Established Covered Calls in Marathon Petroleum Corporation

This morning a Covered Calls position was established in the Marathon Petroleum Corporation (ticker symbol MPC) at a net debit buy/write limit order of $148.46.  Two hundred shares were purchased at $154.87 and two November 29th, 2024 Call options were sold at $6.41 per share at the $150.00 strike price.  This buy/write transaction occurred when there was a 71.6% probability that the stock would be in-the-money and therefore assigned at the $150.00 strike price on the options expiration date.  The potential time value profit is $1.54 per share [$6.41 Call options premium - ($154.87 stock purchase price - $150.00 strike price)].  

In addition to this $1.54 per share time value profit potential, there is an upcoming quarterly ex-dividend income potential per share of $.91 (annual dividend yield of 2.4%) on November 20th, 2024.  The $.91 dividend represents a 10.3% increase above the quarterly dividend level during the same quarter last year.  

Marathon Petroleum Corp.'s Q3 2024 earnings report eight days ago included both a substantial revenue and an earnings per share beat compared with analysts' estimates.  The stock has continued to react positively to this news during the past week.  The 19 analysts that cover Marathon Petroleum Corp. on average have a 'Buy' rating and an average Target Price of $172.00 (+11.1% above today's purchase price).     

Marathon is among the largest of U.S.-based refiners (along with Valero and Phillips 66).  Marathon has refining and marketing along with midstream operations located in the Gulf of Mexico, the Mid-Continent, and the West Coast.

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

•  +1.0% absolute return (equivalent to +53.9% annualized return-on-investment for the next 7 days) if the stock is assigned early (on the last business day prior to the November 20th, 2024 ex-dividend date); OR 

• +1.6% absolute return (equivalent to +37.6% annualized return-on-investment over the next 16 days) if the stock is assigned on the November 29th options expiration date.

Marathon Petroleum Corp. (MPC) -- New Covered Call Position

The buy/write transaction was:
11/13/2024 Bought 200 Marathon Petroleum Corp. shares @ $154.87
11/13/2024 Sold 2 MPC 11/29/2024 $150.00 Call options @ $6.41 per share
Note: the Implied Volatility of the Call options was 22.8 when this buy/write transaction was executed.  As preferred, this exceeds the Implied Volatility of the S&P 500 (i.e. SPY) which is currently 14.6.
11/20/2024 Upcoming quarterly ex-dividend of $.91 per share

Two possible overall performance results (including commissions) for this Covered Calls position are as follows:
Covered Call Net Investment: $29,693.34
= ($154.87 - $6.41) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: +$1,280.66
= ($6.41 * 200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on Nov. 19th, the last business day prior to the November 20th ex-div date): +$0.00; or
(b) Dividend Income (If MPC stock assigned at the Nov. 29th, 2024 expiration): $182.00
= ($.91 dividend per share x 200 shares)
(c) Capital Appreciation (If Marathon Petroleum Call option is assigned early on Nov. 19th): -$974.00
+($150.00 strike price - $154.87 stock price) * 200 shares; or
(c) Capital Appreciation (If shares assigned at $150.00 strike price at the Nov. 29th options expiration): -$974.00
+($150.00 - $154.87) * 200 shares

1. Total Net Profit [If option exercised early on the last business day prior to the Nov. 20th ex-dividend date)]: +$306.66

= (+$1,280.66 options income +$0.00 dividend income -$974.00 capital appreciation); or

2. Total Net Profit (If stock shares assigned at $150.00 strike price at the Nov. 29th, 2024 expiration): +$488.66

= (+$1,280.66 options income +$182.00 dividend income -$974.00 capital appreciation)

1. Absolute Return-on-Investment (If the Call option is exercised early on Nov. 20th): +1.0%

= +$306.66/$29,693.34

Annualized Return-on-Investment: +53.9%

= (+$306.66/$29,693.34) * (365/7 days); or

2. Absolute Return-on-Investment (If Marathon Petroleum Corp. shares assigned at $150.00 on the Nov. 29th, 2024 options expiration date): +1.6%

= +$488.66/$29,693.34

Annualized Return-on-Investment (If MPC shares assigned at the 11/29/2024 expiration date): +37.6%

= (+$488.66/$29,693.34) * (365/16 days)

Either outcome provides a very attractive return-on-investment result for this Marathon Petroleum investment.  These returns will be achieved as long as the stock is above the $150.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $147.55 ($154.87 - $6.41 - $.91) provides a 4.7% downside protection below today's purchase price.

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 Marathon Petroleum Corp. position, all nine criteria were met.