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Wednesday, February 7, 2018

Covered Calls Established in Bank of America Corp.

Today, a Covered Calls positions was established in Bank of America Corp. (ticker BAC) for the March 16th, 2018 expiration and at the $30.00 strike price when the stock was at $31.03.   Given the Covered Calls Advisor's current Overall Market Meter sentiment of Neutral, a relatively conservative in-the-money position was established.  There is an upcoming ex-dividend of $.12 on March 1st which is included in the analysis below.

As detailed below, a potential outcome for this investment is +2.2% absolute return-on-investment for the next 38 days (equivalent to +22.2% on an annualized return basis) if Bank of America stock closes above the $30.00 strike price on the March 16th options expiration date.


Bank of America Corp. (BAC) -- New Covered Calls Position
The transactions were:
02/07/2018 Bought 600 shares of Bank of America stock @ $31.03 per share 
02/07/2018 Sold 6 BAC Mar 16th, 2018 $30.00 Call options @ $1.60 per share
03/01/2018 Upcoming ex-dividend of $.12 per share

A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $17,666.97
= ($31.03 - $1.60)* 600 shares + $8.97 commission

Net Profit Components:
(a) Options Income: +$960.00
= ($1.60* 600 shares)
(b) Dividend Income: +$72.00
= $.12 per share * 600 shares 
(c) Capital Appreciation (If Bank of America stock is above $30.00 strike price at Mar 16th expiration): -$622.95
= ($30.00 -$31.03)* 600 shares - $4.95 commission

Potential Total Net Profit (If BAC stock assigned at expiration): +$409.05
= (+$960.00 options income +$72.00 dividend income -$622.95 capital appreciation)

Absolute Return: +2.3%
= +$409.05/$17,666.97
Equivalent Annualized Return: +22.2%
= (+$409.05/$17,666.97)*(365/38 days)

The downside 'breakeven price' at expiration is at $29.31 ($31.03 - $1.60 - $.12), which is 5.5% below the current market price of $31.03.  This is good downside protection given the potential +22.2% annualized ROI for this investment.

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