Established Boeing Co. Covered Calls -- Example of Early Assignment or Dividend Capture Strategy

Today, a new covered call position was established in Boeing Company (Ticker Symbol BA) with a Nov2014 expiration and at the $120.00 strike price. The transactions are as follows:

10/22/2014 Bought 100 BA shares @ $122.579
10/22/2014 Sold 1 BA Nov2014 $120.00 Call Option @ $4.60
Note: the price of BA was $122.90 today when this Call option was sold.
11/05/2014 Ex-dividend of $.73 per share

This covered calls investment is a strategic one that explicitly considers the upcoming quarterly dividend of $.73 with an ex-dividend date of November 5th.  Although unlikely, if the current time value (i.e. extrinsic value) of $2.021 [$4.60 option premium - ($122.579 stock price - $120.00 strike price)] remaining in the short call option decays to less than $.73 by November 4th (the day prior to the ex-div date), then there is a possibility that the call option owner will exercise early and will call the stock away to capture the dividend. As shown below, two potential returns for this position are:

If Early Assignment: +1.5% absolute return (equivalent to +39.0% annualized return for the next 14 days) if the stock is assigned early (day prior to Nov 5th ex-div date); OR

If Dividend Capture:  +2.1% absolute return (equivalent to +24.6% annualized return over the next 31 days) if the stock is assigned at Nov2014 expiration on November 21st.

As is often the case, early assignment provides a higher annualized return, so this is the Covered Calls Advisor's preferred outcome; but either outcome would provide a very good return.  These returns will be achieved as long as the stock is above the $120.00 strike price at assignment -- a 2.1% of downside protection.  Alternatively, if the stock declines below the strike price, the breakeven price of $117.249 ($122.579-$.73-$4.60) provides a nice 4.3% downside protection. 

In summary, this covered calls investment provides a very nice annualized ROI potential for such a conservative (hedged with good downside protection and with no upcoming earnings announcement prior to Nov2014 options expiration) investment. 

Two possible overall performance results (including commissions) for this Boeing Co. (BA) covered calls position are as follows:
Stock Purchase Cost: $12,266.85
= ($122.579*100+$8.95 commission)

Net Profit:
(a) Options Income: +$450.30
= ($4.60*100 shares) - $9.70 commissions
(b) Dividend Income (If option exercised early on day prior to Nov 5th ex-div date): +$0.00
(b) Dividend Income (If stock assigned at Nov2014 expiration): +$73.00
= ($.73 dividend per share x 100 shares); or

(c) Capital Appreciation (If stock assigned early on Nov 4th): -$266.85
+($120.00-$122.579)*100 - $8.95 commissions; or
(c) Capital Appreciation (If stock assigned at $120.00 at Nov2014 expiration): -$266.85
+($120.00-$122.579)*100 - $8.95 commissions

Total Net Profit (If option exercised on day prior to Nov 5th ex-div date): +$183.45
= (+$450.30 +$0.00 -$266.85); or
Total Net Profit (If stock assigned at $120.00 at Nov2014 expiration): +$256.45

= (+$450.30 +$73.00 -$266.85)

1. Absolute Return (If option exercised on day prior to Nov 5th ex-div date): +1.5%
= +$183.45/$12,266.85
Annualized Return (If option exercised early): +39.0%
= (+$183.45/$12,266.85)*(365/14 days); OR

2. Absolute Return (If stock assigned at $120.00 at Nov2014 expiration): +2.1%
= +$256.45/$12,266.85
Annualized Return (If stock assigned): +24.6%

= (+$256.45/$12,266.85)*(365/31 days);