Established Covered Calls in Exelon Corporation

Today, a Covered Calls position was established in Exelon Corporation (ticker symbol EXC) with a June 19th, 2020 expiration and at the $35.00 strike price.  Exelon is a very large electric utilities holding company.  This position has an upcoming quarterly ex-dividend this week on May 14th of $.3825 per share (equivalent to a 4.2% annual dividend yield) which is included in the potential return-on-investment result detailed below.  Quarterly earnings were reported last Friday, so the next earnings report will not be until August.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Bearish, an in-the-money Covered Calls position was established. 

As detailed below, a potential return-on-investment result is +3.8% absolute return (equivalent to +34.3% annualized return for the next 40 days) if the stock is assigned on the June 19th options expiration date. 

Normally, Utilities sector companies are relatively unattractive to the Covered Calls Advisor since their sales and earnings are much more stable and predictable compared with other market sectors.  Consequently, the potential returns that can be achieved by selling options (either Covered Calls or Cash-Secured Puts) in Utilities companies has been well below average.  But because of the elevated options Implied Volatility now available as a result of the market uncertainty from the current Covid-19 pandemic and also by capturing the upcoming dividend payment, there is an attractive +34.3% annualized return potential for this Exelon Covered Calls position.  


Exelon Corporation (EXC) -- New Covered Calls Position

The transactions were:
05/11/2020 Bought 300 Exelon shares @ $36.80
05/11/2020 Sold 3 Exelon 06/19/2020 $35.00 Call options @ $2.70
Note: a simultaneous buy/write transaction was executed.
05/14/2020 Upcoming quarterly ex-dividend of $.3825 per share

A possible overall performance result (including commissions) for this Exelon Covered Calls position is as follows:
Covered Calls Cost Basis: $10,232.01
= ($36.80 - $2.70) * 300 shares + $2.01 commission

Net Profit Components:
(a) Options Income: +$810.00
= ($2.70 * 300 shares)
(b) Dividend Income (If Exelon shares assigned at June 19th, 2020 expiration): +$114.75
= +($.3825 dividend per share x 300 shares)

(c) Capital Appreciation (If EXC shares assigned at $35.00 strike price at options expiration): -$540.00
= +($35.00 - $36.80) * 300 shares

Total Net Profit (If Exelon shares assigned at $35.00 at June 19, 2020 expiration): +$384.75

= (+$810.00 options income +$114.75 dividend income -$540.00 capital appreciation)

Absolute Return (If Exelon shares assigned at $35.00 at June 19th, 2020 expiration): +3.8%

= +$384.75/$10,232.01

Annualized Return: +34.3%

= (+$384.75/$9,832.01)*(365/40 days)