Today, a Covered Call position was established in EOG Resources Inc. (ticker EOG) with the purchase of 300 shares at $73.02 per share and three April 23rd, 2021 Call options were sold for $5.02 per share at the $69.50 strike price. A moderately in-the-money Covered Calls positions was established with the Delta of the Calls at 66.4 when this buy/write transaction was executed, which approximates the probability of assignment on the April 23rd, 2021 options expiration date. The time value in the Call options was $1.50 per share = [$5.02 Call options premium received - ($73.02 stock purchase price - $69.50 options strike price)].
EOG goes ex-dividend at $.4125 per share (2.3% annualized dividend yield at the current stock price) on April 15th which is prior to the April 23rd options expiration date, so this dividend is included in the potential return-on-investment results shown below. All nine criteria in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet were met for this position and the next quarterly earnings report on May 6th, 2021 is after the April 23rd options expiration date.
Two potential return-on-investment results are: (a) +2.2% absolute return (equivalent to +57.5% annualized return for the next 14 days) if the stock is assigned early on the day prior to the April 15th ex-dividend date; or (b) +2.8% absolute return (equivalent to +44.6% annualized return for the next 23 days) if the stock is assigned at market close on the April 23rd, 2021 options expiration date.
The approximate expected value annualized return on investment is +29.6% (+44.6% aroi x 66.4% probability of assignment).
EOG Resources Inc.(EOG) -- New Covered Calls Position
04/01/2021 Bought 300 shares of EOG Resources Inc. stock @ $73.02 per share
04/01/2021 Sold 3 EOG April 23rd, 2021 $69.50 Call options @ $5.02 per share
Note: The options Implied Volatility was 33.2 when this buy/write transaction executed.
04/15/2021 Upcoming ex-dividend of $.4125 per share
Two possible overall performance results (including commissions) would be as follows:
Covered Call Cost Basis: $20,402.01
= ($73.02 - $5.02) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$1,506.00
= ($5.02 * 300 shares)
(b) Dividend Income (If EOG Resources shares assigned on 4/14/2021, the business day prior to the 4/15/2021 ex-dividend date): = +$0.00; or
(b) Dividend Income (If EOG shares assigned at the April 23rd, 2021 options expiration): +$123.75
= $.4125 per share x 300 shares
(c) Capital Appreciation (If EOG shares assigned early on 4/14/2021): -$1,056.00
= ($69.50 strike price - $73.02 stock purchase price) * 300 shares; or
(c) Capital Appreciation (If EOG shares assigned with stock above $69.50 strike price on the April 23rd options expiration): -$1,056.00
= ($69.50 strike price - $73.02 stock purchase price) * 300 shares
1. Potential Net Profit (If EOG shares assigned early on 4/14/2021, the day prior to the ex-dividend date): +$450.00
= (+$1,506.00 options income +$0.00 dividend income - $1,056.00 capital appreciation)
2. Potential Net Profit (If EOG price is above $69.50 strike price at April 15th options expiration): +$573.75
= (+$1,506.00 options income +$123.75 dividend income - $1,056.00 capital appreciation)
1. Absolute Return (If EOG shares assigned early on the day prior to the April 15th ex-dividend date): +2.2%
= +$450.00/$20,402.01
Equivalent Annualized Return (If assigned early on day prior to ex-div date): +57.5%
= (+$450.00/$20,402.01)*(365/14 days)
2. Absolute Return (If EOG price is above $69.50 strike price at April 23rd options expiration): +2.8%
= +$573.75/$20,402.01
Equivalent Annualized Return (If assigned on 3/26/2021 options expiration date): +44.6%
= (+$573.75/$20,402.01)*(365/23 days)
At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy. As shown below, eight criteria are achieved for this EOG Resources Covered Call position.
