Both positions have ex-dividends prior to their options expiration dates, so the potential return-on-investment results for these positions as detailed below includes the possibility of early exercise by an owner of these Call options. Fortunately, both companies reported their quarterly earnings last week, so the next earnings report is not until mid-April, well after the options expiration dates for both positions.
1. Citigroup Inc. (C) -- New Covered Calls Position
A potential return-on-investment result is +1.0% absolute return (equivalent to +39.6% annualized return for the next 9 days) if the stock is assigned early (business day prior to February 1st ex-date); OR +1.7% absolute return (equivalent to +26.4% annualized return over the next 24 days) if the stock is assigned on the February 15th options expiration date.
It is unlikely, but if the current time value (i.e. extrinsic value) of $.61 [$2.85 Call options price - ($62.24 stock price - $60.00 strike price)] remaining in the three short Call options decays substantially (down to about $.15 or less) by January 31st (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 300 Citigroup shares away to capture the dividend payment.
This February monthly Covered Calls position is the third consecutive month where the Covered Calls Advisor has utilized the dividend capture strategy on a money center bank stock. Using good timing as dictated with this advisor's Dividend Capture Strategy worksheet, selling in-the-money monthly Covered Calls using this dividend capture strategy for one of the four biggest U.S. money center banks (Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo) each month (JPMorgan for Jan, Apr, July, and Oct options expirations; Citigroup and/or Wells Fargo for Feb, May, Aug, and Nov expirations; and Bank of America for Mar, Jun, Sep, and Dec expirations) should provide higher annualized return results than would be achieved with Covered Calls in these same stocks during their non-ex-dividend months. For the December 2018 monthly options expiration, a Bank of America Covered Calls position was established (BAC Position Link), and a JPMorgan Chase & Co. Covered Calls position was established (JPM Position Link) for the January 2019 monthly options expiration. In both cases, the dividend was captured and the stocks were profitably assigned at expiration. Hopefully, these outcomes will be replicated with this February 15th Citigroup Covered Calls position.
The transactions were:
01/23/2019 Bought 300 Citigroup shares @ $62.24
01/23/2019 Sold 3 Citigroup 02/15/2019 $60.00 Call options @ $2.85
Note: A simultaneous buy/write transaction was executed. The Open Interest in these Calls was very large at 14,920 contracts (so there is a nice, tight bid/ask spread) and the Implied Volatility was also at an attractive level (27.5) for Citigroup.
02/01/2019 Upcoming quarterly ex-dividend of $.45 per share
Two possible overall performance results (including commissions) for this
Citi Covered Calls position are as follows:
Covered Calls Cost Basis: $17,821.95
= ($62.24 - $2.85) *300 + $4.95 commission
Net Profit Components:
(a) Options Income: +$850.99
= ($2.85*300 shares) - $4.01 commissions
(b) Dividend Income (If option exercised early on Jan 31st, the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If Citi shares assigned at Feb 15th, 2019 expiration): +$135.00
= ($.45 dividend per share x 300 shares)
(c) Capital Appreciation (If Citigroup shares assigned early on Jan 31st): -$676.95
+($60.00-$62.24)*300 shares - $4.95 commissions; or
(c) Capital Appreciation (If Citi assigned at $60.00 strike price at options expiration): -$676.95
+($60.00-$62.24)*300 shares - $4.95 commissions
+($60.00-$62.24)*300 shares - $4.95 commissions; or
(c) Capital Appreciation (If Citi assigned at $60.00 strike price at options expiration): -$676.95
+($60.00-$62.24)*300 shares - $4.95 commissions
1. Total Net Profit [If option exercised on Jan 31st (business day prior to Feb 1st ex-dividend date)]: +$174.04
= (+$850.99 +$0.00 -$676.95); or
2. Total Net Profit (If Citi shares assigned at $60.00 at Feb 15th, 2019 expiration): +$309.04
= (+$850.99 +$135.00 -$676.95)
1. Absolute Return [If Citigroup options exercised on Jan 31st (business day prior to ex-dividend date)]: +1.0%
= +$174.04/$17,821.95
Annualized Return (If option exercised early): +39.6%
= (+$174.04/$17,821.95)*(365/9 days); or
2. Absolute Return (If Citigroup shares assigned at $60.00 at Feb 15, 2019 expiration): +1.7%
= +$309.04/$17,821.95
Annualized Return (If Citi stock assigned at $60.00 at Feb 15th expiration): +26.4%
= (+$309.04/$17,821.95)*(365/24 days)
Either outcome would provide a good return-on-investment result. These returns will be achieved as long as the stock is above the $60.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $58.94 ($62.24 -$2.85 -$.45) provides 5.3% 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 eleven criteria are achieved for this Citigroup Inc. Covered Calls position.
2. Delta Air Lines Inc. (DAL) -- New Covered Calls PositionA potential return-on-investment result is +2.6% absolute return (equivalent to +31.9% annualized return for the next 30 days) if the stock is assigned early (business day prior to estimated February 22nd ex-date); OR +3.4% absolute return (equivalent to +24.0% annualized return over the next 52 days) if the stock is assigned on the March 15th, 2019 options expiration date.
If the current time value (i.e. extrinsic value) of $1.18 [$3.19 Call options price - ($47.01 stock price - $45.00 strike price)] remaining in the three short Call options decays substantially (down to about $.15 or less) by February 21st (the business day prior to the estimated ex-dividend date), there is a possibility that the Call options owner would exercise early and therefore call the 300 Delta shares away to capture the dividend payment. Delta has not yet declared their ex-dividend date or amount but the ex-dividend date was February 22nd the past 2 years so for calculation purposes below, that date is assumed here. Also, the $.35 ex-dividend amount is consistent with Delta's current dividend rate and is very likely to remain at this level for the February ex-dividend.
The transactions were:
01/23/2019 Bought 300 Delta Air Lines shares @ $47.01
01/23/2019 Sold 3 DAL 03/15/2019 $45.00 Call options @ $3.19
Note: A simultaneous buy/write transaction was executed. The Open Interest in these Calls was 1,551 contracts and the Implied Volatility was 31.3.
02/22/2019 Estimated upcoming quarterly ex-dividend date at $.35 per share
Two possible overall performance results (including commissions) for this
Delta Covered Calls position are as follows:
Covered Calls Cost Basis: $13,150.95
= ($47.01 - $3.19) *300 + $4.95 commission
Net Profit Components:
(a) Options Income: +$952.99
= ($3.19*300 shares) - $4.01 commissions
(b) Dividend Income (If option exercised early on Feb 21st, the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If DAL shares assigned at March 15th, 2019 expiration): +$105.00
= ($.35 dividend per share x 300 shares)
(c) Capital Appreciation (If DAL assigned early on Feb 21st): -$607.95
+($45.00-$47.01)*300 shares - $4.95 commissions; or
(c) Capital Appreciation (If DAL assigned at $45.00 strike price at options expiration): -$607.95
+($45.00-$47.01)*300 shares - $4.95 commissions
+($45.00-$47.01)*300 shares - $4.95 commissions; or
(c) Capital Appreciation (If DAL assigned at $45.00 strike price at options expiration): -$607.95
+($45.00-$47.01)*300 shares - $4.95 commissions
1. Total Net Profit [If option exercised on Feb 21st (business day prior to Feb 22nd ex-dividend date)]: +$345.04
= (+$952.99 +$0.00 -$607.95); or
2. Total Net Profit (If DAL shares assigned at $45.00 at Mar 15th, 2019 expiration): +$450.04
= (+$952.99 +$105.00 -$607.95)
1. Absolute Return [If Delta option exercised on Feb 21 (business day prior to ex-dividend date)]: +2.6%
= +$345.04/$13,150.95
Annualized Return (If option exercised early): +31.9%
= (+$345.04/$13,150.95)*(365/30 days); or
2. Absolute Return (If DAL shares assigned at $45.00 at Mar 15, 2019 expiration): +3.4%
= +$450.04/$13,150.95
Annualized Return (If DAL stock assigned at $45.00 at Feb 15, 2019 expiration): +24.0%
= (+$450.04/$13,150.95)*(365/52 days)
Either outcome would provide a good return-on-investment result. These returns will be achieved as long as the stock is above the $45.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $43.47 ($47.01 -$3.19 -$.35) provides 7.5% downside protection below today's purchase price.
As shown in the table below for the Covered Calls Advisor's Dividend Capture Strategy spreadsheet, all eleven criteria are achieved for this Delta Air Lines Inc. Covered Calls position.
