Established Covered Calls Position in Exxon Mobil Corporation

A November 25th, 2022 Covered Calls buy/write limit order was placed in Exxon Mobil Corporation (ticker XOM) at a net debit limit price of $106.84 per share.  Two hundred shares were purchased at $112.53 and two 11/25/2022 Call options were sold at the $108.00 strike price for $5.69 per share.  The Implied Volatility of these Call options was 27.8 when this transaction was executed.  There is an upcoming quarterly ex-dividend of $.91 per share (3.2% annual dividend yield) on November 14th which is included in the potential return-on-investment calculations detailed below.  When this in-the-money Covered Calls position was established today it had a probability of assignment on the options expiration date of 72.7%.

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

•  +1.1% absolute return (equivalent to +39.4% annualized return for the next 10 days) if the stock is assigned early (business day prior to the November 14th, 2022 ex-dividend date); OR 

• +1.9% absolute return (equivalent to +32.0% annualized return over the next 22 days) if the stock is assigned on the November 25th, 2022 options expiration date.

These returns will be achieved as long as Exxon Mobil's stock price is above the $108.00 strike price at options expiration.  If the stock declines below the strike price, the breakeven price of $105.93 per share ($112.53 stock purchase price - $5.69 Call options selling price - $.91 ex-dividend amount) provides a 5.9% downside breakeven protection below today's stock purchase price.
 

Exxon Mobil Corporation (XOM) -- New Covered Calls Position

If the stock price increases to the point where the current time value (i.e. extrinsic value) of $1.16 remaining in the short Call options decays substantially (down to about $.15 or less) by November 13th, 2022 (the last business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 Exxon Mobil shares away to capture the November 14th dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be a desirable outcome since its +39.4% annualized return-on-investment (aroi) exceeds the +32.0% aroi that would be achieved if the assignment occurred instead on the November 25th options expiration date.

The simultaneous buy/write transaction was:
11/4/2022 Bought 200 Exxon Mobil shares @ $112.53
11/4/2022 Sold 2 Exxon Mobil November 25th, 2022 $108.00 Call options @ $5.69 per share
11/14/2022 Upcoming quarterly ex-dividend at $.91 per share

Two possible overall performance results (including commissions) for this Exxon Mobil Covered Calls position are as follows:
Net Investment: $21,369.34
= ($112.53 - $5.69) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$1,136.66
= ($5.69 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Friday, Nov. 11th, the business day prior to the November 14th ex-div date): +$0.00; or
(b) Dividend Income (If Exxon Mobil's shares assigned at the Nov. 25th, 2022 expiration): +$182.00
= ($.91 dividend per share x 200 shares)

(c) Capital Appreciation (If Exxon Mobil's stock assigned early): -$906.00
+($108.00 -$112.53) * 200 shares; or
(c) Capital Appreciation (If Exxon Mobil shares assigned at $108.00 strike price at options expiration): -$906.00
+($108.00 -$112.53) * 200 shares

1. Total Net Profit [If option exercised on the last business day prior to the November 14th ex-dividend date)]: +$230.66

= (+$1,136.66 options income +$0.00 dividend income -$906.00 capital appreciation); or

2. Total Net Profit (If Exxon Mobil stock assigned at $108.00 at the November 25th, 2022 expiration): +$412.66

= (+$1,136.66 options income +$182.00 dividend income -$906.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on business day prior to ex-dividend date): +1.1%

= +$230.66/$21,369.34

Annualized Return-on-Investment (If option exercised early): +39.4%

= (+$230.66/$21,369.34) * (365/10 days); or

2. Absolute Return-on-Investment (If Exxon Mobil stock assigned at $108.00 at Nov. 25th expiration date): +1.9%

= +$412.66/$21,369.34

Annualized Return-on-Investment (If Exxon Mobil shares assigned at $108.00 at the 11/25/2022 options expiration date): +32.0%

= (+$412.66/$21,369.34) *(365/22 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, all nine criteria are achieved in this Exxon Mobil Corp. position.