For Archer-Daniels-Midland, two hundred shares were purchased at $85.15 and 2 August 25th, 2023 Call options were sold at $2.57 per share at the $83.00 strike price. This strike price is 2.6% in-the-money which is consistent with my guideline of establishing Covered Calls between 2.0% and 5.0% in-the-money since my current Overall Market Meter sentiment is Slightly Bearish. This buy/write transaction occurred at a Delta of 75.7 which approximates the probability that the Call
options will be in-the-money and therefore assigned on the options
expiration date.
1. Archer-Daniels-Midland Company (ADM) -- New Covered Calls Position
The buy/write transaction was:
8/11/2023 Bought 200 Archer-Daniels-Midland Co. shares @ $85.15
8/11/2023 Sold 2 ADM 8/25/2023 $83.00 Call options @ $2.57 per share
Note: the Implied Volatility of the Call options was 17.5 when this buy/write transaction was executed.
8/15/2023 Upcoming quarterly ex-dividend of $.45 per share
Two possible overall performance results (including commissions) for this Covered Calls position are as follows:
Covered Calls Net Investment: $16,517.34
= ($85.15 - $2.57) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$512.66
= ($2.57 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on August 14th, the last business day prior to the August 15th ex-div date): +$0.00; or
(b) Dividend Income (If ADM stock assigned at the August 25th, 2023 expiration): $90.00
= ($.45 dividend per share x 200 shares)
(c) Capital Appreciation (If ADM Call options assigned early on August 14th): -$430.00
+($83.00 strike price - $85.15 stock price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $83.00 strike price at the 8/25/2023 options expiration date): -$430.00
+($83.00 - $85.15) * 200 shares
At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position. As shown below with this Archer-Daniels-Midland position, all nine criteria were met.
2. Microsoft Corporation (MSFT) -- New Covered Call Position
For Microsoft, one hundred shares were purchased at $319.45 and 1 August 18th, 2023 Call option was sold at $8.97 per share at the $312.50 strike price. This short-term (i.e. one week) buy/write transaction occurred at a Delta of 72.7 which approximates the probability that the Call options will be in-the-money and therefore assigned on the options expiration date.
The potential time value profit for this ADM Covered Calls position is $.42 per share [$2.57 Call options premium - ($85.15 stock purchase price - $83.00 strike price)]. In addition to this $.42 profit potential, there is an upcoming quarterly ex-dividend income potential per share of $.45 (annual dividend yield of 2.1%) next Tuesday (August 15th, 2023). So, the two potential return-on-investment results detailed below are: (1) the possibility of early assignment since the August 15th ex-dividend is prior to the August 25th, 2023 options expiration date; and (2) the possibility that this Covered Calls position is in-the-money (and therefore assigned) on the options expiration date. The $.45 dividend is a 12.5% increase above the prior year's dividend level and is ADM's 50th consecutive year of dividend increases which signifies its entry into the Dividend Kings category which it now shares with only 45 other companies. So, it is not surprising that ADM currently appears in my Dividend Growth stock screener -- but it is surprising that it is the only company in the Consumer Staples sector to appear in this screener.
ADM's estimated current FY2023 P/E Ratio is 11.8 which compares favorably with its prior-5-year average P/E of 13.4. It is also notable that they have beat analysts' EPS estimates every quarter for the past 3 years. The average target price for the twelve Wall Street analysts that cover ADM is $98.89 (+16.1% above today's purchase price).
Two potential return-on-investment results are:
- +0.5% absolute return (equivalent to +45.7% annualized return for the next 4 days) if the stock is assigned early (on the last business day prior to the August 15th, 2023 ex-dividend date); OR
- +1.0% absolute return (equivalent to +27.3% annualized return over the next 14 days) if the stock is assigned on the August 25th options expiration date.
These potential returns are very attractive given this is a large-cap company with relatively stable financial performance trends and a low Beta of only .64. Details of this ADM Covered Calls position and two potential return-on-investment results are as follows:
1. Archer-Daniels-Midland Company (ADM) -- New Covered Calls Position
8/11/2023 Bought 200 Archer-Daniels-Midland Co. shares @ $85.15
8/11/2023 Sold 2 ADM 8/25/2023 $83.00 Call options @ $2.57 per share
Note: the Implied Volatility of the Call options was 17.5 when this buy/write transaction was executed.
8/15/2023 Upcoming quarterly ex-dividend of $.45 per share
Two possible overall performance results (including commissions) for this Covered Calls position are as follows:
Covered Calls Net Investment: $16,517.34
= ($85.15 - $2.57) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$512.66
= ($2.57 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on August 14th, the last business day prior to the August 15th ex-div date): +$0.00; or
(b) Dividend Income (If ADM stock assigned at the August 25th, 2023 expiration): $90.00
= ($.45 dividend per share x 200 shares)
(c) Capital Appreciation (If ADM Call options assigned early on August 14th): -$430.00
+($83.00 strike price - $85.15 stock price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $83.00 strike price at the 8/25/2023 options expiration date): -$430.00
+($83.00 - $85.15) * 200 shares
1. Total Net Profit [If option exercised early on the last business day prior to the Aug. 15th ex-dividend date)]: +$82.66
= (+$512.66 options income +$0.00 dividend income -$430.00 capital appreciation); or
2. Total Net Profit (If stock shares assigned at $83.00 strike price at the 8/25/2023 expiration): +$172.66
= (+$512.66 options income +$90.00 dividend income -$430.00 capital appreciation)
1. Absolute Return-on-Investment (If option exercised early on August 14th): +0.5%
= +$82.66/$16,517.34
Annualized Return-on-Investment: +45.7%
= (+$82.66/$16,517.34) * (365/4 days); or
2. Absolute Return-on-Investment (If ADM shares assigned at $83.00 at the 8/25/2023 options expiration date): +1.0%
= +$172.66/$16,517.34
Annualized Return-on-Investment (If shares assigned at the 8/25/2023 expiration date): +27.3%
= (+$172.66/$16,517.34) * (365/14 days)
At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet must be 'YES' prior to establishing a position. As shown below with this Archer-Daniels-Midland position, all nine criteria were met.
2. Microsoft Corporation (MSFT) -- New Covered Call Position
My buy/write net debit limit order was entered and executed shortly thereafter at $310.48 per share with a 100 shares position. The potential time value profit for this ADM Covered Calls position is $2.02 per share [$8.97 Call option premium - ($319.45 stock purchase price - $312.50 strike price)].
In addition to this $2.02 profit potential, there is an upcoming quarterly ex-dividend income potential per share of $.68 (annual dividend yield of 0.9%) next Wednesday (August 16th, 2023). So, the two potential return-on-investment results detailed below are: (1) the possibility of early assignment since the August 16th ex-dividend is prior to the August 18th, 2023 options expiration date; and (2) the possibility that this Covered Call position is in-the-money (and therefore assigned) on the August 18th options expiration date.
Two potential return-on-investment results are:
- +0.6% absolute return (equivalent to +47.3% annualized return for the next 5 days) if the stock is assigned early (on the last business day prior to the August 16th, 2023 ex-dividend date); OR
- +0.9% absolute return (equivalent to +45.2% annualized return over the next 7 days) if the stock is assigned on the August 18th options expiration date.
The transactions were:
8/11/2023 Bought 100 Microsoft Corporation shares @ $319.45
8/11/2023 Sold 1 MSFT 8/18/2023 $312.50 Call option @ $8.97 per share
Note: The Call option Implied Volatility was 25.1 when this transaction was executed.
8/16/2023 Upcoming quarterly ex-dividend of $.68 per share
Two possible overall performance results (including commissions) for this Microsoft Corporation Covered Calls position are as follows:
Covered Call Net Investment: $31,048.67
= ($319.45 - $8.97) * 100 shares + $.67 commissions
Net Profit Components:
(a) Option Income: +$896.33
= ($8.97 * 100 shares) - $.67 commission
(b) Dividend Income (If option exercised early on the business day prior to the 8/16/2023 ex-div date): +$0.00; or
(b) Dividend Income (If MSFT shares assigned at the 8/18/2023 options expiration date): +$68.00
= ($.68 dividend per share x 100 shares)
(c) Capital Appreciation (If MSFT shares assigned early on 8/15/2023): -$695.00
+($312.50 - $319.45) * 100 shares; or
(c) Capital Appreciation (If shares assigned at the $312.50 strike price at the 8/18/2023 options expiration date): -$695.00
+($312.50 -$319.45) * 100 shares
Either outcome would provide an excellent return-on-investment result. These returns will be achieved as long as the stock is above the $312.50 strike price at assignment. If the stock declines below the strike price, the breakeven price of $309.80 ($319.45 -$8.97 -$.68) provides 3.0% downside protection below today's stock purchase price.
The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a dividend capture strategy. The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved. As shown in the table below, all nine criteria are achieved for this Microsoft Corporation Covered Calls position.
8/11/2023 Sold 1 MSFT 8/18/2023 $312.50 Call option @ $8.97 per share
Note: The Call option Implied Volatility was 25.1 when this transaction was executed.
8/16/2023 Upcoming quarterly ex-dividend of $.68 per share
Two possible overall performance results (including commissions) for this Microsoft Corporation Covered Calls position are as follows:
Covered Call Net Investment: $31,048.67
= ($319.45 - $8.97) * 100 shares + $.67 commissions
Net Profit Components:
(a) Option Income: +$896.33
= ($8.97 * 100 shares) - $.67 commission
(b) Dividend Income (If option exercised early on the business day prior to the 8/16/2023 ex-div date): +$0.00; or
(b) Dividend Income (If MSFT shares assigned at the 8/18/2023 options expiration date): +$68.00
= ($.68 dividend per share x 100 shares)
(c) Capital Appreciation (If MSFT shares assigned early on 8/15/2023): -$695.00
+($312.50 - $319.45) * 100 shares; or
(c) Capital Appreciation (If shares assigned at the $312.50 strike price at the 8/18/2023 options expiration date): -$695.00
+($312.50 -$319.45) * 100 shares
1. Total Net Profit [If option exercised on the last business day prior to the Aug. 16th ex-dividend date)]: +$201.33
= (+$896.33 option income + $0.00 dividend income - $695.00 capital appreciation); or
2. Total Net Profit (If MSFT shares assigned at $312.50 strike price at its Aug. 18th, 2023 expiration date): +$269.33
= (+$896.33 option income +$68.00 dividend income -$695.00 capital appreciation)
1. Absolute Return-on-Investment [If MSFT option is exercised on the business day prior to the ex-dividend date]: +0.6%
= +$201.33/$31,048.67
Annualized Return-on-Investment (If option exercised early): +47.3%
= (+$201.33/$31,048.67) * (365/5 days); or
2. Absolute Return (If MSFT shares assigned at $312.50 at the August 18th, 2023 expiration): +0.9%
= +$269.33/$31,048.67
Annualized Return (If MSFT stock assigned at $312.50 at the 8/18/2023 expiration): +45.2%
= (+$269.33/$31,048.67) * (365/7 days)
Either outcome would provide an excellent return-on-investment result. These returns will be achieved as long as the stock is above the $312.50 strike price at assignment. If the stock declines below the strike price, the breakeven price of $309.80 ($319.45 -$8.97 -$.68) provides 3.0% downside protection below today's stock purchase price.
The Covered Calls Advisor has established a set of nine criteria to evaluate potential Covered Calls using a dividend capture strategy. The minimum threshold desired to establish a position is that at least eight of these nine criteria must be achieved. As shown in the table below, all nine criteria are achieved for this Microsoft Corporation Covered Calls position.
