Established New Covered Calls Position in Citigroup Inc.

Today, a new Covered Calls position was established in Citigroup Inc. (ticker symbol C) with a November 16th, 2018 options expiration date and at the $65.00 strike price. Five hundred shares were purchased at $64.48 and 4 Call options were sold at $1.52 for a net debit cost basis of $62.06 ($64.48 - $1.52).  This position has an expected upcoming quarterly ex-dividend this Friday of $.45 per share, so the potential return for this position includes this dividend.  Quarterly earnings were reported recently, so the next earnings report will not be until mid January.

Two potential return-on-investment results are: (1) +3.1% absolute return in 18 days (equivalent to a +63.4% annualized return-on-investment) if the stock closes at $64.48 (same as today's purchase price); and (2) +3.9% absolute return in 18 days (equivalent to a +79.9% annualized return-on-investment) if the stock closes above the $65.00 strike price on the Nov. 16th options expiration date.  These high potential returns are largely a result of the elevated implied volatility of the Call options (36.3) which is attributable largely to the recent steep decline the the overall stock market in general and also with Citi stock in particular.

Today's transactions and two potential results are detailed below:

1. Citigroup Inc. (C) -- New Covered Calls Position
The transactions were as follows:
10/30/2018 Bought 500 shares of Citigroup Inc. stock @ $64.48 per share 
10/30/2018 Sold 5 Citi Nov 16th, 2018 $65.00 Call options @ $1.52 per share
Note: this was a simultaneous Buy/Write transaction

There are a multitude of possible outcomes, but two possible overall performance results (including commissions) are as follows:
Covered Calls Cost Basis: $31,488.30
= ($64.48 - $1.52)* 500 shares + $8.30 commissions

Net Profit Components:
(a) Options Income: +$760.00
= ($1.52 * 500 shares)
(b) Dividend Income: +$225.00
 = $.45 per share x 500 shares 
(c) Capital Appreciation (If Citigroup stock price remains unchanged at $64.48 purchase price at Nov 16th expiration): +$0.00
= ($64.48 -$64.48)* 500 shares; OR
(c) Capital Appreciation (If Citigroup stock is above $65.00 strike price at Nov 16th expiration): +$255.05
= ($65.00 -$64.48)* 500 shares - $4.95 commission

(a) Total Net Profit (If Citi stock price unchanged at $64.48 at Nov. 16th options expiration): +$985.00
= (+$760.00 options income +$225.00 dividend income +$0.00 capital appreciation); OR
(b) Total Net Profit (If stock price is above $65.00 strike price at Nov. 16th options expiration): +$1,240.05
= (+$760.00 options income +$225.00 dividend income +$255.05 capital appreciation)

(a) Absolute Return (If Citi stock price unchanged at $64.48 at Nov. 16th options expiration): +3.1%
= +$985.00/$31,488.30
Equivalent Annualized Return: +63.4%
= (+$985.00/$31,488.30)*(365/18 days); OR
(b) Absolute Return (If stock price is above $65.00 strike price at Nov. 16th options expiration): +3.9%
= +$1,240.05/$31,488.30
Equivalent Annualized Return: +79.9%
= (+$1,240.05/$31,488.30)*(365/18 days)

The downside 'breakeven price' at expiration is at $62.51 ($64.48 - $1.52 -$.45 ex-div), which is 3.1% below the current market price of $64.48.