Today a Covered Calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) to replace the Covered Calls position in U.S. Bancorp that was assigned earlier today. Both positions are in the Financials sector. Like the U.S. Bancorp position, this JPMorgan position also uses my Dividend Capture Strategy since it has an ex-dividend upcoming of $1.00 per share on January 5th, 2023. Two hundred JPM shares were purchased at $132.59 and two January 13th, 2023 $127.00 Call options were sold at $6.59 per share in a simultaneous buy/write transaction. The time value in the Call options when this position was established was $1.00 per share = [$6.59 Call options premium received - ($132.59 stock purchase price - $127.00 strike price)].
I am continuing to establish conservative Covered Calls positions with moderately in-the-money Call options strike prices (Deltas in approximately the 70 to 80 range) in this current bear market. Since JPMorgan's next quarterly earnings report is before market open on January 13th (which is also the options expiration date for this position) and I prefer not maintaining positions through earnings reports, it is very likely that I will close out this position before January 13th to avoid this potential stock price volatility.
As detailed below, two potential return-on-investment results are:
- +0.8% absolute return (equivalent to +41.1% annualized return for the next 7 days) if the stock is assigned early (business day prior to the January 5th, 2023 ex-dividend date); OR
- +1.6% absolute return (equivalent to +36.1% annualized return over the next 16 days) if the stock is assigned on the January 13th, 2023 options expiration date.
JPMorgan Chase & Co. (JPM) -- New Covered Calls Position
12/29/2022 Bought 200 JPM shares @ $132.59 12/29/2022 Sold 2 JPM January 13th, 2023 $127.00 Call options @ $6.59 per share
1/05/2023 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 Net Investment: $25,201.34
= ($132.59 - $6.59) *200 shares + $1.34 commission
Net Profit:
(a) Options Income: +$1,316.66
= ($6.59 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on January 4th, the business day prior to the January 5th ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at the January 13th, 2023 options expiration date): +$200.00
= ($1.00 dividend per share x 200 shares)
+($127.00 -$132.59) * 200 shares; or
(c) Capital Appreciation (If JPM assigned at $127.00 strike price at expiration): -$1,118.00
+($127.00-$132.59) * 200 shares
1. Total Net Profit [If option exercised on the last business day prior to the Jan. 5th ex-dividend date)]: +$198.66
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.
