This position uses the Covered Calls Advisor's Dividend Capture Strategy. Lennar has an upcoming quarterly ex-dividend of $.50 per share that goes ex-dividend on October 9th, 2024 which is prior to the October 18th options expiration date. This is equivalent to an absolute annual dividend yield of 1.1% (at the current $182.19 stock price) and more importantly for this Covered Calls position, an equivalent annualized dividend yield of 4.6% = [($.50/$182.19) x (365/22 days-to-expiration)] for the 22 days duration of this position. This dividend is included in the detailed potential return-on-investment calculations below. Either an early assignment on the day prior to the ex-dividend date or on the October 18th, 2024 options expiration date would be desirable to the Covered Calls Advisor given the satisfactory annualized return-on-investment upon assignment for either outcome.
As detailed on the table at the bottom of this post, all nine criteria of the Dividend Capture Strategy are met with this position. The Covered Calls Advisor's current Overall Market Meter outlook remains Neutral and an in-the-money strike price was used in this case. The probability that this position will be in-the-money and therefore assigned on its October 18th, 2024 expiration date was 72.3% when this position was established early this afternoon.
As detailed below, two potential return-on-investment results are:
- +1.3% absolute return (equivalent to +36.6% annualized return-on-investment for the next 13 days) if the stock is assigned early (business day prior to the October 9th ex-dividend date); OR
- +1.6% absolute return (equivalent to +26.4% annualized return over the next 22 days) if the stock is assigned on the October 18th options expiration date.
The simultaneous buy/write transaction was:
9/26/2024 Bought 200 Lennar Corp. shares @ $182.19.
9/26/2024 Sold 2 LEN 10/18/2024 $175.00 Call options @ $9.45 per share.
Note: the Implied Volatility of the Call options was 26.0 when this position was transacted.
10/9/2024 Upcoming quarterly ex-dividend of $.50 per share.
Two possible overall performance results (including commissions) for this Lennar Corp. Covered Calls position are as follows:
Covered Calls Cost Basis: $34,549.34
= ($182.19 - $9.45) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$1,888.66
= ($9.45 * 200 shares) - $1.34 commission
(b) Dividend Income (If options exercised early on Oct. 8th, the business day prior to the Oct. 9th, 2024 ex-div date): +$0.00; or
(b) Dividend Income (If Lennar stock assigned on the Oct. 18th, 2024 options expiration): +$100.00
= ($.50 dividend per share x 200 shares)
+($175.00 - $182.19) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $175.00 strike price at options expiration): -$1,438.00
+($175.00 - $182.19) * 200 shares
Either outcome provides a satisfactory return-on-investment result for this Lennar Covered Calls investment. These returns will be achieved as long as the stock is above the $175.00 strike price at assignment. However, if the stock declines below the strike price, the breakeven price of $172.24 = ($182.19 stock price - $9.45 Call options price - $.50 dividend) provides 5.5% downside protection below today's stock purchase price.
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 in the chart below, eight criteria are achieved for this Lennar Corp. Covered Calls position.
