Mosaic goes ex-dividend at $.15 per share (1.2% annual dividend yield) on November 30th which is prior to the December 16th options expiration date, so the potential for capturing this dividend is included in the potential return-on-investment results detailed below. As preferred, there is no intervening earnings report prior to the options expiration date. As I also prefer, the Implied Volatility of the Mosaic Calls was 53.4 which is substantially above that of VIX which is currently 23.4. This provides a very good options premium received (and therefore accompanied by an attractive potential annualized return-on-investment) from selling these Mosaic Call options.
Mosaic's trailing twelve months earnings per share is $11.22 (a P/E ratio of only 4.4) which is less than one-half of its prior 10-year average P/E ratio. Regarding its near-term future, Mosaic's FY2022 EPS are expected to increase further from the current TTM of $11.22 to $11.91. This positive trend should continue to benefit the stock price. In addition, Wall Street analysts' current average target price is $63.93 (+29.9% above today's purchase price).
The second Covered Call position is in United Rentals Inc. The time value was $7.14 per share = [$320.00 strike price - ($344.81 stock purchase price - $31.95 Call option price)]. There is no earnings report prior to the December 16th options expiration date and United Rentals does not pay a dividend. The Implied Volatility of the Call option was 42.7 and the Delta was 74.3 which approximates the probability of the Call option being in-the-money on the Dec. 16th options expiration date. If URI closes in-the-money, then the maximum return-on-investment result would be achieved for this position.
United Rental's valuation is attractive based on a trailing twelve months (through Q3 2022) P/E Ratio of 12.8 and this is expected to decline further to 10.7 when they announce their Q4 results on January 21st, 2023. In addition, analysts' average target price is $379.80 which is +10.3% above today's stock purchase price.
As detailed below, the potential return-on-investment results for each of these Covered Call positions are:
- For Mosaic Company: +2.9% absolute return (equivalent to +87.1% annualized return-on-investment for the next 12 days) if the stock is assigned early (last trading day prior to the November 30th ex-dividend date); OR (2) +3.2% absolute return (equivalent to +40.4% annualized return over the next 29 days) if the stock is assigned on the Dec. 16th options expiration date.
- For United Rentals Inc.: +2.3% absolute return (equivalent to +28.7% annualized return-on-investment for the next 29 days) if the stock is assigned on the December 16th, 2022 options expiration date.
1. Mosaic Company (MOS) -- New Covered Calls Position The buy/write transaction was:
11/18/2022 Bought 400 Mosaic Co. shares @ $49.22 each
11/18/2022 Sold 4 MOS 12/16/2022 $45.00 Call options @ $5.48 per share
11/30/2022 Upcoming quarterly ex-dividend of $.15 per share
Two possible overall performance results (including commissions) for this Mosaic Covered Calls position are as follows:
Covered Calls Net Investment: $17,498.68
= ($49.22 - $5.48) * 400 shares + $2.68 commission
Net Profit:
(a) Options Income: +$2,189.32
= ($5.48 * 400 shares) - $2.68 commission
(b) Dividend Income (If option exercised early on November 29th, 2022 the business day prior to the Nov. 30th ex-div date): +$0.00; or
(b) Dividend Income (If Mosaic shares assigned at December 16th, 2022 expiration): +$60.00
= ($.15 dividend per share x 400 shares)
(c) Capital Appreciation (If Mosaic assigned early): -$1,688.00
+($45.00 -$49.22) * 400 shares; or
(c) Capital Appreciation (If Mosaic shares assigned at $45.00 strike price at expiration): -$1,688.00
+($45.00 - $49.22) * 400 shares
1. Total Net Profit [If option exercised on November 29th (business day prior to the Nov. 30th, 2022 ex-dividend date)]: +$501.32
Either outcome provides a very good return-on-investment result for this investment. These returns will be achieved as long as the stock is above the $45.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $43.59 ($49.22 -$5.48 -$.15) provides 11.4% 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. As shown below, in this case eight of the nine criteria are achieved for this Mosaic Company Covered Calls position.
2. United Rentals Inc.(URI) -- New Covered Call Position
The buy/write transaction was:
11/18/2022 Bought 100 United Rentals shares @ $344.81
11/18/2022 Sold 1 URI 12/16/2022 $320.00 Call options @ $31.95 per share
A possible overall performance result (including commissions) for this United Rentals Covered Call position is as follows:
Covered Call Net Investment: $31,286.67
= ($344.81 - $31.95) * 100 shares + $.67 commission
Net Profit Components:
(a) Options Income: +$3,195.00
= ($31.95 * 100 shares)
(b) Dividend Income: +$0.00
+($320.00 - $344.81) * 100 shares
