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.