Covered Calls Established in Bristol-Myers Squibb Co.

Today, a Covered Calls position was established in Bristol-Myers Squibb Co. (ticker symbol BMY) with a July 19th, 2019 expiration and at the $44.00 strike price.  This position has an expected upcoming quarterly ex-dividend on July 3rd of $.41 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 July 19th, 2019 options expiration date.  Also, quarterly earnings will be reported after the options 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. 

As detailed below, a potential return-on-investment result is +0.9% absolute return (equivalent to +39.8% annualized return for the next 8 days) if the stock is assigned early (last trading day prior to July 3rd ex-date); OR +1.8% absolute return (equivalent to +27.5% annualized return over the next 24 days) if the stock is assigned on the July 19th options expiration date.


Bristol-Myers Squibb Co. (BMY) -- New Covered Calls Position

Although unlikely, if the current time value (i.e. extrinsic value) of $.39 = [$1.47 options premium - ($45.08 stock price - $44.00 strike price)] remaining in the three short Call options decays substantially (down to about $.10 or less) by July 2nd (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 300 Bristol-Myers shares away to capture the dividend payment.

The buy/write transaction was:
06/26/2019 Bought 300 Bristol-Myers shares @ $45.08
06/26/2019 Sold 3 BMY 7/19/2019 $44.00 Call options @ $1.47
Note: the Open Interest in these Call options was 223 contracts and the Implied Volatility was 23.8 when this transaction was executed.
07/03/2019 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: $13,087.95
= ($45.08 - $1.47) * 300 shares + $4.95 commissions

Net Profit Components:
(a) Options Income: +$443.01
= ($1.47 *300 shares) + $2.01 commission
(b) Dividend Income (If option exercised early on July 2nd, the business day prior to July 3rd ex-div date): +$0.00; or
(b) Dividend Income (If Bristol-Myers shares assigned at July 19th, 2019 expiration): +$123.00
= ($.41 dividend per share x 300 shares)

(c) Capital Appreciation (If BMY assigned early on July 2nd): -$328.95
+($44.00 -$45.08)*300 shares - $4.95 commissions; or
(c) Capital Appreciation (If BMY assigned at $44.00 strike price at options expiration): -$328.95
+($44.00 -$45.08)*300 shares - $4.95 commissions

1. Total Net Profit [If option exercised on Apr 3rd (business day prior to Apr 4th ex-dividend date)]: +$114.06

= (+$443.01 options income +$0.00 dividend income -$328.95 capital appreciation); or

2. Total Net Profit (If Bristol-Myers shares assigned at $44.00 at July 19, 2019 expiration): +$237.06

= (+$443.01 options income +$123.00 dividend income -$328.95 capital appreciation)

1. Absolute Return (If BMY option exercised early): +0.9%

= +$114.06/$13,087.95

Annualized Return: +39.8%

= (+$114.06/$13,087.95)*(365/8 days); or

2. Absolute Return (If Bristol-Myers shares assigned at $44.00 at July 19th, 2019 expiration): +1.8%

= +$237.06/$13,087.95

Annualized Return: +27.5%

= (+$237.06/$13,087.95)*(365/24 days)

Either outcome would provide an excellent return-on-investment result.  These returns will be achieved as long as the stock is above the $44.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $43.20 ($45.08 -$1.47 -$.41) 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 Bristol-Myers Covered Calls position.

Established Covered Calls Position in JPMorgan Chase & Co.

Today, a Covered Calls position was established in JPMorgan Chase & Co. (ticker symbol JPM) with a July 19th, 2019 expiration and at the $105.00 strike price.  JPMorgan goes ex-dividend on July 3rd at $.80 per share.  The potential returns for this position, as detailed below, includes the possibility of early exercise since the ex-dividend is prior to the July 19th options expiration date.  The next quarterly earnings report is July 16th, three days prior to the options expiration date, so it will be possible to capture the July 3rd dividend and then decide whether to liquidate the shares prior to the earnings report or to hold the position through earnings.  Given the Covered Calls Advisor's current Overall Market Meter indicator of Slightly Bearish, an in-the-money Covered Calls position was established. 

As detailed below, a potential return-on-investment result is +1.0% absolute return (equivalent to +41.2% annualized return for the next 9 days) if the stock is assigned early (business day prior to the July 3rd ex-date); OR +1.8% absolute return (equivalent to +26.1% annualized return over the next 25 days) if the stock is assigned on the July 19th options expiration date.


JPMorgan Chase & Co. (JPM) -- New Covered Calls Position

Although unlikely, if the current time value (i.e. extrinsic value) of $1.08 [$3.94 option premium - ($107.86 stock price - $105.00 strike price)] remaining in the short call options decays substantially (down to about $.15 or less) by July 2nd (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 JPM shares away to capture the dividend payment.  As detailed below, this would be a desirable outcome given ...

The transactions were:
06/25/2019 Bought 300 JPM shares @ $107.86
06/25/2019 Sold 3 JPM 7/19/2019 $105.00 Call options @ $3.94
Note: a simultaneous buy/write transaction was executed.
07/03/2019 Upcoming quarterly ex-dividend of $.80 per share

Two possible overall performance results (including commissions) for this JPM Covered Calls position are as follows:
Stock Purchase Cost: $31,180.95
= ($107.86 - $3.94) *300 shares + $4.95 commission

Net Profit:
(a) Options Income: +$1,179.99
= ($3.94 *300 shares) - $2.01 commissions
(b) Dividend Income (If option exercised early on July 2nd, the business day prior to July 3rd ex-div date): +$0.00; or
(b) Dividend Income (If JPM assigned at July 19th, 2019 expiration): +$240.00
= ($.80 dividend per share x 300 shares)

(c) Capital Appreciation (If JPM assigned early): -$862.95
+($105.00 -$107.86)*300 shares - $4.95 commissions; or
(c) Capital Appreciation (If JPM assigned at $105.00 strike price at expiration): -$862.95
+($105.00-$107.86)* 300 shares - $4.95 commissions

1. Total Net Profit [If option exercised on July 2nd (business day prior to July 3rd ex-dividend date)]: +$317.04

= (+$1,179.99 +$0.00 -$862.95); or

2. Total Net Profit (If JPM assigned at $105.00 at July 19th, 2019 expiration): +$557.04

= (+$1,179.99 +$240.00 -$862.95)

1. Absolute Return (If option exercised on business day prior to ex-dividend date): +1.0%

= +$317.04/$31,180.95

Annualized Return (If option exercised early): +41.2%

= (+$317.04/$31,180.95)*(365/9 days); or

2. Absolute Return (If JPM assigned at $105.00 at July 19th, 2019 expiration): +1.8%

= +$557.04/$31,180.95

Annualized Return (If JPM assigned at $105.00 at July, 19th 2019 expiration): +26.1%

= (+$557.04/$31,180.95)*(365/25 days)

Either outcome provides a very good return-on-investment result for this investment.  These returns will be achieved as long as the stock is above the $105.00 strike price at assignment.  If the stock declines below the strike price, the breakeven price of $103.12 ($107.86 -$3.94 -$.80) provides 4.4% 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, ten of the eleven criteria are achieved for this JPMorgan position.

June 21st, 2019 Options Expiration Results

The Covered Calls Advisor Portfolio had two Covered Calls positions with June 21st, 2019 options expirations (Alibaba Group Holding and Goldman Sachs Inc).  Both positions were in-the-money at expiration and thereby achieved their maximum potential return-on-investment result, which was:

• Alibaba Group Holding Ltd. (BABA) -- +2.6% absolute return (equivalent to +28.5% annualized) for the 33 days of this investment; and
• Goldman Sachs Inc. (GS) -- +1.7% absolute return (equivalent to +20.1% annualized) for the 31 days of this investment.  

So far in 2019, all 32 positions were closed out at a profit.  The weighted average annualized return on investment for these 32 positions is +42.8%.  This compares to a year-to-date annualized return on investment of 37.2% for the benchmark S&P 500 index.

There are now no open positions in the Covered Calls Advisor Portfolio.  The cash (held in money market account at 2.3% yield) now available in the Covered Calls Advisor Portfolio from the closing of these position will be retained until new Covered Calls and/or 100% Cash-Secured Puts positions are established.  All future transactions will continue to be posted on this site on the same day they occur.  As always, please email me at the address shown in the right sidebar with any questions or comments related to this Covered Calls Advisor blog.

The detailed transactions and results for these two positions were as follows:

1. Alibaba Group Holding Ltd. (BABA) -- Covered Calls Position
Closed

The transactions were as follows:
05/20/2019 Bought 200 shares of Alibaba stock @ $161.53 per share 
05/20/2019 Sold 2 Alibaba June 21st, 2019 $155.00 Call options @ $10.45 per share
Note: this was a simultaneous Buy/Write transaction
06/21/2019 Two Alibaba Group Holding Ltd. June 21st, 2019 $155.00 Call options expired in-the-money, so 200 shares of BABA stock sold at $155.00 strike price
Note: the price of BABA stock was $167.42 at the June 21st options expiration


The overall performance result (including commissions) was as follows:
Covered Calls Cost Basis: $30,222.29
= ($161.53 - $10.45) * 200 shares + $6.29 commission

Net Profit Components:
(a) Options Income: +$2,090.00
= ($10.45* 200 shares)
(b) Dividend Income: +$0.00 
(c) Capital Appreciation (BABA stock was above $155.00 strike price at June 21st expiration): -$1,310.95
= ($155.00 -$161.53) * 200 shares - $4.95 commission

Total Net Profit: +$779.05
= (+$2,090.00 options income +$0.00 dividend income -$1,310.95 capital appreciation)

Absolute Return: +2.6%
= +$779.05/$30,222.29
Equivalent Annualized Return: +28.5%
= (+$779.05/$30,222.29)*(365/33 days)


2. Goldman Sachs Group Inc. (GS) -- Covered Calls Position Closed
The transactions were:
05/22/2019 Bought 200 GS shares @ $196.54
05/22/2019 Sold 2 GS June 21, 2019 $190.00 Call options @ $8.92
Note: a simultaneous buy/write transaction was executed.
05/29/2019 Upcoming quarterly ex-dividend of $.85 per share
06/21/2019 Two GS June 21st, 2019 $190.00 Call options expired in-the-money, so 200 shares of GS stock sold at $190.00 strike price
Note: the price of GS stock was $195.98 at the 6/21/2019 options expiration


The overall performance result (including commissions) for this GS Covered Calls position was as follows:
Covered Calls Cost Basis: $37,528.95
= ($196.54 - $8.92) * 200 shares +$4.95 commission

Net Profit:
(a) Options Income: +$1,782.66
= ($8.92 *200 shares) - $1.34 commissions
(b) Dividend Income (GS assigned at June 21st, 2019 expiration): +$170.00
= ($.85 dividend per share x 200 shares)

(c) Capital Appreciation (GS shares assigned at expiration): -$1,312.95
+($190.00 - $196.54) * 200 shares - $4.95 commissions

Total Net Profit: +$639.71

= (+$1,782.66 +$170.00 -$1,312.95)

Absolute Return: +1.7%

= +$639.71/$37,528.95

Annualized Return: +20.1%

= (+$639.71/$37,528.95)*(365/31 days)