achieved for this Intel Corp. position.
Details for this position as well as possible return-on-investment outcomes are provided below.
Intel Corp. -- Covered Calls Position Established
An ex-dividend occurs on August 3rd for $.2725. If the current time value (i.e. extrinsic value) of $.40 [$1.05 option premium - ($34.65 stock price - $34.00 strike price)] remaining in the short call options decays substantially (down to about $.10 or less) by August 2nd (the business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 600 Intel shares away to capture the dividend payment.
The transactions were:
07/26/2017 Bought 600 INTC shares @ $34.65
07/26/2017 Sold 6 INTC Aug 18, 2017 $34.00 Call options @ $1.05
Note: a simultaneous buy/write transaction was executed.
08/03/2017 Upcoming quarterly ex-dividend of $.2725 per share
Two possible overall performance results (including commissions) for this Intel covered calls position are as follows:
Covered Calls Position Cost Basis: $20,168.85
= ($34.65 stock price -$1.05 options price) *600 shares +$8.85 commissions
(a) Options Income: +$625.98
= ($1.05*600 shares) - $4.02 commissions
(b) Dividend Income (If option exercised early on August 2nd, the business day prior to ex-div date): +$0.00; or
(b) Dividend Income (If INTC assigned at Aug 18th, 2017 expiration): +$163.50
= ($.2725 dividend per share x 600 shares)
Early assignment is preferable to the Covered Calls Advisor since it would provide a higher annualized return-on-investment result, but either outcome would provide an excellent result for this investment position. These returns will be achieved as long as the stock is above the $34.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $33.3275 ($34.65 -$1.05 -$.2725) provides 3.8% downside protection below today's $34.65 purchase price.