Established Covered Calls Position in the iShares 20+ Year Treasury Bond ETF

Today a short-term in-the-money Covered Calls position was established in the iShares 20+ Year Treasury Bond ETF (ticker TLT) at the December 6th, 2024 weekly options expiration date and at the $89.50 strike price.  Three hundred TLT shares were purchased at $90.54 per share and three 12/6/2024 $89.50 Calls were sold at $1.49 per share. The corresponding potential time value profit is $.45 per share [$1.49 Call options premium - ($89.50 strike price - $90.54 ETF purchase price)].  The probability that these Calls will be in-the-money on the options expiration date was 70.1% when this position was established.  In addition to the potential time value profit of $.45 per share, there is an upcoming monthly ex-distribution on December 1st which will be approximately $.31 per share and which is prior to the December 6th options expiration date.  

As you know, I normally prefer to establish Covered Calls using individual stocks rather than broader indices such as ETFs.  The reasons for this is described in my prior post entitled "Exploiting Our Covered Calls Investing "Edges"' (see items #2 and #3 in the article here).  Many investors are satisfied with buying-and-holding T-Bonds, but we Covered Calls investors know we can do better than the 4.39% yield currently available buying 30-year T Bonds.  This is true not only for our usual Covered Calls positions using stocks as the underlying equity, but this TLT Covered Calls position demonstrates that it is also true for Covered Calls with this conservative Treasury Bond ETF (i.e. TLT), whose potential annualized-return-on-investment (aroi) result of +22.1% at the options expiration date, as detailed below, greatly exceeds the current yield from simply owning long-term Treasury Bonds. 

Two potential return-on-investment results are: (a) +0.5% absolute return (equivalent to +18.2% annualized return-on-investment for the next 10 days) if TLT is assigned early on the day prior to the Dec. 2nd, 2024 ex-distribution date; or (b) +0.8% absolute return (equivalent to +22.1% annualized return-on-investment for the next 14 days) if it is assigned at market close on the December 6th, 2024 options expiration date.  

iShares 20+ Year Treasury Bond ETF (TLT) -- New Covered Calls Position 

The simultaneous buy/write transaction was as follows:
11/22/2024 Bought 300 iShares 20+ Year Treasury Bond ETF shares at $90.54.

11/22/2024 Sold 3 TLT December 6th, 2024 $89.50 Call options @ $1.49 per share.
12/1/2023 Estimated ex-distribution of $.31 per share.

The overall performance results (including commissions) if TLT remains in-the-money at options expiration would be as follows:
Covered Calls Net Investment: $26,717.01
= ($90.54 - $1.49) * 300 shares + $2.01 commission

Net Profit:
(a) Options Income: +$444.99
= ($1.49 * 300 shares) - $2.01 commission

(b) Distribution Income [If TLT is assigned early on the last business day prior to the December 2nd ex-distribution date: +$0.00
(b) Distribution Income [If TLT price is in-the-money (i.e. above the $89.50 strike price) and the position is assigned (i.e. closed out) at options expiration on Dec. 6th]: +$93.00

= $.31 distribution per share x 300 TLT shares

(c) Capital Appreciation (If TLT is assigned at the $87.00 strike price either early or on the 5/10/2024 options expiration date): -$312.00

= ($89.50 strike price - $90.54 purchase price) * 300 shares

Total Net Profit:

1.  If TLT shares are assigned early on the day prior to the ex-distribution date: +$132.99
     = (+$444.99 options income +$0.00 distribution income -$312.00 capital appreciation)

2.  If TLT share price is in-the-money (i.e. above the $89.50 strike price) at options expiration: +$225.99
= (+$444.99 options income +$93.00 distribution income -$312.00 capital appreciation)

Potential Absolute Return-on-Investment: 

1. If TLT shares are assigned early on the day prior to the ex-distribution date: +0.5%

    = +$132.99/$26,717.01

2. If TLT shares are above the $89.50 strike price at the Dec. 6th, 2024 options expiration): +0.8%

    = +$225.99/$26,717.01

Potential Annualized Return-on-Investment: 

1. If TLT shares are assigned early on the day prior to the ex-distribution date: +18.2% 

    = (+$132.99/$26,717.01) * (365/10 days)

2. If TLT shares are above the $89.50 strike price at the Dec. 6th, 2024 options expiration): +22.1%

    = (+$225.99/$26,717.01) * (365/14 days)