Established Covered Calls Position in Exxon Mobil Corporation

Early in this morning's trading, I entered a Covered Calls simultaneous buy/write net debit limit order in Exxon Mobil Corporation (ticker XOM) for the August 25th, 2023 expiration and at the $102.00 strike price and at a net debit limit price of $101.20 per share.  Soon thereafter my order was executed and 200 shares were purchased at $105.04 and two 8/25/2023 Call options were sold at the $102.00 strike price for $3.84 per share.  So, the potential time value profit from the Call options is $.80 per share [$102.00 strike price - ($105.04 stock purchase price - $3.84 Call options price)], and the Implied Volatility of these Call options was 22.4 when this transaction was executed.  

In addition to the potential time value profit of $.80 per share, there is an upcoming quarterly ex-dividend of $.91 per share (3.6% annual dividend yield) on August 15th which is included in the potential return-on-investment calculations detailed below.  When this in-the-money Covered Calls position was established this morning it had a probability of assignment on the options expiration date of 71.8%. 

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

•  +0.8% absolute return (equivalent to +40.9% annualized return for the next 7 days) if the stock is assigned early (the last business day prior to the August 15th, 2023 ex-dividend date); OR 

• +1.7% absolute return (equivalent to +34.1% annualized return over the next 18 days) if the stock is assigned on the August 25th, 2023 options expiration date.

These returns will be achieved as long as Exxon Mobil's stock price is above the $102.00 strike price when assigned.  If the stock declines below the strike price, the breakeven price of $100.29 per share ($105.04 stock purchase price - $3.84 Call options selling price - $.91 ex-dividend amount) provides a 4.5% downside breakeven protection if assigned on the options expiration date.
 

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 $.80 remaining in the short Call options decays substantially (down to approximately $.15 or less) before market close on Monday, August 14th, 2023 (the last business day prior to the 8/15/2023 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 dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be a desirable outcome since its +40.9% annualized-return-on-investment (aroi) exceeds the +34.1% aroi that would be achieved if the assignment occurred instead on the August 25th options expiration date.

The simultaneous buy/write transaction was:
8/8/2023 Bought 200 Exxon Mobil shares @ $105.04
8/8/2023 Sold 2 Exxon Mobil August 25th, 2023 $102.00 Call options @ $3.84 per share
8/15/2023 Upcoming Exxon quarterly ex-dividend at $.91 per share

Two possible overall performance results (including commissions) for this Exxon Mobil Covered Calls position are as follows:
Covered Calls Net Investment: $20,241.34
= ($105.04 - $3.84) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$766.66
= ($3.84 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Monday, Aug. 14th, the last business day prior to the August 15th ex-div date): +$0.00; or
(b) Dividend Income (If Exxon Mobil's shares assigned at the August 25th, 2023 options expiration date): +$182.00
= ($.91 dividend per share x 200 shares)

(c) Capital Appreciation (If Exxon Mobil's stock assigned early): -$608.00
+($102.00 -$105.04) * 200 shares; or
(c) Capital Appreciation (If Exxon Mobil shares assigned at $102.00 strike price at options expiration): -$608.00
+($102.00 -$105.04) * 200 shares

1. Total Net Profit (If option exercised early): +$158.66

= (+$766.66 options income +$0.00 dividend income -$608.00 capital appreciation); or

2. Total Net Profit (If Exxon Mobil stock assigned at $102.00 at the 8/25/2023 expiration): +$340.66

= (+$766.66 options income +$182.00 dividend income -$608.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on the last business day prior to the 8/15/2023 ex-dividend date): +0.8%

= +$158.66/$20,241.34

Annualized Return-on-Investment (If option exercised early): +40.9%

= (+$158.66/$20,241.34) * (365/7 days); or

2. Absolute Return-on-Investment (If Exxon Mobil stock assigned at $102.00 at the August 25th options expiration date): +1.7%

= +$340.66/$20,241.34

Annualized Return-on-Investment (If Exxon Mobil shares assigned at $102.00 at the 8/25/2023 options expiration date): +34.1%

= (+$340.66/$20,241.34) *(365/18 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 for this Exxon Mobil Corp. position.