Covered Call Position Established in Fedex Corp.

Today, a Covered Call was established in Fedex Corp. (ticker symbol FDX) with a March 15, 2019 expiration and at the $170.00 strike price.  This position has an expected upcoming quarterly ex-dividend on March 8th, 2019 of $.65 per share, so the potential return for this position includes the possibility of early exercise because the ex-dividend is prior to the March 15th, 2019 options expiration date.  Quarterly earnings will be reported after the March 15th options expiration date.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Call position was established. 

As detailed below, a potential return-on-investment result is +1.1% absolute return (equivalent to +18.4% annualized return for the next 21 days) if the stock is assigned early (last trading day prior to March 8th ex-dividend date); OR +1.4% absolute return (equivalent to +18.2% annualized return over the next 29 days) if the stock is assigned on the March 15th options expiration date.


Fedex Corp. (FDX) -- New Covered Calls Position

If the current time value (i.e. extrinsic value) of $1.84 = [$10.44 options premium - ($178.60 stock price - $170.00 strike price)] remaining in the one short Call option decays substantially (down to about $.15 or less) by March 7th (the last trading day prior to the ex-dividend date), there is a possibility that the Call option owner would exercise early and therefore call the 100 Fedex shares away to capture the dividend payment.

The transactions were:
02/15/2019 Bought 100 Fedex shares @ $178.60
02/15/2019 Sold 1 FDX 3/15/2019 $170.00 Call option @ $10.44
Note: A simultaneous buy/write transaction was executed.   The Open Interest in these Calls was 380 contracts and the Implied Volatility was 26.0 when this transaction was executed.
03/08/2019 Upcoming quarterly ex-dividend of $.65 per share

Two possible overall performance results (including commissions) for this Fedex Covered Call are as follows:
Covered Call Cost Basis: $16,820.95
= ($178.60 - $10.44) *100 shares + $4.95 commission

Net Profit Components:
(a) Options Income: +$1,043.33
= ($10.44*100 shares) - $.67 commissions
(b) Dividend Income (If option exercised early on day prior to Mar 8th ex-div date): +$0.00; or
(b) Dividend Income (If Fedex shares assigned at Mar 15th, 2018 expiration): +$65.00
= ($.65 dividend per share x 100 shares)

(c) Capital Appreciation (If FDX shares assigned early on Mar 7th): -$864.95
+($170.00-$178.60)*100 shares - $4.95 commissions; or
(c) Capital Appreciation (If Fedex assigned at $170.00 strike price at options expiration): -$864.95
+($170.00-$178.60)*100 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Mar 7th (business day prior to ex-dividend date)]: +$178.38

= (+$1,043.33 +$0.00 -$864.95); or

2. Total Net Profit (If FDX shares assigned at $170.00 at March 15, 2019 expiration): +$243.38

= (+$1,043.33 +$65.00 -$864.95)

1. Absolute Return [If Fedex option exercised on March 7th (day prior to ex-dividend date)]: +1.1%

= +$178.38/$16,820.95

Annualized Return (If option exercised early): +18.4%

= (+$178.38/$16,820.95)*(365/21 days); or

2. Absolute Return (If Fedex shares assigned at $170.00 at Mar 15th, 2019 expiration): +1.4%

= +$243.38/$16,820.95

Annualized Return (If Fedex stock assigned at $170.00 at Mar 15th, 2019 expiration): +18.2%

= (+$243.38/$16,820.95)*(365/29 days)

These returns will be achieved as long as the stock is above the $170.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $167.51 ($178.60 stock purchase price -$10.44 Call option income -$.65 dividend income) provides 6.2% downside protection below today's purchase price.  Using the Black-Scholes Options Pricing Model, the probability of making a profit (if held until the March 15th, 2019 options expiration) for this Fedex Covered Call position is 76.4%, so the expected value annualized ROI of this investment (if held until expiration) is +13.9% (+18.2% * 76.4%) for this in-the-money Covered Call.