The details of the associated transactions and a potential return-on-investment result are as follows:
1. Southwest Airlines Co. (LUV)
The transactions were as follows:
05/07/2014 Bought 400 LUV shares @ $24.15
05/07/2014 Sold 4 LUV Jun2014 $24.00 Call Options @ $.85
Note: the price of LUV was $24.15 today when these options were sold.
06/03/2014 Ex-dividend of $.04 per share
A possible overall performance result (including commissions) for these Southwest Airlines covered calls is as follows:
Stock Purchase Cost: $9,668.95
= ($24.15*400+$8.95 commission)
Net Profit:
(a) Options Income: +$328.05
= 400*$.85 - $11.95 commissions
(b) Dividend Income: +$16.00 = $.04 per share * 400 shares
(c) Capital Appreciation (If LUV assigned at $24.00) = -$68.95
= ($24.00-$24.15)*400 - $8.95 commissions
Total Net Profit (If LUV assigned at $24.00): +$275.10
= (+$328.05 +$16.00 -$68.95)
Absolute Return if Assigned (at $24.00): +2.8%
= +$275.10/$9,668.95
Annualized Return If Assigned (ARIA): +22.6%
= (+$275.10/$9,668.95)*(365/46 days)
