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 27th, 2024 weekly options expiration date and at the $91.00 strike price.  Two hundred TLT shares were purchased at $92.60 per share and two 12/27/2024 $91.00 Calls were sold at $2.20 per share.  The corresponding potential time value profit is $.60 per share [$2.20 Call options premium - ($91.00 strike price - $92.60 ETF purchase price)].  The probability that these Calls will be in-the-money on the options expiration date was 72.4% when this position was established.  In addition to the potential time value profit of $.60 per share, there is an upcoming ex-distribution estimated to occur on December 19th which at approximately $.31 per share and which is prior to the December 27th options expiration date.  This is a repeat of a TLT Covered Calls position that was closed out on November 29th for an annualized return-on-investment achieved of +18.2%.  

Many investors are satisfied with buying-and-holding T-Bonds, but we Covered Calls investors know we can do better than the 4.46% yield currently available buying 20-year T Bonds.  As detailed below, two potential return-on-investment results are: (a) +0.7% absolute return (equivalent to +16.0% annualized return-on-investment for the next 15 days) if TLT is assigned early on the day prior to the Dec. 19th, 2024 ex-distribution date; or (b) +1.0% absolute return (equivalent to +15.9% annualized return-on-investment for the next 23 days) if it is in-the-money and therefore assigned at market close on the December 27th, 2024 options expiration date.  

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

The simultaneous buy/write transaction was as follows:
12/4/2024 Bought 200 iShares 20+ Year Treasury Bond ETF shares at $92.60.

12/4/2024 Sold 2 TLT December 27th, 2024 $91.00 Call options @ $2.20 per share.
12/19/2024 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: $18,081.34
= ($92.60 - $2.20) * 200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$438.66
= ($2.20 * 200 shares) - $1.34 commission

(b) Distribution Income [If TLT is assigned early on the last business day prior to the December 19th ex-distribution date: +$0.00
(b) Distribution Income [If TLT price is in-the-money (i.e. above the $91.00 strike price) and the position is assigned (i.e. closed out) at options expiration on Dec. 27th]: +$62.00

= $.31 distribution per share x 200 TLT shares

(c) Capital Appreciation (If TLT is assigned at the $91.00 strike price either early or on the 12/27/2024 options expiration date): -$320.00

= ($91.00 strike price - $92.60 purchase price) * 200 shares

Total Net Profit:

1.  If TLT shares are assigned early on the day prior to the ex-distribution date: +$118.66
     = (+$438.66 options income +$0.00 distribution income - $320.00 capital appreciation)

2.  If TLT share price is in-the-money (i.e. above the $91.00 strike price) at options expiration: +$180.66
= (+$438.66 options income + $62.00 distribution income - $320.00 capital appreciation)

Potential Absolute Return-on-Investment: 

1. If TLT shares are assigned early on the day prior to the ex-distribution date: +0.7%

    = +$118.66/$18,081.34

2. If TLT shares are above the $91.00 strike price at the Dec. 27th, 2024 options expiration): +1.0%

    = +$180.66/$18,081.34

Potential Annualized Return-on-Investment: 

1. If TLT shares are assigned early on the day prior to the ex-distribution date: +16.0% 

    = (+$118.66/$18,081.34) * (365/15 days)

2. If TLT shares are above the $91.00 strike price at the Dec. 27th, 2024 options expiration): +15.9%

    = (+$180.66/$18,081.34) * (365/23 days)