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.