The Covered Calls Advisor read today's news that Warren Buffett had increased his holdings in BAC during the 3rd quarter. Since the stock price declined in early morning trading and based on knowledge that many investors piggyback Buffett's stock picks, I was fortunate to be able to establish this position when the stock was very near its lowest price today. As detailed below, a potential return-on-investment is +1.8% absolute return in 31 days (equivalent to a +21.7% annualized return-on-investment). This attractive return includes $.12 per share quarterly ex-dividend on November 30th.
Bank of America Corp. (BAC) -- New Covered Calls Position
11/15/2017 Bought 1,000 shares of Bank of America stock @ $25.83 per share
11/15/2017 Sold 10 Bank of America Dec 15th, 2017 $25.00 Call options @ $1.17 per share
Note: this was a simultaneous Buy/Write transaction
A possible overall performance result (including commissions) would be as follows:
Covered Calls Cost Basis: $24,671.65
= ($25.83 - $1.17)* 1,000 shares + $11.65 commission
Net Profit Components:
(a) Options Income: +$1,170.00
= ($1.17* 1,000 shares)
(b) Dividend Income: +$120.00 = $.12 per share * 1,000 shares
(c) Capital Appreciation (If BAC is above $25.00 strike price at Dec 15th expiration): -$834.95
= ($25.00 -$25.83)* 1,000 shares - $4.95 commission
Total Net Profit: +$455.05
= (+$1,170.00 options income +$120.00 dividend income -$834.95 capital appreciation)
Absolute Return: +1.8%
= +$450.05/$24,671.65
Equivalent Annualized Return: +21.7%
= (+$450.05/$24,671.65)*(365/31 days)
The downside 'breakeven price' at expiration is at $24.54 ($25.83 stock price - $1.17 options income - $.12 dividend income), which is 5.0% below the current market price of $25.83.
