Established Covered Calls in Raytheon Technologies Co.

Today a Covered Calls position was established in Raytheon Technologies Co. (ticker symbol RTX) when 200 shares were purchased at $87.82 and 2 August 27th, 2021 Call options were sold at $2.36 per share at the $86.00 strike price.  The net debit limit order at $85.46 was executed, so the time value was $.54 per share [$2.36 Call options premium - ($87.82 stock purchase price - $86.00 strike price)]. There is an upcoming ex-dividend of $.51 per share (a 2.3% annual dividend yield) on August 19th, 2021.  Two potential return-on-investment results for this position are detailed below and include the possibility of early exercise since the ex-dividend is prior to the August 27th, 2021 options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter outlook, a conservative in-the-money Covered Calls position was established -- the Delta was 70.5, which approximates the probability of 70.5% that the Call options will be in-the-money on the options expiration date.  Important to the Covered Calls Advisor, Raytheon has recently reported their Q2 2021 earnings report, so there is no intervening earnings report prior to the August 27th options expiration date.  

In early 2020, Raytheon merged with United Technologies (after they spun-out their Carrier and Otis Elevators divisions) making the new Raytheon a very strong company with approximately equal parts defense and commercial business revenues.  The Covered Calls Advisor has noticed that often in the second year after a big event like a merger or change of CEO, the company achieves a substantial earnings improvement, and this seems likely in this case for Raytheon.  In addition, Raytheon is in a very strong competitive position according to Morningstar, who rates it as having wide moats in 3 of its 4 business divisions (Collins Aerospace, Pratt & Whitney, and Raytheon Missiles and Defense) plus a narrow moat in its Intelligence and Space business.  Of the 21 analysts covering Raytheon and tracked by Reuters Research, 16 have Outperform or Buy ratings, 5 have Neutral ratings, and none have Underperform or Sell ratings.  Their average stock target price is $102.21 (16.4% above its current price).  

As detailed below, two potential return-on-investment results are: 

•  +0.6% absolute return (equivalent to +32.5% annualized return for the next 7 days) if the stock is assigned early (business day prior to the August 19th ex-dividend date); OR 

• +1.2% absolute return (equivalent to +27.8% annualized return over the next 16 days) if the stock is assigned on the August 27th options expiration date.

Raytheon Technologies Corporation (RTX) -- New Covered Calls Position
The buy/write transaction was:

08/12/2021 Bought 200 Raytheon shares @ $87.82
08/12/2021 Sold 2 Raytheon 08/27/2021 $86.00 Call options @ $2.36
08/19/2021 Upcoming quarterly ex-dividend of $.51 per share

Two possible overall performance results (including commissions) for this Raytheon Covered Calls position are as follows:
Covered Calls Cost Basis: $17,093.34
= ($87.82 - $2.36) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$470.66
= ($2.36 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Aug. 18th, 2021, the business day prior to the Aug. 19th ex-div date): +$0.00; or
(b) Dividend Income (If Raytheon stock assigned at Aug. 27th, 2021 options expiration): +$102.00
= ($.51 dividend per share x 200 shares)

(c) Capital Appreciation (If Raytheon Call options assigned early on Aug 18th): -$364.00
+($86.00 strike price - $87.82 stock purchase price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $86.00 strike price at options expiration): -$364.00
+($86.00 - $87.82) * 200 shares

1. Total Net Profit [If option exercised on Aug. 18th (business day prior to Aug. 19th ex-dividend date)]: +$106.66

= (+$470.66 options income +$0.00 dividend income -$364.00 capital appreciation); or

2. Total Net Profit (If Raytheon shares assigned at $86.00 strike price at the Aug. 27th, 2021 expiration): +$208.66

= (+$470.66 Call options income +$102.00 dividend income -$364.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised early on Aug. 18th -- day prior to the Aug. 19th ex-div date): +0.6%

= +$106.66/$17,093.34

Annualized Return-on-Investment (If option exercised early): +32.5%

= (+$106.66/$17,093.34) * (365/7 days); or

2. Absolute Return-on-Investment (If RTX shares assigned at $86.00 strike price at Aug. 27th, 2021 options expiration date): +1.2%

= +$208.66/$17,093.34

Annualized Return-on-Investment (If RTX shares assigned at $86.00 at Aug. 27th, 2021 expiration): +27.8%

= (+$208.66/$17,093.34) x (365/16 days)

Either outcome would provide a satisfactory return-on-investment result for this Raytheon Technologies investment.  These returns will be achieved as long as the stock is above the $86.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $84.95 ($87.82 -$2.36 -$.51) provides 3.3% downside protection below today's stock purchase price.

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position.  As shown below with this Raytheon Technologies position, all nine criteria were met.