Established Covered Calls Position in the Bank of New York Mellon Corp.

A November 4th, 2022 Covered Calls buy/write limit order was placed in Bank of New York Mellon Corp. (ticker BK) at a net debit limit price of $37.50 per share.  The order was executed and 400 shares were purchased at $39.88 and four November 4th Call options were sold at the $38.00 strike price for $2.38 per share.  The Implied Volatility of these Call options was 34.3 when this transaction was executed and the Delta was 72.5.  In addition, there is an upcoming quarterly ex-dividend of $.37 per share (3.7% annual dividend yield) on October 26th which is prior to the options expiration date; so it is included in the potential return-on-investment calculations detailed below. 

The Bank of New York Mellon Corp. meets the five primary criteria currently preferred for new positions established by the Covered Calls Advisor:

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

•  +1.3% absolute return (equivalent to +60.0% annualized return for the next 8 days) if the stock is assigned early (business day prior to the October 26th, 2022 ex-dividend date); OR 

• +2.3% absolute return (equivalent to +46.7% annualized return over the next 18 days) if the stock is assigned on the November 4th, 2022 options expiration date.

These returns will be achieved as long as the Bank of New York Mellon's stock price is above the $38.00 strike price at options expiration.  If the stock declines below the strike price, the breakeven price of $37.13 per share ($39.88 stock purchase price - $2.38 Call options selling price - $.37 ex-dividend amount) provides a substantial 6.9% downside breakeven protection below today's stock purchase price.
 

Bank of New York Mellon Corp. (BK) -- New Covered Calls Position

In the unlikely event that the stock price increases to the point where the current time value (i.e. extrinsic value) of $.50 remaining in the short Call options decays substantially (down to about $.15 or less) by October 25th, 2022 (the last business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 400 Bank of New York Mellon shares away to capture the dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be a very desirable outcome since its +60.0% annualized return-on-investment (aroi) exceeds the +46.7% aroi that would be achieved if the assignment was instead at the November 4th options expiration date.

The simultaneous buy/write transaction was:
10/18/2022 Bought 400 Bank of New York Mellon Corp. shares @ $39.88
10/18/2022 Sold 4 BK Nov. 4th, 2022 $38.00 Call options @ $2.38 per share
10/26/2022 Upcoming quarterly ex-dividend at $.37 per share

Two possible overall performance results (including commissions) for this Bank of New York Mellon Covered Calls position are as follows:
Stock Purchase Cost Basis: $15,002.68
= ($39.88 - $2.38) * 400 shares + $2.68 commission

Net Profit:
(a) Options Income: +$949.32
= ($2.38 * 400 shares) - $2.68 commission
(b) Dividend Income (If option exercised early on October 25th, the business day prior to the October 26th ex-div date): +$0.00; or
(b) Dividend Income (If Bank of New York's shares assigned at the Nov 4th, 2022 expiration): +$148.00
= ($.37 dividend per share x 400 shares)

(c) Capital Appreciation (If Bank of New York Mellon's stock assigned early): -$752.00
+($38.00 -$39.88) * 400 shares; or
(c) Capital Appreciation (If BK's shares assigned at $38.00 strike price at expiration): -$752.00
+($38.00-$39.88) * 400 shares

1. Total Net Profit [If option exercised on the last business day prior to the Oct. 26th ex-dividend date)]: +$197.32

= (+$949.32 options income +$0.00 dividend income -$752.00 capital appreciation); or

2. Total Net Profit (If Bank of New York's shares assigned at $38.00 at November 4th, 2022 expiration): +$345.32

= (+$949.32 options income +$148.00 dividend income -$752.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on business day prior to ex-dividend date): +1.3%

= +$197.32/$15,002.68

Annualized Return-on-Investment (If option exercised early): +60.0%

= (+$197.32/$15,002.68) * (365/8 days); or

2. Absolute Return-on-Investment (If shares assigned at $38.00 at Nov. 4th expiration date): +2.3%

= +$345.32/$15,002.68

Annualized Return-on-Investment (If BK shares assigned at $38.00 at Nov. 4th, 2022 options expiration): +46.7%

= (+$345.32/$15,002.68) * (365/18 days)

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  As shown below, all nine criteria are achieved in this Bank of New York Mellon Corp. position.

Covered Call Position Established in Caterpillar Inc.

Today at 12:12 pm (EDT), a new Covered Call position was established in Caterpillar Inc. (ticker CAT) with an October 28th, 2022 options expiration date.  A buy/write limit order with a debit price of $167.26 was executed when one hundred shares of Caterpillar stock were purchased at $178.61 and one in-the-money 10/28/2022 $170.00 strike price Call option was sold for $11.35 per share.  The time value when this Covered Calls position was established was $2.74 per share = [$11.35 Call option price - ($178.61 stock price - $170.00 strike price)].  Given the Covered Calls Advisor's current cautious outlook, an in-the-money Covered Call position was established.  The Delta was 71.7 which approximates a probability of 71.7% that the Call option will be in-the-money and therefore the stock assigned (i.e. sold) on the options expiration date.  

There is a $1.20 per share ex-dividend next Friday (October 21st) which is included in the potential return-on-investment results detailed below.   There is an earnings report before market open on the October 28th options expiration date.  Because of the usual stock price volatility immediately after quarterly earnings releases, I prefer not holding positions then.  So, I will be monitoring this Caterpillar Covered Call position closely every day starting on next Friday's ex-dividend date since closing out the position on or after the ex-dividend date but prior to the earnings date is a likely possibility. 

As detailed below, a potential return-on-investment result if assigned on the Oct. 28th options expiration date is +2.4% absolute return in 15 days (equivalent to a +57.2% annualized return-on-investment). 

 
Caterpillar Inc. (CAT) -- New Covered Call Position

The simultaneous buy/write transaction was as follows:
10/14/2022 Bought 100 shares of Caterpillar stock @ $178.61 per share 
10/14/2022 Sold 1 Caterpillar October 28th, 2022 $170.00 Call option @ $11.35 per share.  Note: the Implied Volatility of this Call option was 43.8 when this buy/write transaction was executed.
10/21/2022 Upcoming $1.20 per share ex-dividend

A possible overall performance result (including commissions) if assigned on the Oct. 28th options expiration date would be as follows:
Covered Call Net Investment: $16,726.67
= ($178.61 - $11.35)* 100 shares + $.67 commission

Net Profit Components:
(a) Option Income: +$1,134.33
= ($11.35 * 100 shares) - $.67 commission
(b) Dividend Income: +$120.00 = $1.20 per share x 100 shares 
(c) Capital Appreciation (If CAT stock is above $170.00 strike price at the Oct. 28th options expiration date): -$861.00
= ($170.00 -$178.61) * 100 shares

Total Net Profit: +$393.33
= (+$1,134.33 option income +$120.00 dividend income -$861.00 capital appreciation)

Absolute Return-on-Investment: +2.4%
= +$393.33/$16,726.67
Equivalent Annualized Return-on-Investment: +57.2%
= (+$393.33/$16,726.67) * (365/15 days)

Closed Out Abbvie Inc. Covered Calls Position

Yesterday, with no time value remaining the October 21st, 2022 $130.00 Call options, the Covered Calls position was rolled-up-and-out to the October 28th, 2022 $137.00 strike price -- see yesterday's post here .  The objective in this rollout transaction was to ensure that Abbvie's $1.41 per share ex-dividend today would be captured along with the potential to achieve a higher annualized-return-on-investment by closing the position before the October 28th expiration date.  By owning the Abbvie shares at yesterday's close, I will receive the $1.41 per share dividend.  But, with the strong upside move in Abbvie's stock today, I decided to go ahead and close out this Covered Calls position.  

As detailed below, the return-on-investment result for this Abbvie Inc. position is +1.2% absolute return in 13 days (equivalent to a +33.8% annualized return-on-investment). 

Abbvie Inc. (ABBV) -- Covered Calls Position Closed
The simultaneous buy/write transaction was as follows:
9/30/2022 Bought 200 shares of Abbvie Inc. stock @ $136.86 per share 
9/30/2022 Sold 2 ABBV October 21st, 2022 $130.00 Call options @ $8.24 per share.  The Implied Volatility of these Calls was 31.4 when this position was established.
10/12/2022 Rolled-Up-and-Out: Bought-to-Close the 10/21/2022 $130.00 Calls for $12.55 and simultaneously Sold-to-Open the 10/28/2022 $137.00 Calls at $6.75.
10/13/2022 Captured the Abbvie quarterly ex-dividend of $1.41 per share
10/13/2022 Closed out (i.e. unwound) this Abbvie Covered Calls position by Selling-to-Close 200 ABBV shares at $140.89 and simultaneously Buying-to-Close 2 10/28/2022 $137.00 Calls at $6.31 per share.  

The overall performance results (including commissions) are as follows:
Covered Calls Net Investment: $25,725.34
= ($136.86 - $8.24) * 200 shares + $1.34 commission

Net Profit Components:
(a) Options Income: -$778.02
= ($8.24 - $12.55 + $6.75 -$6.31) * 200 shares - $4.02 commission
(b) Dividend Income: +$282.00
= $1.41 per share x 200 shares
(c) Capital Appreciation (ABBV shares sold today at $140.89): +$806.00
= ($140.89 stock sales price - $136.86 stock purchase price) * 200 shares

Net Profit: +$309.98
= (-$778.02 options income +$282.00 dividend income + $806.00 capital appreciation)

Absolute Return-on-Investment: +1.2%
= +$309.98/$25,725.34
Equivalent Annualized Return-on-Investment (If assigned on the 10/21/2022 options expiration date): +33.8%
= (+$309.98/$25,725.34) * (365/13 days)

Established Covered Calls Position in Lowe's Companies Inc.

An October 28th, 2022 Covered Calls buy/write limit order was placed in Lowe's Companies Inc. (ticker LOW) at a net debit limit price of $178.20 per share.  The order was executed by purchasing 200 shares at $190.48 and simultaneously selling two October 28th Call options at the $180.00 strike price for $12.28 per share.  The Implied Volatility of these Call options was 34.4 when this transaction was executed and the Delta was 78.5.  In addition, there is an upcoming quarterly ex-dividend of $1.05 per share (2.2% annual dividend yield) on October 18th which is prior to the options expiration date so it is included in the potential return-on-investment calculations detailed below. 

Lowe's meets the five primary criteria currently preferred for new positions established by the Covered Calls Advisor:

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

•  +1.0% absolute return (equivalent to +73.5% annualized return for the next 5 days) if the stock is assigned early (business day prior to the October 18th, 2022 ex-dividend date); OR 

• +1.6% absolute return (equivalent to +36.4% annualized return over the next 16 days) if the stock is assigned on the October 28th, 2022 options expiration date.

These returns will be achieved as long as the Lowe's stock price is above the $180.00 strike price at options expiration.  If the stock declines below the strike price, the breakeven price of $177.15 per share ($190.48 stock purchase price - $12.28 Call options selling price - $1.05 ex-dividend amount) provides a substantial 7.0% downside breakeven protection below today's stock purchase price.
 

Lowe's Companies Inc. (LOW) -- New Covered Calls Position

In the relatively unlikely event that the stock price increases to the point where the current time value (i.e. extrinsic value) of $1.80 remaining in the short Call options decays substantially (down to about $.15 or less) by October 17th, 2022 (the last business day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 Lowe's shares away to capture the dividend payment.  As detailed in the Dividend Capture spreadsheet below, early assignment would be a very desirable outcome since its +73.5% annualized return-on-investment (aroi) exceeds the +36.4% aroi that would be achieved if the assignment was instead at the October 28th options expiration date.

The simultaneous buy/write transaction was:
10/13/2022 Bought 200 Lowe's shares @ $190.48
10/13/2022 Sold 2 Lowe's Oct. 28th, 2022 $180.00 Call options @ $12.28 per share
10/18/2022 Upcoming quarterly ex-dividend at $1.05 per share

Two possible overall performance results (including commissions) for this Lowe's Companies Covered Calls position are as follows:
Stock Purchase Cost Basis: $35,641.34
= ($190.48 - $12.28) *200 shares + $1.34 commission

Net Profit:
(a) Options Income: +$2,454.66
= ($12.28 *200 shares) - $1.34 commission
(b) Dividend Income (If option exercised early on October 17th, the business day prior to the October 18 ex-div date): +$0.00; or
(b) Dividend Income (If Lowe's shares assigned at the Oct. 28th, 2022 expiration): +$210.00
= ($1.05 dividend per share x 200 shares)

(c) Capital Appreciation (If Lowe's stock assigned early): -$2,096.00
+($180.00 -$190.48) * 200 shares; or
(c) Capital Appreciation (If Lowe's assigned at $180.00 strike price at expiration): -$2,096.00
+($180.00-$190.48) * 200 shares

1. Total Net Profit [If option exercised on the last business day prior to the Oct. 18th ex-dividend date)]: +$358.66

= (+$2,454.66 options income +$0.00 dividend income -$2,096.00 capital appreciation); or

2. Total Net Profit (If Lowe's assigned at $180.00 at October 28th, 2022 expiration): +$568.66

= (+$2,454.66 options income +$210.00 dividend income -$2,096.00 capital appreciation)

1. Absolute Return-on-Investment (If option exercised on business day prior to ex-dividend date): +1.0%

= +$358.66/$35,641.34

Annualized Return-on-Investment (If option exercised early): +73.5%

= (+$358.66/$35,641.34) * (365/5 days); or

2. Absolute Return-on-Investment (If Lowe's assigned at $180.00 at October 28th expiration date): +1.6%

= +$568.66/$35,641.34

Annualized Return-on-Investment (If Lowe's shares assigned at $180.00 at Oct 28th, 2022 options expiration): +36.4%

= (+$568.66/$35,641.34) *(365/16 days)

At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy.  As shown below, all nine criteria are achieved in this Lowe's Companies Inc. position.