As detailed below, a potential return-on-investment result is +1.7% absolute return (equivalent to +30.9% annualized return for the next 20 days) if the stock is assigned early (last trading day prior to April 4th ex-date); OR +2.6% absolute return (equivalent to +27.1% annualized return over the next 35 days) if the stock is assigned on the April 18th options expiration date.
1. Bristol-Myers Squibb Co. (BMY) -- New Covered Calls Position
The buy/write transaction was:
03/15/2019 Bought 1,000 Bristol-Myers shares @ $49.08
03/15/2019 Sold 10 BMY 4/18/2019 $46.00 Call options @ $3.85
Note: the Open Interest in these Call options was 1,450 contracts (sufficiently liquid for a tight bid/ask price spread) and the Implied Volatility was 36.4 when this transaction was executed.
04/04/2019 Upcoming quarterly ex-dividend of $.41 per share
Two possible overall performance results (including commissions) for this Bristol-Myers Covered Calls position are as follows:
Covered Calls Cost Basis: $45,241.65
= ($49.08 - $3.85) * 1,000 shares + $11.65 commissions
Net Profit Components:
(a) Options Income: +$3,850.00
= ($3.85*1,000 shares)
(b) Dividend Income (If option exercised early on Apr 3rd, the business day prior to Apr 4th ex-div date): +$0.00; or
(b) Dividend Income (If Bristol-Myers shares assigned at Apr 18th, 2018 expiration): +$410.00
= ($.41 dividend per share x 1,000 shares)
(c) Capital Appreciation (If BMY assigned early on Apr 3rd): -$3,084.95
+($46.00 -$49.08)*1,000 shares - $4.95 commissions; or
(c) Capital Appreciation (If BMY assigned at $46.00 strike price at options expiration): -$3,084.95
+($46.00-$49.08)*1,000 shares - $4.95 commissions
+($46.00 -$49.08)*1,000 shares - $4.95 commissions; or
(c) Capital Appreciation (If BMY assigned at $46.00 strike price at options expiration): -$3,084.95
+($46.00-$49.08)*1,000 shares - $4.95 commissions
1. Total Net Profit [If option exercised on Apr 3rd (business day prior to Apr 4th ex-dividend date)]: +$765.05
= (+$3,850.00 options income +$0.00 dividend income -$3,084.95 capital appreciation); or
2. Total Net Profit (If Bristol-Myers shares assigned at $46.00 at Apr 18, 2019 expiration): +$1,175.05
= (+$3,850.00 options income +$410.00 dividend income -$3,084.95 capital appreciation)
1. Absolute Return [If BMY option exercised on Apr 3rd (business day prior to ex-dividend date)]: +1.7%
= +$765.05/$45,241.65
Annualized Return (If option exercised early): +30.9%
= (+$765.05/$45,241.65)*(365/20 days); or
2. Absolute Return (If Bristol-Myers shares assigned at $46.00 at Apr 18, 2019 expiration): +2.6%
= +$1,175.05/$45,241.65
Annualized Return (If BMY stock assigned at $46.00 at Apr 18, 2018 expiration): +27.1%
= (+$1,175.05/$45,241.65)*(365/35 days)
Either outcome would provide an excellent return-on-investment result. These returns will be achieved as long as the stock is above the $46.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $44.82 ($49.08 -$3.85 -$.41) provides 8.7% 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 Bristol-Myers Covered Calls position.
2. Boeing Co. (BA) -- New Covered Call Position
A Covered Call position was established on Wednesday in Boeing Co. (ticker symbol BA) with an April 18th, 2019 expiration and at the $350.00 strike price. 1st quarter earnings will not be reported until April 24th which is after the options expiration date. Not surprisingly, Boeing's stock has plummeted as a direct result of the Boeing 737 Max 8 Ethiopian Airlines disaster. This situation has also been accompanied by a spike upward in the implied volatility of its options. The April $350.00 Calls were at 42.5, a very high historical level for Boeing's options. I am confident that Boeing will determine and resolve the issues with this plane in a responsible way, including compensating carriers for their lost revenue during while their planes are grounded. Given Boeing's excellent current plane orders backlog of 6+ years, I expect minimal order cancellations since carriers will not want to leave their spot in the queue. But given the heightened uncertainty of Boeing's near-term stock price outlook as well as the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, a conservative, moderately in-the-money Covered Call position was established. As detailed below, a potential return-on-investment result is +2.9% absolute return (equivalent to +28.1% annualized return for the next 37 days) if the stock is assigned on the April 18th options expiration date.
The buy/write transaction was:
03/13/2019 Bought 100 Boeing shares @ $375.72
03/13/2019 Sold 1 Boeing 04/18/2019 $350.00 Call option @ $35.47
Note: the Open Interest in the Apr 18th $350.00 Calls was sufficiently liquid at 641 contracts.
A potential overall performance result (including commissions) for this Boeing Co. Covered Call position is as follows:
Covered Calls Cost Basis: $34,030.62
= ($375.72 - $35.47) *100 + $5.62 commission
Net Profit Components:
(a) Options Income: +$3,547.00
= ($35.47*100 shares)
(b) Dividend Income: +$0.00
(c) Capital Appreciation (If BA shares assigned at $350.00 strike price at options expiration): -$2,576.95
+($350.00-$375.72)*100 shares - $4.95 commissions
+($350.00-$375.72)*100 shares - $4.95 commissions
= (+$3,547.00 option income +$0.00 dividend income -$2,576.95 capital appreciation)
Absolute Return (If Boeing shares assigned at $350.00 at Apr 18th, 2019 expiration): +2.9%
Absolute Return (If Boeing shares assigned at $350.00 at Apr 18th, 2019 expiration): +2.9%
= +$970.05/$34,030.62
Annualized Return (If assigned at $350.00 at Apr 18th, 2019 expiration): +28.1%
= (+$970.05/$34,030.62)*(365/37 days)
