Covered Calls Established in Lowes Companies Inc.

Today, a Covered Calls position was established in Lowes (ticker symbol LOW) with a Februrary 15, 2019 expiration and at the $90.00 strike price.  This position has an expected upcoming quarterly ex-dividend next Tuesday (Jan. 22nd) of $.48 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 Feb 15th, 2019 options expiration date.  Quarterly earnings will be reported after the Feb 15th options expiration date.  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 +1.7% absolute return (equivalent to +126.1% annualized return for the next 5 days) in the unlikely event that the stock is assigned early (last trading day prior to January 22nd ex-date); OR +2.3% absolute return (equivalent to +27.6% annualized return over the next 30 days) if the stock is assigned on the February 15th options expiration date.


Lowes Companies Inc. (LOW) -- New Covered Calls Position

Although very unlikely, if the current time value (i.e. extrinsic value) of $1.56 = [$3.36 options premium - ($91.80 stock price - $90.00 strike price)] remaining in the two short Call options decays substantially (down to about $.15 or less) by Jan 18th (the last trading day prior to the ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 200 Lowes shares away to capture the dividend payment.

The transactions were:
01/17/2019 Bought 200 Lowes shares @ $91.80
01/17/2019 Sold 2 LOW 2/15/2019 $90.00 Call options @ $3.36
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was 467 contracts and the Implied Volatility was 25.4 when this transaction was executed.
01/22/2019 Upcoming quarterly ex-dividend of $.48 per share

Two possible overall performance results (including commissions) for this Lowes Covered Calls position are as follows:
Covered Calls Cost Basis: $17,692.95
= ($91.80 - $3.36) *200 + $4.95 commission

Net Profit Components:
(a) Options Income: +$670.66
= ($3.36*200 shares) - $1.34 commissions
(b) Dividend Income (If option exercised early on Jan 21st, the business day prior to Jan 22nd ex-div date): +$0.00; or
(b) Dividend Income (If Lowes shares assigned at Feb 15th, 2018 expiration): +$96.00
= ($.48 dividend per share x 200 shares)

(c) Capital Appreciation (If LOW assigned early on Jan 21st): -$364.95
+($90.00-$91.80)*200 shares - $4.95 commissions; or
(c) Capital Appreciation (If LOW assigned at $90.00 strike price at options expiration): -$364.95
+($90.00-$91.80)*200 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Jan 21st (business day prior to Jan 22nd ex-dividend date)]: +$305.71

= (+$670.66 +$0.00 -$364.95); or

2. Total Net Profit (If Lowes shares assigned at $90.00 at Feb 15, 2019 expiration): +$401.71

= (+$670.66 +$96.00 -$364.95)

1. Absolute Return [If LOW option exercised on Jan 21st (business day prior to ex-dividend date)]: +1.7%

= +$305.71/$17,692.95

Annualized Return (If option exercised early): +126.1%

= (+$305.71/$17,692.95)*(365/5 days); or

2. Absolute Return (If Lowes shares assigned at $90.00 at Feb 15, 2019 expiration): +2.3%

= +$401.71/$17,692.95

Annualized Return (If LOW stock assigned at $67.50 at Dec 21, 2018 expiration): +27.6%

= (+$401.71/$17,692.95)*(365/30 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $90.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $87.96 ($91.80 -$3.36 -$.48) provides 4.2% 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 Lowes Covered Calls position.