Established Covered Calls Position in Medtronic PLC

Today a Covered Calls position was established in Medtronic PLC (ticker symbol MDT) when the Covered Calls Advisor's buy/write limit order was executed -- 400 shares were purchased at $88.77 and 4 October 18th, 2024 Call options were sold at $2.19 at the $87.50 strike price.   Given the Covered Calls Advisor's current "Neutral" Overall Market Meter outlook, a slightly in-the-money Covered Calls position was established -- the probability of being in-the-money on the options expiration date was 66.5% when this position was established. In addition, there is an upcoming ex-dividend of $.70 per share next Friday on September 27th which provides an annual dividend yield of 3.2% at today's stock purchase price.  Potential results for this Covered Calls position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the October 18th options expiration date.

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

•  +1.1% absolute return (equivalent to +55.0% annualized return-on-investment for the next 7 days) if the stock is assigned early (business day prior to the September 27th ex-dividend date); OR 

• +1.9% absolute return (equivalent to +24.3% annualized return over the next 28 days) if the stock is assigned on the October 18th, 2024 options expiration date. 
  

Medtronic PLC (MDT) -- New Covered Calls Position
The buy/write transaction was:
9/20/2024 Bought 400 Medtronic PLC shares @ $88.77
9/20/2024 Sold 4 MDT 10/18/2024 $87.50 Call options @ $2.19
Note 1: the Implied Volatility of the Calls was 13.5 when this transaction executed.
Note 2: the Time Value (aka Extrinsic Value) in the Call options was $.92 per share = [$2.19 Call options premium - ($88.77 stock price - $87.50 strike price)]
9/27/2024 Upcoming quarterly ex-dividend of $.70 per share

Two possible overall performance results (including commissions) for this Medtronic Covered Calls position are as follows:
Covered Calls Net Investment: $34,634.68
= ($88.77 - $2.19) * 400 shares + $2.68 commission

Net Profit Components:
(a) Options Income: +$873.32
= ($2.19 * 400 shares) - $2.68 commission
(b) Dividend Income (If option exercised early on Sept. 26th, the business day prior to the Sept. 27th ex-div date): +$0.00; or
(b) Dividend Income (If Medtronic stock assigned at the October 18th, 2024 options expiration date): +$280.00
= ($.70 dividend per share x 400 shares)

(c) Capital Appreciation (If Medtronic Call options assigned early on Sept. 27th): -$508.00
+($87.50 - $88.77) * 400 shares; or
(c) Capital Appreciation (If MDT shares assigned at $87.50 strike price at options expiration): -$508.00
+($87.50 - $88.77) * 400 shares

1. Total Net Profit (If option exercised early): +$365.32

= (+$873.32 options income +$0.00 dividend income -$508.00 capital appreciation); or

2. Total Net Profit (If Medtronic shares assigned at $87.50 strike price at the Oct. 18th, 2024 options expiration date): +$645.32

= (+$873.32 options income +$280.00 dividend income -$508.00 capital appreciation)

1. Absolute Return-on-Investment (If four MDT Call options exercised early on September 27th): +1.1%

= +$365.32/$34,634.68

Annualized Return-on-Investment (If options assigned early): +55.0%

= (+$365.32/$34,634.68) * (365/7 days); or

2. Absolute Return-on-Investment (If Medtronic shares assigned at $87.50 at the October 18th options expiration): +1.9%

= +$645.32/$34,634.68

Annualized Return-on-Investment (If MDT shares assigned at $87.50 at the Oct. 18th, 2024 options expiration): +24.3%
= (+$645.32/$34,634.68) * (365/28 days)

Either outcome provides a satisfactory return-on-investment result for this Medtronic investment.  These returns will be achieved as long as the stock is above the $87.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $85.88 ($88.77 -$2.19 -$.70) provides 3.3% downside protection below today's stock purchase price.