Covered Calls Established in Occidental Petroleum Corp. Using Dividend Capture Strategy

Today, a Covered Calls position was established in Occidental Petroleum Corp. (ticker symbol OXY) with a December 21st, 2018 expiration and at the $67.50 strike price.  This position has an expected upcoming quarterly ex-dividend on December 7th of $.78 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise because the ex-dividend is prior to the Dec 21st, 2018 options expiration date.  Quarterly earnings were reported recently, so the next earnings report will not be until mid February 2019.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, a slightly in-the-money Covered Calls position was established. 

As detailed below, a potential return-on-investment result is +2.1% absolute return (equivalent to +54.0% annualized return for the next 14 days) if the stock is assigned early (business day prior to December 7th ex-date); OR +3.2% absolute return (equivalent to +40.9% annualized return over the next 29 days) if the stock is assigned on the September 21st options expiration date.


Occidental Petroleum Corp. (OXY) -- New Covered Calls Position
Although unlikely, if the current time value (i.e. extrinsic value) of $1.82 ($69.32 stock price - $67.50 strike price) remaining in the two short Call options decays substantially (down to about $.15 or less) by Dec 6th (the 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 Occidental Petroleum shares away to capture the dividend payment.

The transactions were:
11/23/2018 Bought 200 Occidental Petroleum shares @ $69.32
11/23/2018 Sold 2 OXY 12/21/2018 $67.50 Call options @ $3.22
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was 317 contracts and the Implied Volatility was very attractive at 34.6 considering the large size and relative predictability of Oxy's business.
12/07/2018 Expected upcoming quarterly ex-dividend of $.78 per share

Two possible overall performance results (including commissions) for this Occidental Petroleum Covered Calls position are as follows:
Covered Calls Cost Basis: $13,224.95
= ($69.32 - $3.22) *200 + $4.95 commission

Net Profit Components:
(a) Options Income: +$642.66
= ($3.22*200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on Dec 6th, the business day prior to Dec 7th ex-div date): +$0.00; or
(b) Dividend Income (If Occidental Petroleum shares assigned at Dec 21st, 2018 expiration): +$156.00
= ($.78 dividend per share x 200 shares)

(c) Capital Appreciation (If OXY assigned early on Dec 6th): -$368.95
+($67.50-$69.32)*200 shares - $4.95 commissions; or
(c) Capital Appreciation (If OXY assigned at $67.50 strike price at options expiration): -$368.95
+($67.50-$69.312)*200 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Dec 6th (business day prior to Dec 7th ex-dividend date)]: +$273.71

= (+$642.66 +$0.00 -$368.95); or

2. Total Net Profit (If Occidental Petroleum shares assigned at $67.50 at Dec 21st, 2018 expiration): +$429.71

= (+$642.66 +$156.00 -$368.95)

1. Absolute Return [If OXY option exercised on Dec 6th (business day prior to ex-dividend date)]: +2.1%

= +$273.71/$13,224.95

Annualized Return (If option exercised early): +54.0%

= (+$273.71/$13,224.95)*(365/14 days); or

2. Absolute Return (If Occidental Petroleum shares assigned at $67.50 at Dec 21, 2018 expiration): +3.2%

= +$429.71/$13,224.95

Annualized Return (If OXY stock assigned at $67.50 at Dec 21, 2018 expiration): +40.9%

= (+$429.71/$13,224.95)*(365/29 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $67.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $65.32 ($69.32 -$3.22 -$.78) provides 5.8% downside protection below today's purchase price.

The Covered Calls Advisor has established a set of eleven criteria to evaluate potential Covered Calls using a dividend capture strategy.  The minimum threshold desired to establish a position is that at least nine of these eleven criteria must be achieved.  As shown in the table below, all of the eleven criteria are achieved for this Occidental Petroleum Corp. Covered Calls position.