This Gap Covered Calls position was established to take advantage of my Dividend Capture Strategy (see details here) since there is an upcoming quarterly ex-dividend of
$.165 per share (2.6% dividend yield) on January 7th, 2026. So two potential
return-on-investment results for this position, as detailed below,
include the possibility of early assignment because the ex-dividend is 9 days prior to the January 16th, 2026 options expiration date. An in-the-money Covered Calls position was established when the probability of the stock closing in-the-money (and therefore being assigned) on the 1/16/2026 options expiration date was 63.5%. Also, there is no quarterly earnings report prior to the options expiration date.
Gap, Inc. operates as an apparel retail company that offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. In Q3, Gap comparable store sales
increased 7%, Old Navy increased 6%, Banana
Republic increased 4%, while Athleta declined
11%. However, Athleta accounts for less than
10% of total sales.
Gap did not appear in any of my stock screeners, but two of my favorite stock reports are CFRA and LSEG, both of which currently have Buy ratings on Gap stock. LSEG has an Average Rating of 8 and an Optimized Rating of 9 (on a scale of 1 to 10) on the company and the average target price of analysts is $29.20 (+13.1% above today's stock purchase price).
Gap Inc. (GAP) -- New Covered Calls Position
The buy/write transaction was:
12/29/2025 Bought 600 Gap Inc. shares @ $25.81
12/29/2025 Sold 6 Gap 1/16/2026 $25.00 Call options @ $1.34
Note: the Implied Volatility of the Call options was 38.3 when this buy/write transaction was executed.
1/7/2026 Upcoming quarterly ex-dividend of $.165 per share
Two possible overall performance results (including commissions) for this Gap Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $14,686.02
= ($25.81 - $1.34) * 600 shares + $4.02 commission
Net Profit Components:
(a) Options Income: +$799.98
= ($1.34 * 600 shares) - $4.02 commission
(b) Dividend Income (If option exercised early on Jan. 6th, the last business day prior to the January 7th ex-dividend date): +$0.00; or
(b) Dividend Income (If Gap shares assigned at the January 16th, 2026 expiration): +$99.00 = ($.165 dividend per share x 600 shares)
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 Gap Inc. position, all nine criteria were met.
As detailed below, two potential return-on-investment results are:
- +2.1% absolute return (equivalent to +86.7% annualized return-on-investment for the next 9 days) if the Calls are assigned early (on the last business day prior to the January 7th, 2026 ex-dividend date); OR
- +2.8% absolute return (equivalent to +57.0% annualized return-on-investment over the next 18 days) if the stock is assigned on the January 16th, 2026 options expiration date.
Gap Inc. (GAP) -- New Covered Calls Position
The buy/write transaction was:
12/29/2025 Sold 6 Gap 1/16/2026 $25.00 Call options @ $1.34
Note: the Implied Volatility of the Call options was 38.3 when this buy/write transaction was executed.
1/7/2026 Upcoming quarterly ex-dividend of $.165 per share
Two possible overall performance results (including commissions) for this Gap Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $14,686.02
= ($25.81 - $1.34) * 600 shares + $4.02 commission
Net Profit Components:
(a) Options Income: +$799.98
= ($1.34 * 600 shares) - $4.02 commission
(b) Dividend Income (If option exercised early on Jan. 6th, the last business day prior to the January 7th ex-dividend date): +$0.00; or
(b) Dividend Income (If Gap shares assigned at the January 16th, 2026 expiration): +$99.00 = ($.165 dividend per share x 600 shares)
(c) Capital Appreciation (If Gap Call options assigned early on January 7th): -$486.00
+($25.00 strike price - $25.81 stock purchase price) * 600 shares; or
(c) Capital Appreciation (If shares assigned at $25.00 strike price at the 1/16/2026 options expiration): -$486.00
+($25.00 - $25.81) * 600 shares
(c) Capital Appreciation (If shares assigned at $25.00 strike price at the 1/16/2026 options expiration): -$486.00
+($25.00 - $25.81) * 600 shares
1. Total Net Profit [If option exercised early on the last business day prior to the Jan. 7th ex-dividend date)]: +$313.98
= (+$799.98 options income + $0.00 dividend income - $486.00 capital appreciation); or
2. Total Net Profit (If Gap shares assigned at $25.00 strike price at the January 16th, 2026 expiration): +$412.98
= (+$799.98 options income + $99.00 dividend income - $486.00 capital appreciation)
1. Potential Absolute Return-on-Investment (If option exercised early on 1/7/2026): +2.1%
= +$313.98/$14,686.02
Potential Annualized Return-on-Investment: +86.7%
= (+$313.98/$14,686.02) * (365/9 days); or
2. Potential Absolute Return-on-Investment (If Gap Inc. shares assigned at $25.00 at the January 16th, 2026 options expiration date): +2.8%
= +$412.98/$14,686.02
Potential Annualized Return-on-Investment (If Gap shares assigned at the Jan. 16th, 2026 options expiration date): +57.0%
= (+$412.98/$14,686.02) * (365/18 days)
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 Gap Inc. position, all nine criteria were met.
