As is often the case when there is an intervening ex-dividend, the Covered Calls position was chosen instead of its comparable 100% Cash-Secured Puts position since the annualized return-on-investment potential is slightly better with the Covered Calls -- +69.9% for the Covered Calls versus +65.3% for the Cash-Secured Puts for this position (as shown in the image below):
Click on image above for an enlarged view.
As detailed below, a potential return-on-investment result is +3.3% absolute return in 17 days (equivalent to a +69.9% annualized return-on-investment).
ViacomCBS Inc.(VIAC) -- New Covered Calls Position
06/03/2020 Bought 400 shares of ViacomCBS stock @ $22.33 per share
06/03/2020 Sold 4 ViacomCBS June 19th, 2020 $21.00 Call options @ $1.76 per share
Note: this was a simultaneous Buy/Write transaction. The Implied Volatility of the Call options was 47.5 and the Open Interest was 1,313 contracts when this transaction was executed.
A possible overall performance result (including commissions) would be as follows:
Covered Call Cost Basis: $8,230.68
= ($22.33 - $1.76) * 400 shares + $2.68 commission
Net Profit Components:
(a) Options Income: +$704.00
= ($1.76 * 400 shares)
(b) Dividend Income: +$96.00
= $.24 per share x 400 shares
(c) Capital Appreciation (If ViacomCBS stock is above $21.00 strike price at June 19th expiration): -$532.00
= ($21.00 - $22.33) * 400 shares
Total Net Profit: +$268.00
= (+$704.00 options income +$96.00 dividend income -$532.00 capital appreciation)
Absolute Return: +3.3%
= +$268.00/$8,230.68
Equivalent Annualized Return: +69.9%
= (+$268.00/$8,230.68)*(365/17 days)
The downside 'breakeven price' at expiration is at $20.57 ($22.33 - $1.76), which is 7.9% below the current market price of $22.33.
