General Dynamics has an upcoming quarterly ex-dividend of $1.42 per share that goes ex-dividend this Friday (October 11th, 2024) which is prior to the October 18th, 2024 monthly options expiration date. This is equivalent to an absolute annual dividend yield of 1.9% (at the current $296.53 stock price). 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 attractive annualized return-on-investment upon assignment for either outcome. The probability that this position will be in-the-money and therefore assigned on its Oct. 18th option expiration date was 69.2% when this position was established and as preferred, the next quarterly earnings report on Oct. 23rd is after the Oct. 18th options expiration date.
As shown in my StockRover Overall stock screener results in the table below, General Dynamics meets all sixteen filters, and it is currently the only Industrial sector stock that meets all sixteen filters:
- +0.6% absolute return (equivalent to +67.5% annualized return-on-investment for the next 3 days) if the stock is assigned early (business day prior to the October 11th ex-dividend date); OR
- +1.0% absolute return (equivalent to +38.1% annualized return over the next 10 days) if the stock is assigned on the October 18th options expiration date.
The simultaneous buy/write transaction was:
10/8/2024 Bought 100 General Dynamics Corporation shares @ $296.53.
10/8/2024 Sold 1 GD 10/18/2024 $292.50 Call option @ $5.65 per share.
Note: the Implied Volatility of the Call option was 14.3 when this position was established.
10/11/2024 Upcoming quarterly ex-dividend of $1.42 per share.
Two possible overall performance results (including commissions) for this General Dynamics Corporation Covered Call position are as follows:
Covered Call Cost Basis: $29,088.67
= ($296.53 - $5.65) * 100 shares + $.67 commission
Net Profit Components:
(a) Option Income: +$564.33
= ($5.65 * 100 shares) - $.67 commission
(b) Dividend Income (If option exercised early on Oct. 10th, the business day prior to the Oct. 11th, 2024 ex-div date): +$0.00; or
(b) Dividend Income (If GD stock assigned on the Oct. 18th, 2024 options expiration): +$142.00
= ($1.42 dividend per share x 100 shares)
+($292.50 strike price - $296.53 stock purchase price) * 100 shares; or
(c) Capital Appreciation (If shares assigned at $292.50 strike price at option expiration): -$403.00
+($292.50 - $296.53) * 100 shares
Either outcome provides an attractive return-on-investment result for this General Dynamics Covered Call investment. These returns will be achieved as long as the stock is above the $292.50 strike price at assignment. However, if the stock declines below the strike price, the breakeven price of $289.46 = ($296.53 stock price - $5.65 Call option price - $1.42 dividend) provides 2.4% downside protection below today's stock purchase price.
