Most companies in the Financial Sector provide only modest growth prospects, but they often provide good annual dividend yields. Consequently, the Covered Calls Advisor targets opportunities to use the Dividend Capture Strategy in all Financial Sector Covered Calls positions. This new April 8th, 2022 JPMorgan Chase Covered Calls position continues the Dividend Capture Strategy of often selling
in-the-money monthly Covered Calls for one of five very large U.S. banks (Bank of America, Citigroup, JPMorgan Chase, Goldman Sachs, and Morgan Stanley) for each options expiration
month:
(JPMorgan Chase quarterly for Jan, Apr, July, and Oct options expirations;
Citigroup and/or Morgan Stanley for Feb, May, Aug, and Nov options expirations; and
Bank of America and/or Goldman Sachs for Mar, Jun, Sep, and Dec options expirations).
The goal of these monthly Covered Calls in these banks is to both provide an opportunity to either: (1) potentially capture the quarterly dividend payment and if the stock price remains above the strike price at
options expiration, the maximum possible return-on-investment result on the options expiration date for the position would be achieved; or (2) have the stock assigned early on the day prior to the ex-dividend date in which case the Covered Calls Advisor is usually very pleased since the Dividend Capture Strategy criteria are designed such that the annualized return-on-investment for early assignment would also exceed the Covered Calls Advisor's minimum threshold. So far, applying this approach has provided attractive annualized return results -- better than would be achieved
if Covered Calls positions for these bank stocks were held in the Covered Calls Advisor Portfolio during the other two non-dividend paying months each quarter.
JPMorgan's upcoming dividend is $1.00 per share (a 2.9% annualized dividend yield based on today's stock purchase price) and it goes ex-dividend on April 5th, 2022. Two potential return-on-investment results for this position are: (1) early assignment on the day prior to a January 5th ex-dividend date; and (2) assignment (if the stock price is in-the-money) on the April 8th, 2022 options expiration date. The April 8th expiration was selected since JPMorgan's next quarterly earnings report is before market open on April 14th and because of the increased uncertainty associated with stock price movements on earnings reporting dates, I prefer to avoid holding positions on days when any company is reporting their quarterly earnings. So, this JPMorgan Covered Calls position was established to include the upcoming ex-dividend date but to avoid the upcoming earnings reporting date.
As detailed below, two potential return-on-investment results are:
- +0.8% absolute return (equivalent to +35.2% annualized return for the next 8 days) if the stock is assigned early (business day prior to a April 5th, 2022 ex-dividend date); OR
- +1.5% absolute return (equivalent to +46.2% annualized return over the next 12 days) if the stock is assigned on the April 8th, 2022 options expiration date.
JPMorgan Chase & Co. (JPM) -- New Covered Calls Position
The simultaneous buy/write transaction was:
3/28/2022 Bought 200 JPM shares @ $138.60
3/28/2021 Sold 2 JPM April 8th, 2022 $135.00 Call options @ $4.64 per share
4/05/2022 Upcoming quarterly ex-dividend at $1.00 per share
Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost: $26,793.34
= ($138.60 - $4.64) *200 shares + $1.34 commission
Net Profit:
(a) Options Income: +$926.66
= ($4.64 *200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on April 4th, the business day prior to the April 5th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at the April 8th, 2022 expiration): +$200.00
= ($1.00 dividend per share x 200 shares)
+($135.00 -$138.60) * 200 shares; or
(c) Capital Appreciation (If JPM assigned at $135.00 strike price at expiration): -$720.00
+($135.00-$138.60) * 200 shares
1. Total Net Profit [If option exercised on the last business day prior to the April 5th ex-dividend date)]: +$206.66
Either outcome provides a good annualized-return-on-investment result for this investment. These returns will be achieved as long as the stock is above the $135.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $132.96 ($138.60 -$4.64 -$1.00) provides 4.1% downside protection below today's purchase price.
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. Eight of the nine criteria are achieved in this JPMorgan position.
