Established Covered Calls Position in Marathon Petroleum Corp.

Today, a Covered Calls position was established in Marathon Petroleum Corp. (ticker symbol MPC) with a March 15th, 2019 expiration and at the $57.50 strike price.  This position has an upcoming quarterly ex-dividend on February 19th of $.53 per share, so the potential return for this position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the March 15th options expiration date.  4th Quarter, 2018 earnings were reported last Thursday, so the next earnings report won't be for three more months, well after the March expiration date. Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Calls position was established. 

According to Reuters Research, twenty of twenty-two analysts covering Marathon Petroleum rate it as either a Buy or Outperform, two rate it as a Hold, and none rate it as Underperform or Sell.  Also, the Covered Calls Advisor's customized Multifactor (Quality, Value, and Growth) screener currently ranks Marathon Petroleum in the top 6% of stocks on American exchanges. 

As detailed below, a potential return-on-investment result is +0.9% absolute return (equivalent to +43.0% annualized return for the next 8 days) if the stock is assigned early (business day prior to February 19th ex-date); OR +1.9% absolute return (equivalent to +20.7% annualized return over the next 33 days) if the stock is assigned on the March 15th options expiration date.


Marathon Petroleum Corp. (MPC) -- New Covered Calls Position

Although unlikely, if the current time value (i.e. extrinsic value) of $.56 [$4.84 options premium - ($61.78 stock price - $57.50 strike price)] remaining in the short call options decays substantially by February 18th (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 Marathon Petroleum shares away to capture the dividend payment.

The transactions were:
02/011/2019 Bought 300 Marathon Petroleum shares @ $61.78
02/11/2019 Sold 3 MPC 03/15/2019 $57.50 Call options @ $4.84
Note: a simultaneous buy/write transaction was executed and the implied volatility in the option was 34.2.  
02/19/2019 Upcoming quarterly ex-dividend of $.53 per share


Two possible overall performance results (including commissions) for this Marathon Petroleum Covered Calls position are as follows:
Covered Calls Cost Basis: $17,086.95
= ($61.78 - $4.84) *300 shares + $4.95 commission

Net Profit Components:
(a) Options Income: +$1,449.99
= ($4.84*300 shares) - $2.01 commissions
(b) Dividend Income (If option exercised early on Feb 18th, the business day prior to Feb 19th ex-div date): +$0.00; or
(b) Dividend Income (If MPC assigned at Mar 15th, 2019 expiration): +$159.00
= ($.53 dividend per share x 300 shares)

(c) Capital Appreciation (If MPC assigned early on Feb 18th): -$1,288.95
+($57.50-$61.78)*300 shares - $4.95 commissions; or
(c) Capital Appreciation (If shares assigned at $57.50 strike price at options expiration): -$1,288.95
+($57.50-$61.78)*300 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Feb 18th (business day prior to Feb 19th ex-dividend date)]: +$161.04

= (+$1,449.99 options income +$0.00 dividend income -$1,288.95 capital appreciation); or

2. Total Net Profit (If Marathon Petroleum shares assigned at $57.50 at March 15th, 2019 expiration): +$320.04

= (+$1,449.99 +$159.00 -$1,288.95)

1. Absolute Return [If option exercised on Feb 18th (business day prior to ex-dividend date)]: +0.9%

= +$161.04/$17,086.95

Annualized Return (If option exercised early): +43.0%

= (+$161.04/$17,086.95)*(365/8 days); or

2. Absolute Return (If Marathon Petroleum shares assigned at $57.50 at March 15, 2019 expiration): +1.9%

= +$320.04/$17,086.95

Annualized Return (If MPC shares assigned at $57.50 at Mar 15, 2019 expiration): +20.7%

= (+$320.04/$17,086.95)*(365/33 days)

Either outcome provides a good return-on-investment result for this Marathon Petroleum investment.  These returns will be achieved as long as the stock is above the $57.50 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $56.41 ($61.78 -$4.84 -$.53) provides a large 8.7% 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 Marathon Petroleum Covered Calls position is 77.2%, so the expected value annualized ROI of this investment (if held until expiration) is +16.0% (+20.7% * 77.2%), a satisfactory return for this in-the-money Covered Calls position.

As shown in the table below for the Covered Calls Advisor's Dividend Capture Strategy spreadsheet, all eleven criteria are achieved for this MPC Covered Calls position.