A buy/write limit order in Citigroup Inc. (ticker C) was executed at the Covered Calls Advisor's net debit price of $59.47 per share. Five hundred shares were purchased at $62.67 and five November 8th, 2024 weekly Call options were sold for $3.20 at the $60.00 strike price, a time value of $.53 = [$3.20 options premium - ($62.67 stock price - $60.00 strike price)] per share.
This position uses the Covered Calls Advisor's Dividend Capture Strategy. Citigroup announced (after market close yesterday) its next upcoming quarterly ex-dividend of $.56 per share (an increase from the previous rate of $.53) that goes ex-dividend on November 1st, 2024 which is prior to the November 8th options expiration date. This is equivalent to an absolute annual dividend yield of 3.6% (at the current $62.67 stock price) and more importantly for this Covered Calls position, an equivalent annualized dividend yield of 21.7% = [($.56/$62.67) x (365/15 days-to-expiration)] for the 15 days duration of this position. This dividend is included in the detailed potential return-on-investment calculations below. Either an early assignment on the day prior to the ex-dividend date or on the November 8th, 2024 options expiration date would be desirable to the Covered Calls Advisor given the attractive potential annualized return-on-investment upon assignment for either outcome.
Citigroup has beat analysts' earnings-per-share estimates in each of their past 4 quarters and they project fiscal year 2025 eps to be +23.2% above this year. In addition, Citi's price-to-tangible-book-value of .65 is less than half that of all its mega-bank peers. The 22 analysts following Citi have a buy rating on the stock and an average target price of $73.20 (+16.8% above today's purchase price).
As detailed on the table at the bottom of this post, all nine criteria of
the Dividend Capture Strategy are met
with this position. The Covered Calls Advisor's current Overall Market Meter outlook remains Neutral and an in-the-money strike price was used in this case. The probability that this position will be in-the-money and therefore assigned on its November 8th, 2024 expiration date was 76.3% when this position was established.
As detailed below, two potential return-on-investment results are:
- +0.9% absolute return (equivalent to +40.1% annualized
return-on-investment for the next 8 days) if the stock is assigned early (business day
prior to the November 1st ex-dividend date); OR
- +1.8% absolute return (equivalent to +44.3% annualized return-on-investment over the next 15 days) if the stock is assigned on the November 8th options expiration date.
Citigroup Inc. (C) -- New Covered Calls Position
The simultaneous buy/write transaction was:
10/24/2024 Bought 500 Citigroup Inc. shares @ $62.67.
10/24/2024 Sold 5 C 11/08/2024 $60.00 Call options @ $3.20 per share.
Note: The Implied Volatility of the Call options was 27.9 when this position was transacted.
11/01/2024 Upcoming quarterly ex-dividend of $.56 per share.
Two possible overall performance results (including commissions) for this Citigroup Inc. Covered Calls position are as follows:
Covered Calls Cost Basis: $29,738.35
= ($62.67 - $3.20) * 500 shares + $3.35 commission
Net Profit Components:
(a) Options Income: +$1,596.65
= ($3.20 * 500 shares) - $3.35 commission
(b) Dividend Income (If options exercised early on Oct. 31st, the business day prior to the Nov. 1st, 2024 ex-div date): +$0.00;
or
(b) Dividend Income (If Citigroup stock assigned on the Nov. 8th, 2024 options expiration): +$280.00
= ($.56 dividend per share x 500 shares)
(c) Capital Appreciation (If Citi Call options assigned early on October 31st): -$1,335.00
+($60.00 strike price - $62.67 stock purchase price) * 500 shares; or
(c) Capital Appreciation (If shares assigned at $60.00 strike price at options expiration): -$1,335.00
+($60.00 - $62.67) * 500 shares
1. Total Net Profit (If options exercised early): +$261.65
= (+$1,596.65 options income +$0.00 dividend income -$1,335.00 capital appreciation); or
2. Total Net Profit (If Citi shares assigned at $60.00 at the Nov. 1st, 2024 expiration): +$541.65
= (+$1,596.65 +$280.00 -$1,335.00)
1. Absolute Return-on-Investment [If option exercised on business day prior to the Nov. 1st ex-dividend date]: +0.9%
= +$261.65/$29,738.35
Annualized Return-on-Investment (If option exercised early): +40.1%
= (+$261.65/$29,738.35) * (365/8 days); or
2. Absolute Return-on-Investment (If Citi shares assigned on the Nov. 8th, 2024 options expiration date): +1.8%
= +$541.65/$29,738.35
Annualized Return-on-Investment (If Citi shares assigned at $60.00 at the Nov. 1st, 2024 expiration): +44.3%
= (+$541.65/$29,738.35) * (365/15 days)
Either
outcome provides a satisfactory return-on-investment result for this
Citigroup Covered Calls investment. These returns will be achieved as long as the stock is
above the $175.00 strike price at assignment. However, if the stock declines
below the strike price, the breakeven price of $172.24 = ($182.19 stock price - $9.45 Call options price - $.50 dividend)
provides 5.5% downside protection below today's stock purchase
price.
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 in the chart below, all nine criteria are achieved for this Citigroup Covered Calls position.
